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Editor’s note, August 16: This story was originally published on July 28, 2022, and has been updated to reflect the signing of the Inflation Reduction Act.
After 18 months of haggling and will-they or won’t-they news cycles, President Joe Biden signed the Inflation Reduction Act into law at the White House on Tuesday. “This bill is the biggest step forward on climate ever,” he told a room full of supporters at the signing. “Ever.”
Biden might be right that it is one of the most significant climate investments made by the US, and even in the world. The newly minted Iaw contains $369 billion in funding for clean energy and electric vehicle tax breaks, domestic manufacturing of batteries and solar panels, and pollution reduction.
If its policies work as intended, it would push American consumers and industry away from reliance on fossil fuels, penalize fossil fuel companies for excess emissions of methane, and inject needed funds into pollution cleanup. “This law finally delivers on promises Washington has made for decades to the American people,” Biden said Tuesday.
The IRA uses tax credits to incentivize consumers to buy electric cars, electric HVAC systems, and other forms of cleaner technology, leading to less emissions from cars and electricity generation, and includes incentives for companies to manufacture that technology in the United States. It also includes money for a host of other climate priorities, like investing in forest and coastal restoration and in resilient agriculture.
These investments, spread out over the next decade, are likely to cut pollution by around 40 percent below 2005 levels by 2030, according to three separate analyses by economic modelers at Rhodium Group, Energy Innovation, and Princeton University. The legislation helps move the US a little closer to its stated goal of cutting pollution in half within the decade.
The main climate change components of the Inflation Reduction Act look surprisingly similar to the version the House passed last fall, a measure widely celebrated by climate activists — although it’s smaller than the $2 trillion the Biden administration once envisioned. To win Sen. Joe Manchin’s (D-WV) support, Democrats added provisions that clear permitting roadblocks for some fossil fuel projects and force the Department of Interior to hold more offshore oil lease sales.
Manchin intends to introduce a separate bill that would speed up permitting for energy infrastructure, clearing a hurdle for the Mountain Valley Pipeline to carry fracked gas 300 miles through West Virginia. There’s no guarantee it will pass, because it has to clear the 60-vote threshold in the Senate.
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Even with these concessions, a climate agreement that preserves tens of billions of dollars for clean energy and pollution cleanup was unimaginable just weeks ago. And the impact on overall pollution outweighs the emissions generated by the pro-fossil fuel pieces by about 24 to 1, according to Energy Innovation’s analysis.
“Total game changer” for the climate was how Leah Stokes — a political scientist at UC Santa Barbara who has advised Democrats on the reconciliation package — put it.
Most of the Inflation Reduction Act’s investments target climate change
There is plenty the act does that is not about climate change. There’s funding for the Affordable Care Act, the IRS, and prescription drug reform. It also sets a corporate minimum tax — one of the ways the law helps tackle inflation. But this is arguably a climate law, as climate initiatives make up the biggest portion of the act’s investments.
The deal retains most of the key programs of the House’s Build Back Better Act, including consumer tax credits for solar panels and electric vehicles, and funding for domestic clean energy manufacturing.
Clean energy and electric vehicles: There is a large mix of tax breaks intended to bring down the costs of solar, wind, batteries, cars, heat pumps, and other clean technology. The idea is to drive as much renewable development as possible in the most heavily polluting parts of the economy: transportation and electricity generation.
One type of tax credit would be aimed at clean energy companies to deploy more solar, wind, and batteries on the grid, extending existing credits another 10 years.
The second type would seek to drive more consumption of renewables, offering Americans incentives for installing heat pumps, adopting solar, and buying electric cars.
On electric cars, for example, consumers would get $7,500 per new vehicle and about $4,000 for a used vehicle until 2032, but with some new restrictions on where the batteries were manufactured and income limits (explored in depth on Twitter by Bloomberg’s Tom Randall).
Some of these programs specifically help low-income people, like a $9 billion home energy rebate program to focus on retrofits and electrifying home appliances; an additional $1 billion helps make public housing more energy-efficient.
The law also seeds $27 billion to create a National Green Bank, a program that would help leverage private funding for clean projects, including in lower-income communities.
Fossil fuels: The IRA makes some strides on the second most problematic climate pollutant, methane. Methane is 86 times more powerful a greenhouse gas than carbon over a 20-year period, and it’s also an incredibly leaky gas that is emitted at any point in oil and gas production — drilling at the wellhead, compressor stations, and liquefied natural gas terminals.
For the first time, Congress would set some industry-wide limits on methane leakage. Oil and gas companies that emit above a certain level of methane across all operations trigger a fee that will escalate over time. There’s also a new royalty fee on all methane extracted from public lands, including the common practice of venting and flaring. And to enforce all this, there is additional funding for monitoring methane leaks for oil operators and the Environmental Protection Agency.
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There are some changes to the fees the oil industry pays to produce on public lands and water as well. The legislation raises royalty rates for the oil industry and raises minimum bids (from $2 an acre to $10). The environmental group Center for Western Priorities noted, though, that there are some new incentives for oil leasing, like requiring the Department of Interior to expand offshore oil offerings.
Pollution reduction and environmental justice: There’s $60 billion for overall environmental justice priorities: $15 billion of that funding goes to a host of priorities like clean energy and emissions reductions specifically for low-income and disadvantaged communities. Community groups, governments, and tribes can also qualify for $3 billion in block grants for programs like cleaning up abandoned mines, monitoring air quality, and improving extreme weather resilience. And the law contains $3 billion to restore and reconnect communities that are divided by highways.
Industrial pollution: Right now, industry is the US’s third most polluting sector, after transportation and power. By 2030, it could be the most polluting sector. While cleaner cars and renewables are off-the-shelf technologies that have to be adopted at a wider scale to make these sectors cleaner, heavy industry still relies on fossil fuels because of the high heat needed to produce raw materials. So the IRA helps in this sector by incentivizing energy efficiency at industrial sites to cut their footprint.
Domestic manufacturing of clean energy: There’s another $60 billion in incentives and financing for boosting domestic manufacturing of clean energy technologies.
Most of those incentives will go to accelerating US manufacturing of solar panels, wind turbines, batteries, and critical minerals, and to help build the facilities that would make electric vehicles.
The inclusion of $500 million for heat pumps and critical minerals is new, providing funding for Biden’s use of the Defense Authorization Act to boost manufacturing for the energy-efficient technology.
Jason Walsh, executive director of the environment- and labor-focused BlueGreen Alliance, explained why domestic manufacturing for batteries, solar, and offshore wind is so important. “Those are big investments, and they’re risky investments. And if we expect manufacturers to make them in the United States, they’re going to need to have some long-term policy certainty and support,” he said.
The bigger picture for US climate action
The news that climate legislation was back on the table came as a relief to advocates who have spent years (for some, decades) fighting for a climate deal’s passage.
Without any new action from Congress or the president, economic modelers at Rhodium Group estimated that climate emissions were on track to be somewhere between 24 percent and 35 percent lower by 2030 than they were in 2005, the peak year for carbon emissions. That’s not a lot, even if it sounds like it: Biden had set a target under the Paris climate agreement of slashing those 2005 levels in half by the end of the decade.
The Inflation Reduction Act doesn’t necessarily get the US all the way there. Federal regulations for power plants, car pollution, and methane will still be important to make up the rest of that gap.
Still, this is a long way from the bleak picture when it looked as though Biden would have few limited regulatory options left for tackling climate change. While Biden has faced pressure from the left to declare a climate emergency, his powers and lasting impact would be far more limited than anything Congress could do.
Though imperfect, Democrats have hailed the law as a major step forward in combatting the climate crisis. Sen. Brian Schatz (D-HI), left the Senate in tears when it cleared the chamber two weeks ago. “Now I can look my kids in the eye and say we’re really doing something about climate,” he said.
