After nearly 18 months of political toing and froing, the news came late on Sunday that the US Senate has officially approved the Inflation Reduction Act.
The Act, which has a focus on energy and transport, is a package of measures to reduce emissions and help vulnerable people pay for vital healthcare. Most encouragingly, the final version of the Act allocates a total of $369 billion to tackling the climate crisis. Analysis from Rhodium Group predicts the changes the Act brings will enable the US to reduce its annual domestic emissions by at least 40% by 2030.
The Act is a significant step, marking the largest ever investment in tackling climate change. It plans to take on inflation by lowering the deficit, subsequently reducing the costs for lower-income families, while seeking to improve and strengthen energy security.
Furthermore, the need to manufacture solar panels, wind turbines, electric vehicles and sustainable infrastructure has the potential to create millions of green jobs for Americans and could lower the cost of energy by hundreds of dollars each year which would have a significant impact on the lives and wellbeing of families across the US.
A positive step, but there’s more to the story
The Inflation Reduction Act is certainly a step in the right direction, and that progress should be celebrated, but that’s not to say the path to sub 1.5 °C temperatures is free and clear.
While the new bill is expected to reduce emissions by around 40% by 2030, this number is well below the 50-52% reduction set by President Biden last year. This is a target that, if successful, would put the world on course only for 2.4 °C of warming this century.
Scientists agree that a temperature increase of 1.5 °C over the pre-industrial age is critical to avoiding the most severe impacts of climate change. The prediction of 2.4 °C warming therefore is not enough to solve the problem.
Furthermore, while it is a considerable investment at home, many developing nations who were promised investment to tackle rising temperatures are yet to see this followed through.
“Although the US bill provides $370bn in climate spending, those of us in the Global South are wondering why the US and other rich countries have failed to keep their own promise to collectively provide $100bn of climate finance to poor and vulnerable countries by 2020,” said Mohamed Adow, the director of the Power Shift Africa think tank.
Recent developments between China and the US have resulted in a breakdown of relations, with China ending co-operation on some key topics, including that of climate change.
China currently produces 10,065 million tons of CO2, the largest emissions of any country, and almost twice that of the US. A breakdown of communication and collaboration in this area is likely to delay significant progress in reductions strategies.
Who benefits from the Act?
There are multiple sectors which are set to benefit from the Act, including energy, nuclear and transport.
Energy:
For the energy sector, the Act means the unlocking of substantial resources – $27bn of government funding to be precise – which can be channeled into emerging technologies, such as next-gen solar and hydrogen. Additionally, there will be extra support for building wind and solar in low-income communities, recognising that renewable infrastructure has a critical role to play in improving the lives of those most in need.
Building on this, there is also a $60bn package for communities most affected by fossil fuel production. The funding is to be spent on upskilling and retraining workers for greener jobs and alleviating additional and burdensome costs incurred by these communities.
The issue of climate adaptation is also addressed by the Act, as it includes $2.2bn for new and strengthened infrastructure in communities which are frequently impacted by climate change and extreme weather events.
Alongside wind and solar, energy efficiency is another key focus of the Act. To improve the energy efficiency of owned and rented homes and commercial buildings, multi-billion dollar packages are being set aside to help adopt and improve sustainable heating and cooling systems. There is also a jobs generation component to this focus on energy efficiency, with a pot of $200m set aside to deliver state-led programmes to train people to install and maintain these new and improved systems.
Transport:
As well as the energy sector, the Act is set to channel substantial resources into green transport. Firstly, there is a new electric vehicle (EV) grant scheme which, subject to availability, will see drivers receiving between $4,000 and $7,500 in tax credits towards the cost of an EV. Secondly, the Act has around $23bn set aside in subsidies for low-carbon transport and there is an additional pot of $3bn to help the US Postal Service transition its fleet to electric.
It is also important to note that the Act does not just cover road transport but also includes a new tax credit scheme for sustainable aviation fuels and alternative fuels for shipping as well as programmes and schemes aimed at reducing emissions at ports.
A win for the Biden administration and a step in the right direction:
The figure of $369 billion is believed to be around six times more than the US federal government invested in climate change between 1998 and 2008, and four times more than what was allocated between 2009 and 2019.
So far, the Inflation Reduction Act has had a difficult time making it through the Senate to the House, with many attempts made to block it. However, Sunday’s outcome is cause to celebrate and the message from the White House is clear; President Biden is ready to sign and start working towards a greener and more sustainable US.
Sharing the White House’s statement, the President’s national climate advisor Gina McCarthy said: “This is a turning point in history. And this is the most optimistic I have ever felt about our ability to tackle the climate crisis. President Biden’s pen is ready – let’s get this bill to his desk.”
What has the reaction been?
Environment
Abigail Ross Hopper, president and CEO, The Solar Energy Industries Association: “With the passage of the Inflation Reduction Act in the Senate, solar and storage companies are one step closer to having the business certainty they need to make the long-term investments that decarbonise the electric grid and create millions of new career opportunities in cities and towns across the country.”
Heather Zichal, CEO, American Clean Power: “This is a generational opportunity for clean energy after years of uncertainty and delay. This unprecedented investment… will supercharge America’s clean energy economy and keep the United States within striking distance of our climate goals.”
Recharge News: The Act “may prove to be the single most important event in the history of green hydrogen to date – and a turning point for the nascent industry beyond American borders.”
Business
Holland & Knight: “For the first time, this legislation not only creates a 10-year runway for many energy tax incentives, it also fundamentally revises the tax code to create a technology-neutral approach to incentivise the deployment of low carbon technologies.
“Federal agencies must move quickly to implement the law, a process which will require significant resources. The federal agencies have significant authority and will be responsible for the success of the IRA; implementation will include the promulgation of many new rules and decisions on how to deploy funding.”
Investopedia: “There is no real consensus on how much – or even if – the bill will reduce inflation. While raising taxes on corporations and the rich is generally popular, some conservatives have expressed concern that these measures will discourage investments and hiring on the part of affected companies.
“At the end of the day, nobody got all they wanted, showing at least that the art of compromise is not dead in Washington.”
