00:00:00 Speaker 1
This episode of The Energy Pipeline is sponsored by Caterpillar Oil & Gas. Since the 1930s, Caterpillar has manufactured engines for drilling, production, well service and gas compression. With more than 2,100 dealer locations worldwide, Caterpillar offers customers a dedicated support team to assist with their premier power solutions.

00:00:27 Speaker 2
Welcome to The Energy Pipeline podcast with your host, KC Yost. Tune in each week to learn more about industry issues, tools, and resources to streamline and modernize the future of the industry. Whether you work in oil and gas, or bring a unique perspective, this podcast is your knowledge transfer hub. Welcome to The Energy Pipeline.

00:00:52 KC Yost
The material appearing in this presentation is for information purposes only, and should not be construed as advice of any kind, including without limitation, legal, accounting, or investment advice. The information is not intended to create and receipt does not constitute a legal relationship, including but not limited to an accountant-client relationship. Although this information may have been prepared by professionals, it should not be used as a substitute for professional services. If legal, accounting, investment, or other professional advice is required, the services of a professional should be sought. Assurance tax and consulting offered through Moss Adams, LLP, ISO/ IEC 27001 services offered through Cadence Assurance LLC, a Moss Adams Company. Investment Advisory offered through Moss Adams Wealth Management Advisors, LLC. Hello everyone, and welcome to this episode of the Energy Pipeline podcast. Today we'll be discussing the Inflation Reduction Act and the tax credit it makes available to encourage a cleaner environment. Our guests are Matt Kaden and Jon Blitman from Moss Adams, one of the largest accounting firms in the United States. Welcome to The Energy Pipeline podcast, guys.

00:02:20 Matt Kaden
Glad to be here to be here.

00:02:20 Jon Blitman
Good to be here. Thanks, KC.

00:02:20 KC Yost
Hey, glad that you're here. I'm so interested to learn this subject. This is far from the realm that engineers normally get into, so I'm very anxious to learn all about that. But before we start getting into the Inflation Reduction Act and the tax credits you want to talk about, I'd like for you to take a few minutes and share your background with our listeners. Matt, let's start with you. You got your undergraduate at UMass, Amherst Campus is beautiful. And you got your JD from the University of Miami, right?

00:02:50 Matt Kaden
That's right. And then went to work with that JD at a law firm, major law firm in New York City. After a number of years moved back to the south Florida area and took a job at a large energy company, which many listeners will know, NextEra Energy. And then after about six years there as a director of tax planning, moved over to Moss Adams, were head up the energy and infrastructure industry group in the M&A tax practice area.

00:03:25 KC Yost
Excellent, excellent. So, tax attorney.

00:03:30 Matt Kaden
Yeah, usually not the most exciting way to start a conversation, but that's the fact of the matter.

00:03:36 KC Yost
It is who you are. It is who you are. Very good, very good. So Jon, you did your undergraduate and master's in accounting from the University of Florida, and you're a CPA, right?

00:03:47 Jon Blitman
That is correct. Yeah, so I'm a CPA, as you mentioned, with about a decade of experience focused really on tax planning in the context of business transactions. And so, I support buyers and sellers of businesses across industries. In 2020 I joined the tax planning department in NextEra, where Matt was my boss. And since then I've been primarily focused in the renewable energy industry and really the energy transition to going beyond traditional M&A to support also the development, financing and other complex tax planning done by businesses in this space.

00:04:21 KC Yost
Okay, that's way over my head, but I totally get it. Totally get it. We've got the University of Miami and the University of Florida. You guys ever talk college football?

00:04:32 Matt Kaden
Oh yeah.

00:04:33 Jon Blitman
All the time.

00:04:34 KC Yost
Yeah.

00:04:35 Matt Kaden
Fortunately, Jon is a Hurricane fan on the football side-

00:04:38 KC Yost
Really?

00:04:38 Matt Kaden
Not something inaudible.

00:04:40 KC Yost
Wow. All right. Okay. I don't know that I've met someone like that before. Very cool. Very cool. Very cool.

00:04:49 Matt Kaden
Yep.

00:04:50 KC Yost
I described Moss Adams as one of the largest accounting firms in the U. S., but I know that doesn't give it justice. So, can you give me an elevator speech on Moss Adams?

00:05:01 Matt Kaden
Yeah, I can take that, Jon. So, certainly one of the largest accounting firms in the U. S., over a billion dollars in annual revenue. It's been around since 1906, so it's older than even I am. And it's really invested heavily here in the past five to 10 years. It has through sort of organic growth and via acquisitions in the energy and infrastructure space, and now particularly as the energy transition has taken off and all these tax credits and different structures are coming into mode, into fashion, really investing heavily in talent there and growing what I think is really a best-in-class group in this energy sort of vertical.

00:05:48 KC Yost
And Moss Adams has offices throughout the United States, right?

00:05:52 Matt Kaden
We do. We have now over about 35 offices throughout the United States.

00:05:56 KC Yost
Okay. And you're international?

00:06:00 Matt Kaden
We do have an international expertise through our network of 500 Praxity partners.

00:06:06 KC Yost
Wow. Yes. By the way, I'll mention that later on and how you can get in touch with these guys and if you want to see 500 of their professionals, go to mossadams. com and click on people, and you see a lot of great photos and telephone numbers and email addresses, so good bunch of people there it looks like. Getting into this, let's start at the big end of the funnel, if you will. What got you guys interested in working in the energy industry?

00:06:40 Jon Blitman
Do you want me to take it, Matt? I'll go first. Yeah, I would say I'm interested, or I got interested in renewables, really because in this industry more than probably any other tax drives so much of the value proposition. We're going to talk a lot about that throughout this podcast. And it's just, as you all probably know, the industry is just rapidly evolving. It's talked about constantly in the political landscape, and it's just led to constant new and interesting challenges.

00:07:10 KC Yost
Okay, Matt?

00:07:11 Matt Kaden
Yeah, I guess from my perspective it's similar to what Jon said. I started off my career in a big law firm and in the kind of mid-two 2000s, it was all about tech and different software and tangible assets. I just thought that that was a little dull and kind of always had, always got excited when I could deal with an actual tangible industrial product or something like that. And so sort of energy fit the bill. There just wasn't much of that work at the firm I was at, and so made the move to NextEra and that's opened this real interest and expertise in energy and it's been fantastic.

00:07:51 KC Yost
Excellent, excellent. Well, I'm sure the industry is much better off for having you guys in it. So, good to have you in the industry. The Inflation Reduction Act, I've heard it described, and again, I'm a novice, so I don't know if this is right or not, that it's more in tune with trying to offer a carrot for better environmental progress, if you will, and in cleaning up the environment than it actually does have anything to do with inflation reduction, so to speak. So anyway, so can you explain, first tell me if the engineer set it pretty close to being right and then maybe explain some of the tax provisions that are in the Inflation Reduction Act that make novices like me think that it has more to do with environment than actually inflation reduction?

00:08:53 Jon Blitman
Yeah, I think that's a fair characterization, I would say. I would leave it up to the economists to determine whether or not it actually reduced inflation, but the Inflation Reduction Act, also called the IRA oftentimes, it was really the landmark piece of legislation passed by the Biden administration. And it allocated significant funding to address climate change and push various renewable energy initiatives through really tax incentives. We'll talk a little at length about some of these, but it included enhancement and expansion of certain tax credits, like the Investment Tax Credit, ITC, Production Tax Credit, PTC, and then it introduced certain new credits like for the clean hydrogen and advanced manufacturing. When I say the Biden administration was really pushing its climate initiatives through these tax incentives, I think it's helpful to give an example. And so let's say you're a developer that builds a solar facility that costs $100. Under the IRA the base credit is 6%, so if you don't do anything, you get basically $6 back in the form of tax credits for your $100 investment. In order to push certain policies like paying people prevailing wages and making sure that there's employment in this space and new people coming up that know how to work in this industry, they have what's called this prevailing wage bonus credit. And so, if you satisfy that by paying your people prevailing wages that are building the facility, your credit goes from 6% to 30%. And so that increases your incentive really to $30 out of your total 100. And then if you use domestically manufactured components and you build the facility with stuff that was made in the USA, your credit goes from $30 to $40. And then if you place the facility in service in what's called an energy community, which tend to be communities that were historically with economies driven by fossil fuels where they have high unemployment rates, your credit can go to $50. And then there's certain other enhancements that could get you even above that $50. But you sort of see where I'm going with this, where you have $100 investment in a solar facility and immediately back you get $50 in the form of tax credits and incentives. And so now you have that $50 of tax credit for a developer. The question is, what do they do with it? Do they actually have taxable income and a tax liability to offset with the credit? Oftentimes the answer is no. What the IRA did is they opened up this new market where you can now buy and sell tax credits. And so, if you have these renewable energy credits and you're a big corporation in the United States that has a big tax liability, that corporation can now go out and pay, call it 90 cents on the dollar to get this tax credit. And so, we're seeing that market constantly evolving and growing, and that's a big part of our practice. And then the final piece I'll touch on before handing it off to Matt is there's also this new concept of direct pay, which really impacts 501(c)(3)s, nonprofit organizations like hospitals, colleges, et cetera. In the past pre-IRA they obviously, these are "nonprofits," they had no tax liability, and so they had no incentive to get a tax credit for these projects. Now, if I use that $50 credit example, if say a hospital that's a tax-exempt entity gets this $50 credit, instead of using it on a tax return, they just get a check in the mail from the federal government for $50. And so, this is just a flavor of some of the things that were put into place through the IRA, and obviously it's stimulated a lot of investment in the industry.

00:12:39 Matt Kaden
That was comprehensive. I think the only thing I would add, KC, is I would totally agree with you that this is primarily a carrot. There is a methane excise tax that went into effect in '24 and continues to increase annually. But pretty much the rest of it is these incentives that Jon mentioned. And the big thing here is that you have all this expansion of the pure renewables, right? Solar, wind, biomass, things like that. But then what the IRA also did is it added some incentives that were not there before for renewable natural gas, for carbon capture, which I think we're probably going to talk about, for clean hydrogen, various types. And so it also introduced these new credits or where there were credits they were not really very lucrative and so it added to that whole pile of credits. And then the other thing, which Jon mentioned is, the credits are not going to incentivize the correct conduct if they can't be monetized. And so now with the IRA we have these really nice markets that are developing where taxable parties can buy and sell credits depending on whether they need, whether they have taxable income or not. And then as Jon mentioned, the 501(c)(3) s can get just pure cash payments when they place these facilities in service for their own university, tribal government, whatever it is.

00:14:07 KC Yost
Sure. So, I was taking from what Jon was saying that this was primarily a CapEx type arrangement, but carbon capture and sequestration allows tax credits to continue on into OpEx scenarios, right?

00:14:27 Matt Kaden
I think that's right. And there is, Jon, the two credits I think you mentioned, there's the two broad types of credits, KC, the investment tax credit, which is calculated based on CapEx, and that's the example Jon gave. And then the production tax credit, which is, for example, if you sell wind power you get $27.50 per megawatt hour in 2024 for each megawatt hour you generate and sell. And that goes over a period of time, usually 10 years. And then carbon capture also, dependent on how much carbon are you capturing annually. So, those are the two broad types of credits.

00:15:11 KC Yost
Well, I'll look forward to discussing that here in a little bit. I think that's going to be a great discussion there. So, you call it the IRA, right? The Inflation Reduction Act, is what you guys refer to it as?

00:15:23 Matt Kaden
That's right.

00:15:24 KC Yost
How is it aiming to accelerate transition away from fossil fuels? And understand you're talking to a guy that's built pipelines for the last 50 years, so be gentle.

00:15:36 Jon Blitman
And I think that's right. I mean, it doesn't so much accelerate transition away, whereas it just incentivizes the development and production of more renewable resources. And so parties that maybe in the past they would have developed oil and gas, natural gas, more traditional energy sources, they're now more incentivized to get into the production of renewable energy.

00:16:01 Matt Kaden
And just more specifically, it's reducing the cost of that, of each additional unit of energy that's put on the grid is now cheaper for these types of incentivized generation facilities than it would be for non-incentivized facilities such as natural gas, peakers, things like that. So, that's the main mechanism. But there's all these headwinds, I mean that people have been talking about in the news about, first of all, solar and wind, obviously it depends on environmental conditions. It's not purely dispatchable when needed. And so, you have this tremendous incentive to build these projects, but then there are headwinds in getting them integrated into the electricity grid, including finding places for them to inject power, getting through the regulatory constraints there, and also kind of the intermittent resource problem that is just part of most renewable facilities.

00:17:08 KC Yost
Gotcha, gotcha, gotcha. Back to the OpEx thing, you've got the carbon dioxide sequestration credit that you mentioned just a few minutes ago. How does it incentivize carbon capture and sequestration technology?

00:17:29 Jon Blitman
This is called the Section 45Q credit, and it provides, it's a pretty significant credit for capturing, and as you mentioned, securely storing carbon emissions. And so, it really encourages companies and industries that emit lots of carbon, so oil and gas manufacturing, to invest in this type of technology, so carbon capture technology, to both reduce their carbon footprint while also securing pretty significant financial benefits. This is, as Matt mentioned, a production tax credit, so it's claimed over 12 years. And so you get a credit annually based on the metric tons of carbon that you capture and securely store. And so just an example, again, I like to put numbers on this.

00:18:15 KC Yost
Sure.

00:18:15 Jon Blitman
If you have an industrial facility that captures and sequesters call it one million metric tons of carbon each year for 12 years, the credit is $85 per metric ton. And so you're talking about 85 million of tax credits per year over 12 years.

00:18:32 KC Yost
Wow.

00:18:33 Jon Blitman
So, that's a billion dollars of tax credits, so you can see the numbers are pretty significant.

00:18:39 KC Yost
They are, they are.

00:18:42 Matt Kaden
Yeah, I was just going to say that with carbon capture we talked about how you monetize these credits. And yeah, you can sell the credits, there is a market developing for that, but for the first five years you have the ability to do what those nonprofits can do is you can take cash directly, the government will just cut you a check. And we'll see what happens with the new administration. But carbon capture is seen as one of the things that is probably consistent with the Trump overall policy agenda. And so, maybe that survives where you can sort of get these cash payments every year for the government depending on how much carbon you capture. And we're already seeing all sorts of transactions in this space. Occidental's been in the news a lot with what they do is direct air capture. They're investing heavily in that where you're not connecting it to a ethanol plant or some other emission source, you're pulling it directly from the air. And that's even, Jon has made $180 a metric ton. So, we're seeing finally the incentives have gotten rich enough where big companies are starting to play in the space.

00:20:04 KC Yost
I got you, I got you. I built my first hydrogen pipeline in 1991. I've worked for and with one of the largest hydrogen producers in the world over the 40 years and had a lot of great experiences with them. I never realized until the last couple of years that there are 12 different colors of hydrogen, green hydrogen, blue hydrogen, brown hydrogen, black, on and on and on. So, in the Inflation Reduction Act you talk about the clean hydrogen production credit, and I suppose that has to tie back into the carbon dioxide sequestration that can occur when you produce hydrogen from natural gas, getting rid of the carbon dioxide, putting it in a well or whatever the case may be. Help me understand how this, am I correct with this, and if so, how does it influence the oil and gas industry's approach to hydrogen?

00:21:19 Jon Blitman
Yeah, I think you're generally correct. And so, I would say the simplified process, as I understand it, and KC, you may be able to do a better job than I will, because you're an engineer, but so you have electricity that's generated by either renewables, which I think is the green hydrogen, natural gas, coal, which are all the different colors you mentioned. But so let's say renewable energy is fed into a system known as an electrolyzer, which separates water into hydrogen and oxygen. And so then you take the hydrogen gas, which is then stored, it's either compressed gas or liquid, and then it's shipped to a destination to be used as a fuel source. And so this new credit, this 45V credit, similar to the one we just talked about for carbon capture, it's production-based credit. And you get this credit based on the amount of hydrogen that you produce, right? And it's the actual amount of the credit is$3 per kilogram of hydrogen produced, and it's subject to reduction based on the life cycle greenhouse gas emissions amount of that hydrogen. And so that's where you get into the colors. If you produce the hydrogen with renewable energy, you're going to get a much higher credit value than you will if you're using coal, in which case you probably won't get any credit. This greenhouse gas emissions amount has been the subject of quite a bit of scrutiny and complexity. And so the IRS and Treasury Department issued regulations, proposed regulations about a year ago, and there's been hundreds if not thousands of comments on those regulations where people are just requesting clarity on how you're supposed to compute the ultimate life cycle greenhouse gas emissions rate. So ultimately, this is something that's talked about a lot. I think oil and gas companies, to your point, could probably take advantage of their existing infrastructure and distribution channels to the extent they're able to generate this clean hydrogen and potentially get some incentives out of these credits. One point here, so taxpayers may be able to claim a credit on, so again, assume a renewable energy facility like a solar facility powers the electrolyzer, you can claim a credit on that solar facility and then also claim a credit on the hydrogen that you're producing. And so you can really double dip there.

00:23:42 KC Yost
I see.

00:23:42 Matt Kaden
And that's all that discussion is kind of in the context of green hydrogen. So, getting back to the colors, you have a solar plan, you feed it through the electrolyzer and separate it. I think KC, some of what you were talking about earlier is more in the blue hydrogen space where you have a traditional emissions, burning natural gas, whatever the case may be, you capture the carbon, you're able to convert to hydrogen that way. And that gets to the heart of what Jon was saying has been so controversial is, how do you measure the emissions in that scenario? And I think it was something like 30,000 comments were submitted, including all the oil majors and many other interested parties on exactly how to do that. Because depending on the way that's done, it can be an economic project to develop this type of blue hydrogen facility, or it can be uneconomic. And so it really is critical, and we're not seeing major investments in these types. We're hearing companies announce that they will be doing so, but the actual cash flowing haven't really seen that until I think those questions are resolved in the form of final regulations. And there's another spot where the Trump administration obviously is going to play a role in figuring out how they feel about hydrogen and whether that's something that's suitably aligned with their policy proposals.

00:25:14 KC Yost
I see, I see. Okay. Well, so it just goes above and beyond, but specifically here with the clean hydrogen production credit, that's green hydrogen. And if you're looking at blue or any of the other colors, you have to fall back on the carbon sequestration credit to make the project viable, or at least get some tax credits, right?

00:25:41 Matt Kaden
inaudible, yeah.

00:25:41 KC Yost
Oh, super. So, there are other tax credits like the investment tax credit and the production tax credit that support renewable energy investments. And what types of projects are eligible for that?

00:25:58 Jon Blitman
So, the ITC and the PTC, these are really the legacy tax credits that have been around for decades, and so the IRA really expanded them and enhanced them. And these are for renewable energy projects like solar, wind, geothermal, battery storage, biogas, combined heat and power, fuel cell, et cetera. So the ITC, and we've talked about this a little bit so far, so the ITC is a one-time credit that's generated when the project is placed in service and it's based on the eligible costs. Like my earlier example, you pay $100 to build it, you get a $50 credit day one. The PTC is generally earned over 10 years, or in the case of 45Q credit 12 years, and it's based on your annual production. So, you produce X megawatts of wind power in a year you get a credit based on that. These credits are obviously, they serve to reduce the cost of development and operations that drive more investment into all of these technologies. Importantly for projects that begin construction starting in 2025, so coming up pretty quickly, the regime switches to a technology-neutral credit. And so again, some of those names that I mentioned before, they don't really matter as long as you have energy production technology and the net carbon emissions are zero, so going back to the life cycle greenhouse gas emissions. It doesn't matter what the technology type is, solar, wind, it could be anything-

00:27:25 Matt Kaden
Nuclear-

00:27:26 Jon Blitman
If you're producing... Yeah, nuclear, if you're producing energy and the life cycle greenhouse gas emissions result in the net-zero emissions rate, you can get a credit, whether it be an ITC or PTC.

00:27:41 KC Yost
I got you. I got you. All right. I'm sure going to give you guys a call. Very interesting stuff. So, the advanced manufacturing production credit, how does it promote renewable energy components?

00:28:01 Jon Blitman
Yeah, this is another one that's been top of mind politically. You've probably heard various folks in the political landscape talking about all the materials and components and critical minerals and things that need to go into these renewable energy projects.

00:28:17 KC Yost
Right. Rare earth minerals, right?

00:28:19 Jon Blitman
Exactly.

00:28:21 KC Yost
Yep.

00:28:21 Jon Blitman
So, 45X, this new credit, it's intended to support the domestic manufacturing of all of those components. So solar, wind energy components like solar panels, wind turbines, inverters, batteries, stuff that is generally made abroad in Asia in particular. And then also it supports, it provides you a credit for critical mineral mining, so equal to your production cost. And so, it's obviously it's intended to boost the renewable energy supply chain and U.S.-based clean energy production. I would note the credit is based on a basically per unit. So, if you're producing certain components that are going into a solar facility, you get a credit based on the number of units that are produced and then sold during the year. And obviously, those components have to be produced in the United States.

00:29:13 Matt Kaden
And this one seems to be really bearing fruit as well. I mean, we're seeing a lot of foreign manufacturers bring a subsidiary on shore and manufacture things in the U. S. Or folks that are manufacturing different steel components, now they're going to switch, already in the U.S. now they're going to switch their manufacturing set up to allow for production of these elements. And so, we're seeing just a lot of investment in the space. And Jon mentioned the 45X credit, which is based on, it gives you a menu of dollars you receive per sale of each component, depending on what the component is. But there's also an investment credit opportunity as well there for if you build a billion dollar facility you can also get a credit on your investment. So, that one is an optional either or investment or production tax credit opportunity.

00:30:06 KC Yost
Gotcha, gotcha. Let's deviate from the energy, energy production area, if you don't mind, to something that's near and dear to my heart. I've probably got, well, I know for a fact I've got a tad over a million miles of flying time in traveling the world and building pipelines. So, I was interested in the sustainable aviation fuel credit and the clean fuel production credit. I've seen United Airlines advertise the biofuels and that type of thing, but how do those credits work in the aviation and transportation sectors?

00:30:48 Matt Kaden
Yeah, so KC, this might be a good time just to mention something that often leads to confusion. Oftentimes you'll get on the plane and they'll say, "Delta," or whoever, "is proud to announce that this flight is 100% carbon-neutral or zero emissions." And so, generally there's something where these companies can purchase what are called, probably familiar with these carbon offsets or sometimes called carbon credits, which are like environmental certificates that prove low-carb, low emission generation or elimination of carbon from the environment. And so, typically that's, particularly with sustainable aviation fuel, that is certainly less than 1% of all fuel that's powering airliners in the United States. And so, oftentimes when we talk to people about carbon capture and things like that, they're often referring to the sort of carbon offset market, which is a little bit different. It's not really a tax concept. But so we're not seeing really sustainable aviation fuel take off just yet, although we're starting to see the initial investments made there. Basically what that is, and it goes along with the clean fuel credit, which is for transportation other than aviation. And so you've got basically, I think it's 20 cents for the vehicular transportation fuel and 35 cents per gallon for the sustainable aviation fuel. And like Jon mentioned, that's subject to the five times multiplier if you build your facility with folks that are getting paid prevailing wages and you're satisfying the apprenticeship requirements. So, now you're up to a dollar per gallon for the clean fuels, $1. 75 for the aviation fuel. And there's also some thought that if you can prove a negative emissions from your facility, you're taking, I don't know, landfill and you're burning it and you're capturing the carbon, and the result of that is a negative emission score, that you may be even entitled to more than a dollar per credit. And that's just the way the math works in the statute. And so, we've also heard from our clients that per unit of carbon this is kind of the most lucrative of the credits, and so it can really be particularly of negative emissions. And you take that view, you can have very, very significant benefit from these. And they are only available for a limited time, so basically fuels sold between 2025 and the end of'27.

00:33:41 KC Yost
I see.

00:33:41 Matt Kaden
But a lot of people are taking advantage of them.

00:33:45 KC Yost
Very good. Very good. Interesting. Well, I'll keep that in mind next time they make it some announcement about a carbon-free flight. I'll be thinking about you on that and what they really mean. Other than the aviation fuel thing, and of course that ties back into refineries and refinery and all of that kind of thing, we've talked a lot about incentives and credits, and I really am convinced that the Inflation Reduction Act is the carrot that the federal government is offering, not the stick that we can probably look at from the'70s, '80s, and '90s, and just a different perspective in how they're looking at it. So, we do have an audience that's tied back into the oil and gas industry. So, tell me how you think these incentives and credits are going to affect the oil and gas industry over the long term, opportunities and challenges? What do you think?

00:34:47 Jon Blitman
Yeah, yeah. I'm interested in Matt's thoughts on this too, but I would say one that comes to my mind that many folks who are not tax professionals probably don't know about because it's brand new, is oil and gas companies that have taxable income. And so, if you're a corporation that has a tax liability, this has nothing to do with you actually producing renewable energy, but you can now buy these renewable energy credits and offset that liability. And it's basically, in my mind you obviously have to do some diligence to make sure that the credits are good, et cetera, but you could pay 90 cents and get a dollar of benefit. And so this is something, it applies to the oil and gas industry, but really taxpayers more broadly as just something that was introduced by the IRA that I don't know that too many folks are taking advantage of at this point. And we're to make people more familiar.

00:35:39 KC Yost
Wait a minute-

00:35:40 Jon Blitman
Obviously-

00:35:40 KC Yost
Wait, wait, wait, wait, wait, wait, wait, wait. So, am I hearing you correctly? If I am a natural gas pipeline company and I have a compressor that is spewing out greenhouse gases and NOx and all of that kind of thing, I can... And we're having problems with getting our air quality permits squared away for the proposed expansion of this, I can go and buy credits somewhere else and use those to offset this expansion? Is that what you're-

00:36:14 Jon Blitman
No, no. I think we're talking about different matters here. When I say buy these credits, it's to reduce your federal income tax liability.

00:36:21 KC Yost
Okay. All right. All right. Sorry. Okay.

00:36:24 Jon Blitman
Yep.

00:36:25 KC Yost
Sorry. Okay.

00:36:26 Matt Kaden
But to Jon's point, there's not a ton of, and we will talk about some other impacts on the industry as well, but I think to Jon's point, there's not many investment opportunities where you get a 10% return. If you're paying your tax the day after you pay, you buy the credit, you're getting a 10% return overnight and there's limited risk because you've got law firm memos and accounting firm memos and all that stuff that explain why you're entitled to credit. So, that's certainly an opportunity. I think that in addition to that, I mean I just think that given all that we've seen in the news about AI and data centers and this massive need for energy in this country, I mean the expectation is not that we're becoming more... Although we're becoming more efficient, we just have this massive new need for energy. And so, we're kind of bullish across the energy industry, I think our clients see it the same way. But there's so many opportunities to participate here, and I think perhaps in the next four years this will maybe be expanded by the new administration. So many ways to reduce emissions, so many ways to monitor your emissions and reduce them through different methods. There's the carbon capture benefit, there's hydrogen, which by the way could be a way to store energy and dispatch it. And so, overcoming that intermittent resource problem that traditional renewables have. And AI and all those things being what they are, they can't rely on intermittent sources of energy at the end of the day. Ideally they have a peaker right outside that they just connect to and it can ramp up and ramp down as necessary. And so, we just see immense opportunity and further incentives potentially for folks in the oil and gas industry. And I think if you look at their public statements and the way they've dealt with the IRA, it hasn't been a hostility. I think they're understanding, certainly the bigger players on ways that they can benefit and participate as well.

00:38:45 KC Yost
Outstanding. That makes perfect sense. Thanks for clearing that up for me. I was getting off track there. That makes perfect sense. You made mention about the next four years, so we've just had an election. What do you think the election results are going to have an effect on the Inflation Reduction Act and the energy industry? What do you see the new administration doing? What's your crystal ball say?

00:39:18 Jon Blitman
Matt, you want to hit on this? I think you were alluding to it on your last answer. I think it's an easy transition into this one.

00:39:26 Matt Kaden
Yeah, I mean, look, what we're hearing from everyone, it's kind of, of course we deal a lot with the energy transition renewable space, so maybe this is kind of a glass half full kind of view. But I think most people are expecting a scalpel to be taken towards the Inflation Reduction Act, rather than a sledgehammer or anything like that. We think that, or the word from people that are better connected than we are is that there's such a slim majority in the Senate and the House and there are enough Republicans that are benefiting from energy transition, renewables, construction, advanced manufacturing in red states that there's not going to be kind of the political momentum and political will to get a wholesale repeal of the IRA through. And so, I think that certainly carbon capture is one that seems to be particularly safe. I think people feel good about hydrogen. Maybe the renewables, instead of going out in perpetuity, maybe they phase those out over time, which was the law before the Inflation Reduction Act, and allows for just a natural reduction in costs that takes place with technologies over time and to match that with a reduction in the tax incentive, so maybe that makes sense. But certainly the electric vehicle credit has been one that has been targeted, and maybe even Mr. Musk is okay with that because maybe it hurts other EV producers more than it does Tesla. And so, definitely some credits may be at more at risk than others. But I think on the whole the consensus is that a lot of this stuff is going to stay around, although maybe in a modified form, maybe the credit amount is reduced, maybe it phases out earlier, but the landscape is going to be generally the same. Jon, do you agree with that?

00:41:34 Jon Blitman
Yeah, I think all that makes a lot of sense.

00:41:38 KC Yost
So a scalpel, not a sledgehammer?

00:41:42 Matt Kaden
That's subject to change. I mean, they do have to come up, KC, with four, I think it's $4 trillion to extend the expiring initial Trump tax credits from 2017. And the Inflation Reduction Act is not, even if you repeal the entire thing, wouldn't get you close to that. So, I don't know if that's an argument to keep it or repeal it, but it's not like they're going to see this as an opportunity to pay for that, because it's just not going to come even close to doing it.

00:42:13 KC Yost
Got it. Got it. I totally understand. Well, we'll be sitting here in Houston, or I'll be sitting here in Houston anxious to see what happens. And you guys keep me in the loop on what's going on, will you, please?

00:42:25 Matt Kaden
Will do.

00:42:26 KC Yost
All right, so, what a great discussion. We've gone over, but I don't care. So, let's just say, is there anything else you guys want to add that we might have missed or I might have glossed over? Anything you want to talk about before we wrap this up?

00:42:45 Matt Kaden
I don't think so. I mean, just that we're obviously happy to discuss these issues. We really have a deep curiosity with all parts of the energy industry, and we're happy to connect and just chat about things with people in the industry. We really enjoy that, and look forward to talking with you and others in the industry as we go forward.

00:43:06 KC Yost
Great. Great. Super. Thanks guys for taking the time to visit with us today. Very much appreciated.

00:43:13 Jon Blitman
Thanks, KC.

00:43:15 KC Yost
If anyone would like to learn more about Moss Adams, you can find them on the web at mossadams. com. That's M-O-S-S A D-A-M-S. com. If you'd like to visit with either of our guests, you can find them in the email at mat. Kaden, K-A-D-E-N @ mossadams. com and jonblitman @ mossadams. com. That's J-O-N, no H. Got it, Jon. Or you can go to mossadams. com and click the people button and they're all listed there in alphabetical order. Look for Blitman and Kaden. Thanks to all of you for tuning into this episode of The Energy Pipeline podcast sponsored by Caterpillar Oil & Gas. If you have any questions, comments, or ideas for the podcast topics, feel free to email me at KC.yost@ oggn. com. I also want to thank my producer, Anastasia Willison-Duff, and everyone at the Oil and Gas Global Network for making this podcast possible. Find out more about other OGGN podcasts at oggn. com. This is KC Yost saying goodbye for now. Have a great week, and keep that energy flowing through the pipeline.

00:44:26 Speaker 6
Thanks for listening to OGGN, the world's largest and most listened to podcast network for the oil and energy industry. If you like this show, leave us a review, and then go to oggn. com to learn about all our other shows. And don't forget to sign up for our weekly newsletter. This show has been a production of the Oil and Gas Global Network.