The Inflation Reduction Act’s Energy Winners and Losers

“With this law, the American people won and the special interests lost,” Mr. Biden said Tuesday. Just the opposite. The bill’s $370 billion in climate spending provides a panoply of tax credits for wind, solar, carbon capture, hydrogen, biofuels, critical minerals, sustainable aviation fuel, green-energy manufacturing and battery storage, among other things.

The losers are fossil fuels. The bill imposes a new 16.4 cents a barrel tax on crude oil and doubles the current excise tax on coal production. It also includes a new methane fee, though it’s unclear how it will be administered. These taxes along with multitudinous subsidies for renewables will reduce fossil-fuel investment. That’s clearly the goal.

The tax credits are intended to redirect business investment from fossil fuels to green energy by making the latter much more profitable and the former more costly. The result will be higher energy prices.

Renewable tax credits will also exacerbate price distortions in power markets caused by the existing subsidies and make the electricity grid less reliable. Renewable subsidies have already caused an oversupply of solar and wind, which are driving out coal and nuclear (and some gas-fired) plants that provide reliable baseload power.

As baseload plants shut down, the grid must rely more on natural gas to back up fair-weather renewables. But gas-fired plants break down when they are forced to ramp up and down (see Texas). Why should a utility spend to maintain a barely profitable fossil-fuel plant that could soon be forced to shut down?

Wholesale power prices skyrocket when renewables generate less power than expected. These higher prices get passed to consumers. Average residential retail electricity prices have surged 70% in Texas in the past year. Rising natural gas prices have contributed, but the main culprit is a grid that needs more gas to back up renewables.

Mr. Manchin’s bill implicitly acknowledges that renewables are threatening grid reliability by providing tax credits for nuclear, hydrogen, battery storage and carbon-capture technology. But these subsidies won’t fix the energy-market distortions caused by the bill’s green-energy subsidies.

The battery and hydrogen storage needed to back up renewables will require technological breakthroughs and years or decades to scale. Australia has invested heavily in utility-scale batteries while shutting down coal plants. Now it’s struggling to keep the lights on. Batteries simply don’t store enough power to compensate for coal plants that shut down. The bill’s nuclear tax credit won’t be enough to keep struggling nuclear plants afloat either since the price of their power will also be undercut by even more heavily subsidized renewables.

Mr. Manchin seems to believe that more generous subsidies for carbon-capture technology will rescue coal from the left’s tender mercies. The Biden Environmental Protection Agency has hinted that it intends to require coal plants to adopt expensive carbon-capture technologies, which would effectively force most to shut down.

Alas, coal carbon capture has been a fiasco. The Obama Administration committed $1 billion from the 2009 stimulus to a carbon-capture project in Illinois. It was abandoned in 2015 amid legal challenges. Greens oppose carbon capture because they believe it provides a lifeline to fossil fuels.

All of this Democratic climate spending will accelerate the government’s force-fed green energy transition, which will make the electric grid less reliable, raise energy prices and produce more taxpayer-funded boondoggles. Democratic leaders and Mr. Manchin are taking a victory lap. Politicians and green-energy special interests won. U.S. energy security lost.