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The Inflation Reduction Act, Gives Green Banks The Green Light.

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The newly introduced 2022 Inflation Reduction Act bill contains some unexpectedly positive developments for clean energy, climate technology, and green banking. Reed Hundt, co-founder, chairman, and CEO of the Coalition for Green Capital, explains what’s in the proposed bill and what the future of green banking might look like if it passes.

The Inflation Reduction Act of 2022, announced last week by U.S. Senate Majority Leader Chuck Schumer and Senator Joe Manchin, includes up to $370 billion in funding to combat climate change. It would also levy tens of billions of dollars in fees on the fossil fuel industry to cover some of the costs. The legislation, which could be voted on by the United States Senate as early as this week, would reinstate and raise a long-defunct tax on crude oil and imported petroleum products to 16.4 cents per barrel. According to the Congressional Research Service, that fee would be paid by US refineries receiving crude oil and importers of petroleum products. The bill also includes a methane emissions fee for the first time, as well as increases in the royalty rate payable on oil and gas produced on federal land. The oil and gas industry, believe it or not, has expressed support for the proposed legislation. On the company’s earnings call, ExxonMobil CEO Darren Woods said it was “a step in the right direction.” Perhaps this is due to the bill’s inclusion of more lease sales for drilling on federal land, as well as a separate future agreement to streamline environmental permitting for projects such as pipelines.

The proposed import tax is a reintroduction of the Superfund tax, which was implemented in 1980 and helped fund the cleanup of hazardous waste sites across the country. It previously required a 9.7 cents-per-barrel tax, which expired at the end of 1995. The Senate proposal would not only reinstate and increase the tax, but it would also index the fee to inflation. The bill also proposes up to $385 billion in clean energy spending. There are $160 billion in clean energy credits, $35 billion in individual clean energy incentives such as installing solar panels in your home, $35 billion in clean manufacturing tax credits, $35 billion in clean fuel and tax credits such as purchasing an electric vehicle, and an additional $120 billion in other climate and energy-related spending initiatives.

These developments piqued the interest of investors, who piled into solar companies, wind turbine manufacturers, nuclear and hydrogen fuel cell companies, and electric battery manufacturers. Sunrun (SUN), the largest residential solar installer in the United States, saw its stock rise as much as 34% last Thursday, the highest on record. TPI Composites (TPIC), which manufactures wind turbine blades, increased by up to 38 percent, its largest gain ever. Sunnova Energy (NOVA), a rooftop solar company, jumped as much as 41% in one day, its biggest intraday gain since March of 2020. Solar companies have faced a series of policy, trade, and supply headwinds that have slowed development and weighed on the sector, but this bill, if passed, will finally shine some light on the sector. Shares of Constellation Energy (CEG), which operates nuclear reactors, rose as a result of the proposed legislation. Plug Power (PLUG) shares increased by up to 25% last week, while Fuelcell Energy (FCEL) shares increased by up to 20%. The pact also provided a significant boost to wind farm developers by reviving a key tax credit, which had slowed earlier this year as companies waited to see if Washington would renew the program.

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