Regulation vs. Reality: What the OBBBA Really Means for Energy and the Environment
Looking Past the Policy Pendulum: Benefits of Investing in Sustainable Energy Remain Certain
Intro
We asked our team of experts for their insights on the recent passing of the One Big Beautiful Bill Act. Our ESG Chair, Kay John, put in the work to research the new legislation. In collaboration with our Engineering experts, Kay found useful insights to share what the bill means for energy costs, grid reliability, the environment, and corporate sustainability.
On July 4th, the “One Big Beautiful Bill Act” was passed by the United States Congress. To save our word count, let’s refer to it as OBBBA. This lengthy piece of legislative ruling is still a hot topic, as it impacts many aspects of Americans’ daily lives and American businesses. The OBBA laid the groundwork for the current Administration to quickly implement changes to Federal policy. Since the Bill was passed, several related Federal initiatives have already been launched. In this post, we’re going to zero in on what the Bill means for the future of energy, the environment, and corporate responsibility.
The OBBBA is a stark contrast to the Inflation Reduction Act (IRA) passed in the Biden Administration, and it targets many initiatives drawn in the IRA by repealing or rescinding legislation that provided green energy incentives. It phases out or scraps tax credits that support development of infrastructure and components for producing clean energy, all while giving a significant boost to traditional oil and gas production, effectively slowing our transition to a green and diversified energy infrastructure.
Sections 50401-50404 provide funding for petroleum, rescind funding for projects eligible for energy infrastructure reinvestment, rescind financing for projects that avoid or reduce air pollutants and GHGs, and remove controls on fossil fuel projects that would avoid or reduce air pollution.
Sections 60001-60026 rescind funding for EPA and other government-sponsored emissions-reduction initiatives: research on public health effects from pollution, research on calculating emissions over a fuel’s life cycle, and emissions reporting software systems, compliance, visibility, monitoring, and standardization.
Chapter 5 eliminates or phases out multiple energy-related federal tax credits from the IRA, including the purchasing of EV vehicles, the energy-efficient improvement or development of commercial and residential buildings, and the production of nuclear, hydrogen, wind, and solar energy.
Energy Economics
The OBBBA is projected to negatively impact the US electricity grid by increasing costs and affecting grid reliability over the next 10 years.
Over the last decade, federal policy like the Inflation Reduction Act helped infrastructure grow significantly in the solar and wind energy space, burgeoning an effecient supply chain and an interested market that was driving costs down as demand was growing, making these alternatives the most cost-efficient and quickest-to-deploy (source) forms of energy. Gas, on the other hand, has a constrained supply chain (source), and policy that creates more reliance on gas – and inevitably the development of more gas plants – will come to face high costs and long procurement lead times. Coal is also supported by the OBBBA, but the US has not built a new coal plant for over a decade and hundreds of coal plants have retired since the mid-2000s (source). With federal policy banking on fossil fuels, the US is limiting its ability to capitalize on the most cost-efficient and fast approach to generating energy: solar and wind power. Limited supply in a high-demand market will increase costs. According to Energy Innovation.Org, “wholesale electricity prices will increase 25% by 2030 and 74% by 2035; electricity rates paid by consumers will increase between 9-18 percent by 2035.”
Grid reliability is also at stake. The US has been moving quickly towards electrification of buildings and development of data centers, requiring a significant increase in electricity generation. Solar and wind have been major contributors to the grid in the last few years. According to the US Energy Information Administration, 21% of new capacity for the grid in 2023 came from solar and wind power. By 2035, Energy Innovation forecasts a 340 gigawatt decrease in generation capacity without federal backing of solar and wind energy production, which could raise costs to meet growing demand.
At a time when global atmospheric temperatures are increasing every year (NOAA), and heat waves become more frequent, intense, and longer in duration (EPA) – the rise in energy demand is higher than ever to keep buildings and homes cool. Critical buildings like hospitals, manufacturing facilities, and higher education campuses may struggle to meet a higher operational level needed to maintain occupant comfort and compliance. Therefore, heating and cooling systems must be optimized to run with less energy to maintain stability in a less reliable and more expensive grid.
Environmental Impacts
Increased energy production from fossil fuels will lead to increased air pollution. According to the EPA, “Oil and natural gas production produces a significant source of emissions of methane… It also is the largest industrial source of emissions of volatile organic compounds (VOCs), a group of chemicals that contribute to the formation of ground-level ozone (smog).“ Air pollution has known health effects and can add pressure on hospitals with at-risk groups impacted by increased smog. According to the National Institute of Environmental Health Sciences, “Air pollution, in all forms, is responsible for more than 6.5 million deaths each year globally, a number that has increased over the past two decades.” The impact of pollution on health remains much greater than that of war, disease, and substance abuse (source). OBBBA’s repeal of Biden-administration policies to monitor emissions, air quality, and health effects from fossil fuel pollution can lead to a more hazardous environment for humans. When air quality reaches dangerous levels, we return indoors, thus putting further demand on electricity and HVAC in buildings. We know that emissions produced from energy electricity and heat in buildings accounts for 18% of global energy-related emissions (IEA), creating a vicious cycle of generating more emissions due to sheltering from the effects of emissions. It will become increasingly more important for companies to know and analyze their building and campus HVAC emissions so they can limit their own impact on the atmosphere.
What does this mean for businesses with Sustainability goals?
Many of the world’s largest companies made emissions-reduction goals during the previous US Administration – committing to targets in effect by 2030 or 2050. The question now is: Will American companies abandon objectives if they are no longer incentivized by the government? Some experts are calling this a “sustainability recession” marking this era by the pendulum swing in political influence on environmental awareness. US Presidency terms are a limited period of time, a blip compared to the overall global energy transition, where corporations and long-term investors are looking forward 5 to 50 years for large infrastructure investments. Therefore, companies should remain diligent in executing their sustainability targets for long-term value creation.
Additionally, the impact of consumers cannot be ignored. A clear indicator of attention to corporate responsibility is the rise of ESG. ESG is a framework developed in the early 2000s by the UN, used to assess a corporation’s activities related to its impact on people and the planet. It is an acronym to reflect the three pillars of sustainability: Environmental, Social, Governance. Environmental (E) assesses a company’s impact on our planet, including efforts related to carbon emissions, waste management, and energy efficiency. Social (S) examines how a company manages its relationships with employees, customers, suppliers, and the communities it operates within. Governance (G) refers to the company’s internal systems and practices related to executive functioning. ESG has gained significant importance in recent years because investors, consumers, employees, and regulators are demanding greater transparency and accountability from businesses as it relates to environmental and social impact . Ernest and Young has reported that companies with strong ESG performance achieved an average return on investment of 10.4% compared to 7.4% for those with weak ESG performance (source). Strong ESG practices can drive commercial success while examining existing internal programs through the lens of sustainability.
The “One Big Beautiful Bill Act” – and several Federal initiatives enacted since its passing – do not support many aspects of ESG, but market forces, investor expectations, employee demands, and growing consumer awareness of corporate responsibility will continue to drive ESG value. For companies serving higher education, advanced manufacturing, and healthcare, adapting to this new US administration means doubling down on ESG promises, demonstrating real value in how they conduct business efficiently and sustainably, and staying nimble in an ESG world that may have less federal backing, but remains highly demanding. Those who continue to integrate ESG into their core business strategies will be in the best position for long-term success and resilience.
How Optimum Energy Can Help?
In this extraordinary era of dynamic policy on energy and the environment, Optimum Energy offers a powerful solution by helping companies find solid ground. Through innovation that delivers lower costs and higher efficiency, we help companies meet their sustainability goals. With 20-years experience, Optimum Energy is the best in class in tracking accurate and live energy consumption from facility and campus HVAC operations. OE’s solutions provide the critical data and analysis needed to validate your progress toward ESG and NetZero goals, helping to demonstrate unwavering commitment to corporate responsibility and reducing owned building emissions.
Even if your plant is reliant on fossil fuels, it is still possible to be more sustainable, reliable, and cost-efficient. Optimum Energy provides a comprehensive, end-to-end solution for any large plant. Our expert engineering consultation, BAS optimization software, and procurement support for equipment upgrades deliver immediate and long-term value.
We’ve seen firsthand how the energy cost savings from implementing our solutions can fund sustainable, long-term improvements to your chilled water and boiler plants. With our proven ability to optimize heating and cooling systems to use 30-50% less energy, we deliver real benefits that reduce costs, improve reliability, and meet your sustainability goals.
Leverage policy changes as an opportunity. Contact Optimum Energy today to take control of your energy costs and secure long-term sustainability success.
Leverage policy changes as an opportunity
Contact Optimum Energy today to take control of your energy costs and secure long-term sustainability success.
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