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Revenge of the IRA trade-offs

Illustration of a fist slammed down on top of a flattened lightning bolt symbol.

Illustration: Annelise Capossela/Axios

President Biden is implementing his signature climate law in ways that run headlong into the demands of some industries he's trying to boost.

Why it matters: Call it a revenge of the trade-offs.

  • Climate experts say Biden's team is taking a careful approach geared at building the lowest possible CO2-emitting versions of sectors, such as hydrogen and "sustainable" aviation fuel. But industry is frustrated at what the administration sees as climate guardrails.
  • It's led to an unending tug-of-war that has some in Congress — notably Joe Manchin — accusing Biden of needlessly constraining businesses.

Catch up quick: The Treasury Department wrapped up key Inflation Reduction Act guidance before the holidays with long-awaited proposals for tax credits on hydrogen and sustainable aviation fuel, or SAF.

  • It also released crucial language for accessing the advanced energy manufacturing and consumer EV credits.

All of these proposals have constraints. For example, the hydrogen guidance had climate-minded stipulations on power generation and time-tracking.

  • The SAF guidance, meanwhile, will let companies rely on an alternate emissions model to determine if they qualify — with an updated model that may scrutinize the ag-land use impacts of biofuels.
  • We've already told you about the advanced energy and EV credit constraints.

What's happening: It's "likely" that threats of litigation will surface as the guidance proceeds, Frank Wolak, president of the Fuel Cell & Hydrogen Energy Association, told Axios.

  • The SAF guidance already could see a legal challenge from the trucking industry if it allows too much biodiesel to benefit from the credit.
  • But the ethanol world is interested in as many fuels as possible, so the pressure on the administration is unlikely to end.
  • "We can do some really significant things with an all-of-the-above strategy," said Michael McAdams, CEO of the Advanced Biofuels Association. "Do you want the gallons, or do you want to play a game with the models?"
  • Growth Energy's Joe Kakesh told Axios the biofuels trade group also sees nothing but uncertainty in the near term: "What this means, at a minimum, is that the conversation must continue."

The other side: Advocates for quick climate action praise Biden's approach.

  • "I think that the [industry] trade-offs part is overblown," said Jesse Jenkins, an assistant professor at Princeton University who has modeled potential IRA climate benefits. "The reality is that we want to build a certain kind of industry here.… They're handling that balance pretty well."

What's next: All eyes are on Treasury's next words about whether hydrogen can qualify if it's made with existing nuclear and hydro facilities, or if the alternate SAF emissions model will more strictly target land use from agriculture.

  • The comment deadline for the hydrogen credit is Feb. 26.
  • Next is the March 1 target date that Biden officials set for unveiling the updated emissions model.
  • "I'm holding out hope that [the model update] will amount to something meaningful," said Jonathan Lewis of Clean Air Task Force.
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