Inflation Reduction Act and Its Climate Provision
The climate crisis has been a topic in the headlines all over the world and now the U.S. Senate stands poised to deliver a win for Climate Action, the Biden Administration and American leadership in the global fight against Climate Change. The impact of Climate Change and severe consequences are being observed globally and are a source of great preoccupation in both global North and South. The causes and reflexes of the heat waves in Europe and in the US have already been discussed in our previous blog. Having in mind all of these obstacles, the US Congress is expected to finally pass a historic bill to address climate change.
This topic has brought controversy both in the Congress and in the executive branch. For instance, in 2017 President Trump announced that the U.S. would cease all participation in the Paris Agreement on climate change. Signaling a new direction, President Biden signed the instrument to bring the United States back into the agreement on his first day in office. Now, this conflict appears to have come to a resolution - or, at least last, to a more aligned approach to address this problem by the government. Last week, Senator Joe Manchin (D-WV) finally agreed to President Joe Biden’s big budget package - known as the Inflation Reduction Act. The bill, among other points, has important environmental impacts and represents the most ambitious action from the Congress to face climate change so far. The majority of the Inflation Reduction Act is aimed at confronting the climate crisis, with $369 bn dedicated to that over the next 10 year– the single largest investment into Climate & Energy in U.S. history.
It is important to analyze the notable advances on climate protection brought by this legislation. Firstly, the U.S. would enter on a path to a 40% reduction in greenhouse gas emissions by 2030. The country would lower household energy costs by electrifying their homes and vehicles, including more than $9 bn in consumer home energy rebate programs. This would also enable more people to buy a new electric car, which has until now largely been a privilege of the wealthier. Second, the public can also benefit from the additional tax credits that allow homeowners to deduct up to 30% of the cost of energy efficient upgrades to their residences. Also, the bill would invest $60 bn in clean energy technologies, such as manufacturing solar panels, batteries, electric vehicles, which will help to create jobs and increase energy security. Another $60 bn would be aimed to address the consequences some communities suffer from pollution and the climate crisis, with much of this work led by the communities themselves. Finally, more than $20 bn would be invested in climate-friendly agriculture.
Based on the Penn Wharton Budget Model (PWBM) estimation, the Inflation Reduction Act would reduce cumulative deficits by $248 billion over the budget window. The inflation might be slightly increased until 2024 but decrease thereafter. The Committee for a Responsible Federal Budget (CRFB) considers this Act to be the largest deficit reduction bill since the Budget Control Act of 2011
However, it must also be noted that environmentalists still have some criticism towards the document. For example, the bill mandates the federal government to offer up parts of the Gulf of Mexico and Alaska’s Cook Inlet for oil and gas development. Moreover, additional oil and gas leasing will also be required in order for new wind and solar projects to be approved, which may slow down the transition to clean energy. Besides that, the final draft of the bill represents a big reduction on the $550 billion initially proposed by Biden and other Democratic leaders.
Since climate change efforts account for the majority of the law's investments, it may be said that this is a climate bill, as it covers all the the following:
Clean energy and electric vehicles
Fossil fuels
Pollution reduction and environmental justice
Industrial pollution
Domestic manufacturing of clean energy
References
https://bassiounigroup.com/blog/heat-waves-causes-and-global-consequences
https://www.state.gov/the-united-states-officially-rejoins-the-paris-agreement/
https://www.theguardian.com/environment/2022/jul/28/climate-bill-joe-manchin-whats-in-it
https://www.nytimes.com/2022/07/28/business/climate-tax-bill-inflation-biden.html
https://earthjustice.org/brief/2022/what-the-inflation-reduction-act-means-for-climate
https://finance.yahoo.com/news/inflation-reduction-act-savings-average-household-analysis-142038472.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALhJ-r56AwVxNYMux8cBskKcdARCSM-BcJW6FhYTtUXuH9E3UKuo8VMGoM3sQnEA1411LCs7scfLoJn-sKYS66En2LalXRY7jdycx2vhw0UE9TY00jNcUDIL-WYp_AvqHdMH4KnAwXsulrtMUpkhJiDGSBeZlS49aAasDe-4WkdD
https://budgetmodel.wharton.upenn.edu/issues/2022/7/29/inflation-reduction-act-preliminary-estimates
https://www.crfb.org/blogs/whats-inflation-reduction-act
https://www.vox.com/policy-and-politics/2022/7/28/23281757/whats-in-climate-bill-inflation-reduction-act
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