What the Inflation Act is doing about climate change

Editor’s Note, August 7: This story was originally published on July 28, 2022 and has been updated to reflect the Senate passage of the Inflation Reduction Act.

Congress surpassed its biggest roadblock to finally pass landmark climate legislation. After almost 18 months of negotiations and 15-straight Hours of weekend voting, Senate Democrats passed the Inflation Reduction Act on Sunday after a strict party line vote.

The bill includes $369 billion in clean energy financing and tax breaks for electric vehicles, domestic production of batteries and solar panels, and pollution reduction. It is the single most important step the US has ever taken to combat the climate crisis. And arguably, it’s one of the largest climate investments ever made in the world.

If the bill’s policies work as intended, it would push American consumers and industry away from fossil fuel dependence, penalize fossil fuel companies for excessive methane emissions, and inject the money needed to clean up pollution.

The bill uses tax credits to incentivize consumers to buy electric cars, electric HVAC systems and other forms of cleaner technology, which lead to reduced emissions from cars and power generation, and includes incentives for companies to manufacture that technology in the United States. . It also includes money for many other climate priorities, such as investments in forest and coastal restoration and in resilient agriculture.

These investments, spread over the next decade, are likely to reduce pollution by about 40 percent below 2005 levels by 2030, according to three separate analyzes by economic modellers of Rhodium Group, Energy innovationand Princeton University. The legislation is helping the US get a little closer to its stated goal of halving pollution within a decade.

The main components of climate change Inflation Reduction Act is surprisingly similar to the version the House passed last fall, a measure widely celebrated by climate activists — though smaller than the $2 trillion Biden once envisioned it. To win the support of Senator Joe Manchin (D-WV), Democrats added provisions that lift roadblocks for some fossil fuel projects and force the Department of the Interior to hold more offshore oil lease sales. The Senate will also consider a separate bill that would speed up licensing for energy infrastructure, creating a hurdle for the . would be taken away Mountain Valley Pipeline to carry fracked gas 300 miles across West Virginia.

The Inflation Reduction Act extends expiring subsidies for solar and wind by 10 years to stimulate clean electricity on the grid.
Andrew Caballero-Reynolds/AFP via Getty Images

Even with these concessions, a climate deal that would free up tens of billions of dollars for clean energy and cleaning up pollution was unimaginable just a few weeks ago.

“Total game changer” for the climate was how Leah Stokes — a political scientist at UC Santa Barbara who advised Democrats on the reconciliation package — put it.

Most of the Inflation Act’s investments are focused on climate change

There’s plenty the law does that isn’t about climate change. there is financing for the Affordable Care Act and prescription drug reform. It also sets a minimum corporate tax rate — one of the ways the bill is helping to tackle inflation. But this is arguably a climate law, as climate initiatives account for the bulk of the investment.

The deal retains most of the key programs of the Build Back Better Act of the House, including consumer tax credits for solar panels and electric vehicles and funding for domestic clean energy production.

Clean energy and electric vehicles: There is a large mix of tax breaks that are intended to bring down the costs of solar, wind, batteries, cars, heat pumps and other clean technology. The idea is to stimulate as much sustainable development as possible in the most polluting parts of the economy: transport and electricity generation.

One type of tax credit would target clean energy companies to deploy more solar, wind and batteries on the grid, extending existing credits for another 10 years.

The second type would try to use more renewable energy, by providing incentives for Americans to install heat pumps, adopt solar energy and buy electric cars.

For example, on electric cars, 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 caps (examined extensively on Twitter by Bloomberg’s Tom Randall).

Some of these programs specifically help low-income people, such as a $9 billion energy discount program to focus on renovations and electrification of home appliances; another $1 billion helps make public housing more energy efficient.

The bill also provides $27 billion to create a National Green Bank, a program that would help attract private funding for clean projects, including in lower-income communities.

Fossil fuels: The bill is making some headway 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 incredible gas leak that is emitted at every point in oil and gas production – drilling at the well, 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 in all operations charge a fee that will increase over time. There is also a new royalty fee on all methane extracted from public lands, including the usual practice of venting and flaring. And to enforce all this, there is extra money for monitoring methane leaks for oil operators and the Environmental Protection Agency.

There are some changes to the fees the oil industry pays to produce on public lands and water as well. The bill raises royalty rates for the oil industry and raises minimum bids (from $2 per acre to $10). However, the environmental group Center for Western Priorities noted that the bill also includes some new incentives for oil leasing, such as requiring the Department of the Interior to expand its offshore oil supply.

In return for his support, Senator Joe Manchin provided language that encourages offshore oil lease sales and gas pipeline speed.
Tom Williams/CQ-Roll Call, Inc via Getty Images

Reduction of pollution and environmental justice: There is $60 billion for overall environmental justice priorities: $15 billion of that funding will go to a variety of priorities, such as clean energy and emissions reductions, specifically for low-income and underserved communities. Community groups, governments and tribes may also qualify for $3 billion in block grants for programs such as clearing abandoned mines, monitoring air quality and improving resilience to extreme weather events. And the bill includes $3 billion to restore and reconnect communities separated by highways.

Industrial pollution: At present, the industry of the US third most polluting sector, after transport and power. By 2030, it could be the most polluting sector. While cleaner cars and renewables are off-the-shelf technologies that need to be more widely adopted to make these sectors cleaner, heavy industry still relies on fossil fuels for the high heat required to produce raw materials. So the bill helps in this sector by boosting energy efficiency in industrial sites to reduce their footprint.

Domestic clean energy production: There is an additional $60 billion in incentives and funding to boost domestic production of clean energy technologies.

Most of those incentives will go toward accelerating U.S. production of solar panels, wind turbines, batteries and essential minerals, and to help build the facilities that would make electric vehicles.

The $500 million drawdown for heat pumps and critical minerals is new and provides funding for Biden’s use of the Defense Authorization Act to boost production of the energy-efficient technology.

Jason Walsh, executive director of the environmental and labor-focused BlueGreen Alliance, explained why domestic battery, solar and offshore wind production is so important. “Those are major investments, and they are risky investments. And if we expect manufacturers to make them in the United States, they will need long-term policy assurance and support,” he said.

The bigger picture for US climate action

The news that climate was back on the table came as a relief to advocates who spent 18 months fighting for the approval of a climate deal.

Without any new action from Congress or the President, economic modellers Rhodium Group estimates that climate emissions in 2030 are on track to be between 24 and 35 percent lower than in 2005, the peak year for CO2 emissions. That’s not much, even if it sounds like this: Under the Paris climate accord, Biden had set a goal of halving those 2005 levels by the end of the decade.

The Inflation Reduction Act doesn’t necessarily get the US all the way there. Federal regulations on power plants, car pollution and methane will still be important in closing the rest of that gap.

Still, this is a long way from the bleak picture when it seemed Biden would have few more limited regulatory options to tackle climate change. While Biden was under 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 bill as a major step forward in the fight against the climate crisis. sen. Brian Schatz (D-HI) last week called it “both historically and just a deposit.” On Sunday, Schatz left the Senate chamber in tears, according to the New York Times. “Now I can look my kids in the eye and say we’re really doing something about the climate,” he said.

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