How the Inflation Reduction Act Will Impact the Natural Gas and Oil Industries

Despite its name, the Inflation Reduction Act has been hailed as one of the most significant pieces of legislation to reduce greenhouse gas emissions and bolster renewable energies in modern history. With such a major investment in renewables, many people are now wondering how the law will affect the natural gas and oil industries. Nevertheless, the bill is quite complex and is slated to expand drilling throughout the United States.

As with most legislation, the Inflation Reduction Act includes a long list of clauses designed to help it garner votes from both Republican and Democratic Congressmen. To better understand the full extent of these clauses, Samik Mukherjee takes a moment to discuss more about the bill and explains how it will impact the fossil fuel industry.

Samik Mukherjee

The Inflation Reduction Act Will Undoubtedly Increase Investment in Wind Energy

First and foremost, the Inflation Reduction Act will significantly impact the renewable energy sector by greatly reducing taxes and increasing royalties for solar and wind energy producers. Additionally, the bill effectively overturns the Trump Administration’s 10-year bar on new wind farms, opening the nation to a new era of wind energy development.

These provisions will have a direct impact on the natural gas and oil industries because they will make renewable energy more competitive with fossil fuels. In particular, the bill’s tax credits and subsidies will make it easier for developers to build new wind farms, which will lead to a decrease in demand for natural gas and oil.

Provision to Expand Drilling

While the Inflation Reduction Act may negatively impact demand for natural gas and oil, it is important to note that the bill also contains a provision to expand drilling. This provision comes just in time after a federal judge barred the oil industry from purchasing a section of the Gulf Coast for drilling for $192 million.

Thanks to the bill’s provisions, companies can now expand their drilling operations in the Gulf of Mexico, which could offset some of the losses experienced by the fossil fuel industry. Additionally, the Inflation Reduction Act will increase the royalty rate for both onshore and offshore drilling from 12.5% to 16.6%, helping to increase profits for the industry.

Samik Mukherjee

Despite a Rise in Drilling, the Act is Slated to Reduce Carbon Emissions by Up to 40%

When the Inflation Reduction Act first came up for debate, many analysts assumed that it would fall dead on arrival yet, thanks to a wide array of clauses that benefit most stakeholders’ interests, the bill surprisingly passed with bipartisan support.

For environmentally conscious Democrats, the bill will increase investments in renewables, cementing their position within the American energy sector. For business-minded Republicans, the bill will spur economic growth by expanding drilling and reducing regulations. However, the most significant result is a bill that is designed to reduce carbon emissions by up to 40%.

The Takeaway

In the end, the Inflation Reduction Act is a complex piece of legislation that will have a major impact on the natural gas and oil industries. While the bill will undoubtedly increase investment in renewable energy, it also contains a provision that could open up new drilling opportunities.

Samik Mukherjee
Official blog of Samik Mukherjee