On Tuesday 16th August, following its passing through the Senate and House of Representatives, President Joe Biden signed into law the Inflation Reduction Act, a bill which has revitalised the Democrats’ stalled legislative agenda and provided hope that the party might be able to mitigate against predicted losses in the midterm elections. A product of 18 months of intense negotiations, the $739bn omnibus package represents the single biggest investment in climate change policy in American history and, for the first time, commits the US to lowering its carbon emissions.[1] The Act, a much-scaled back version of the Democrats’ $3.5tn Build Back Better Act which failed to pass in the Senate last year, commits around $370bn to kick-start the transition towards renewable energy technologies with tax credits to incentivise the development of wind and solar energy.[2]
Celebrating the new legislation, President Biden said the following:
“This bill also makes the largest investment ever in combatting the existential crisis of climate change. It addresses the climate crisis and strengthens our energy security, creating jobs manufacturing solar panels, wind turbines, and electric vehicles in America with American workers. It lowers families’ energy costs by hundreds of dollars each year”’[3]
The impact of the Act on mitigation against climate change is notable, with a general estimate that the US will reduce its greenhouse gas emissions by roughly 40% by 2030 compared with 2005 levels.[4] Other research suggests different estimations; ‘The Rhodium Group’ predicts emissions would fall between 31 and 44 percent, Energy Innovation anticipates a fall of between 37 and 41 percent, and ‘The REPEAT Project’ estimates a fall of 42 percent.[5] Whilst all estimates fall short of the 50% pledged by the Biden Administration, the Act is nevertheless a significant step in the right direction.
Assessing the macroeconomic impacts of the Inflation Reduction Act, Moody’s Analytics concluded that with $750 billion raised over the next decade through higher taxes on large corporations and wealthy individuals, the US Government could both pay for additional climate spending whilst reducing the country’s deficit and growing the economy.[7] This would be achieved by directing two-thirds of the initial $370 billion to federal tax credits which extend, enhance or create incentives to produce electricity from clean energy sources and to invest in renewable energy technologies. Similarly, when comparing the economic impact of the Act against the cost of inaction, ‘Moody’s’ found that real GDP would be approximately 0.1% higher in a decade and 0.6% higher by 2050 due as a result of the new legislation.[8]
Despite such positive coverage of the Act’s impact, criticism was directed from both sides as progressive Democrats derided the legislation as lacking in ambition, whilst Republicans (none of which supported the Act) argued that the measures would increase inflation.[9] In the end, as the Senate was split 50-50 along party lines, Vice-President Kamala Harris cast the tie-breaking vote to pass these ambitious new measures.
Ultimately, whilst the Inflation Reduction Act does not halt climate change, nor make up for decades of American indecision over climate action, it is a fundamentally significant moment which demonstrates what many thought impossible: that American democracy can still function and that the US can, if it desires, lead the world in reaching net-zero.
As Senator Brian Schatz, a Democrat from Hawaii tearfully noted, “Now I can look my kid in the eye and say we’re really doing something about the climate”.[10]
Notes/references:
The Act also includes the following policies:[6]
Lower Consumer Energy Costs
- $9 billion in consumer home energy rebate programs, focused on low-income earners for energy efficient retrofits
- 10 years of consumer tax credits to make homes more energy efficient and to run on clean energy, making heat pumps, rooftop solar, electric heating ventilation and air conditioning (HVAC) and water heaters more affordable
- $4,000 consumer tax credits for lower/middle income individuals to buy used-clean vehicles and up to $7,500 tax credits to buy new clean vehicles
- $1 billion grant programme to make affordable housing more energy efficient
American Energy Security and Domestic Manufacturing
- Production tax credits to accelerate US manufacturing of solar panels, wind turbines, batteries, and critical minerals processing, estimated to invest $30 billion
- $10 billion investment tax credit to build clean technology manufacturing facilities, such as those that make electric vehicles, wind turbines and solar panels
- $500 million in the Defense Production Act for heat pumps and critical minerals processing
- $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles and up to $20 billion in loans to build new clean vehicle manufacturing facilities across the country
- $2 billion for National Labs to accelerate breakthrough energy research
Decarbonisation of the Economy
- $30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to clean electricity
- $6 billion for a new Advanced Industrial Facilities Deployment Program to reduce emissions from the largest industrial emitters like chemical, steel, and cement plants
- Over $9 billion for federal procurement of American-made clean technologies to create a stable market for clean products, including $3 billion for the US Postal Service to purchase zero-emission vehicles
- $27 billion clean energy technology accelerator to support the deployment of technologies to reduce emissions, especially in disadvantaged communities
- A Methane Emissions Reduction Program to reduce leaks from the production and distribution of natural gas
Investment in Environmental Justice
- $3 billion for the Environmental and Climate Justice Block Grants to invest in community led projects in disadvantaged communities to address disproportionate environmental and public health harms related to pollution and climate change
- $3 billion in grants to reduce air pollution at ports by supporting the purchase and installation of zero-emission equipment and technology
- $1 billion for clean heavy-duty vehicles such as school and transit buses
Farmers and Rural Communities
- $20 billion to support climate-smart agricultural practices
- $5 billion in grants to support fire resilient forests, forest conservation and urban tree planting
- Tax credits and grants to support the domestic production of biofuels and to build the infrastructure necessary for sustainable aviation fuel
- $2.6 billion in grants to conserve and restore coastal habitats and to protect dependent communities.
[1] For a comprehensive review of American climate policy over the last five decades, see: The New York Times, Five Decades in the Making: Why It Took Congress So Long to Act on Climate, https://www.nytimes.com/2022/08/07/climate/senate-climate-law.html
[2] The Washington Post, Senate approves Inflation Reduction Act, clinching long-delayed health and climate bill, https://www.washingtonpost.com/us-policy/2022/08/07/senate-inflation-reduction-act-climate/
[3] The White House, Statement by President Biden on Senate Passage of the Inflation Reduction Act, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/07/statement-by-president-biden-on-senate-passage-of-the-inflation-reduction-act/
[4] Department of Energy, DOE Projects Monumental Emissions Reduction From Inflation Reduction Act, https://www.energy.gov/articles/doe-projects-monumental-emissions-reduction-inflation-reduction-act
[5] Scientific American, How Much Will the Climate Bill Reduce Emissions? It Depends, https://www.scientificamerican.com/article/how-much-will-the-climate-bill-reduce-emissions-it-depends/
[6] Senate Democrats, Summary of the Energy Security and Climate Change Investments in the Inflation Reduction Act of 2022, https://www.democrats.senate.gov/imo/media/doc/summary_of_the_energy_security_and_climate_change_investments_in_the_inflation_reduction_act_of_2022.pdf
[7] Moody’s Analytics, Assessing the Macroeconomic Consequences of the Inflation Reduction Act of 2022, https://www.moodysanalytics.com/-/media/article/2022/assessing-the-macroeconomic-consequences-of-the-inflation-reduction-act-of-2022.pdf
[8] Ibid, p.4.
[9] The Guardian, Bernie Sanders: ‘extremely modest’ spending bill fails to meet the moment, https://www.theguardian.com/us-news/2022/aug/13/bernie-sanders-spending-bill-biden-democrats
[10] BBC News, US Senate passes sweeping climate, tax and healthcare package, https://www.bbc.co.uk/news/world-us-canada-62457386