Here’s what the Inflation Reduction Act will do to combat climate change
This approach represents a break from many past congressional proposals designed to reduce the greenhouse gas emissions that cause global warming, most of which proposed using a singular, overarching policy, such as taxing emissions or requiring tradable permits for emissions. Those measures all died in Congress, but this one made it through the Senate and is expected to pass the House later this week.
“The whole package in terms of dealing with climate change is a long-overdue improvement,” former Democratic Rep. Henry Waxman told Yahoo News on Tuesday. Waxman was chair of the House Energy and Commerce Committee for many years, and he co-wrote a bill that passed the House but died in the Senate that would have capped carbon emissions and gradually reduced the number of tradable credits for them, a system known as cap-and-trade.
“Unlike other efforts in the past, such as cap-and-trade or a carbon tax, this approach gives a lot of incentives, especially financial, through the tax code and appropriations for industry to accomplish a reduction in emissions,” Waxman said. “This climate proposal has very little, if any, regulation. It’s a lot of incentives to develop, in effect, a partnership with industry and the government… to sharpen up the technology to accomplish our goals.”
Here’s a guide to the biggest programs in each bucket of climate policies, and what they will mean for American families.
Consumer clean energy costs
The IRA would pour money into helping homeowners, especially those with low and moderate incomes, and lower their carbon footprint and their energy bills by helping them transition to more efficient heating and cooling systems. There will be a $9 billion program to help low-income households switch to electric appliances (such as stoves) and to retrofit their homes for energy efficiency (by insulating windows, for example).
There will also be tax credits for replacing oil and gas burners with electric heat pumps and water heaters and installing rooftop solar, allowing customers to get 30% off the cost of these purchases.
To reduce dependence on oil, the bill would provide a $4,000 consumer tax credit for lower- and middle-income individuals to buy used electric vehicles, and a $7,500 tax credit to those who make less than $150,000 per year or couples who make less than $300,000 per year who buy new electric vehicles. (Qualifying EVs must cost less than $55,000 for cars and less than $80,000 for trucks.) There is also a $1 billion grant program to help local authorities make affordable housing more energy-efficient.
A family that uses all these rebates and tax credits could receive an additional big total of $28,500 in incentives, according to the Center for American Progress. Rewiring America, an advocacy group that promotes electrification, estimates that a family that takes advantage of these incentives will save an average of $1,800 per year on home heating fuel and lower energy bills.
However, in order to win the crucial support of Sen. Joe Manchin, DW.Va., the IRA requires that an EV eligible for the tax credit must have a battery built in North America with minerals mined or recycled there as well. Currently, most EVs on the market would not qualify. The purpose is to develop EV building capacity domestically, instead of relying on China, which is the main producer of lithium-ion batteries. But automakers have expressed doubts that they will be able to meet the bill’s requirements on its timeline.
Decarbonizing the economy
About $30 billion will be doled out in grants and loan programs to states and electric utilities to switch utilities from burning gas and coal to using clean energy sources such as wind and solar power. There are also grants and tax credits for clean commercial vehicles — think electric delivery trucks, buses and taxis — and money for efforts to reduce emissions from industrial processes, such as chemical, steel and cement plants.
In order to use the federal government’s buying power to catalyze private sector investment as well, the IRA contains $9 billion for the US to buy clean technologies. For example, it includes $3 billion for the US Postal Service to purchase zero-emission vehicles.
As part of this bill’s emphasis on equity, there is a $27 billion “clean energy technology accelerator” that will distribute funds to deploy clean energy technologies, especially in lower-income communities. An example of a recipient of these funds would be, say, a nonprofit that helps low-income renters, who can’t buy a solar panel for their own home, enjoy the cost savings of buying solar panels by pooling their money and buying solar panels to go in a public space and sharing in the savings
In a major win for environmentalists, there is also going to be a program to reduce the leakage of methane, a highly potent greenhouse gas, from oil and gas wells and pipelines. This is the rare portion of the IRA that includes sticks as well as carrots: grants to help the industry comply and the imposition of fees for operators that continue to leak methane at a high rate.
Domestic clean energy manufacturing
Whatever the costs and benefits of Manchin’s buy-American requirements for the EV tax credits, every Democrat agrees that developing the ability to produce the key ingredients of a clean energy economy within the United States would be beneficial. So the IRA includes $30 billion worth of tax credits for manufacturing solar panels, wind turbines, batteries capable of storing wind and solar energy, and the processing of key minerals needed for all those technologies (and for electric vehicles).
Separate from those tax credits for making the actual products, there are $10 billion in tax credits for building the infrastructure needed for that production, such as wind turbines and solar panel factories, and $2 billion for renovating auto factories to make EVs. The federal government will also offer up to $20 billion in loans to build new EV manufacturing facilities across the country and will provide $2 billion for additional clean energy research.
Predominantly Black and Latino neighborhoods and poorer communities suffer an outsize share of the effects of climate change, such as extreme heat, flooding and the pollution from burning fossil fuels on highways and in factories and power plants. The IRA will give out $3 billion in block grants for community-led projects to deal with those kinds of problems, another $3 billion for neighborhood improvements like reconnecting areas separated by highways, $3 billion to reduce pollution at ports and $1 billion for electric heavy- duty vehicles, like garbage trucks.
Agriculture and land use
Plants absorb carbon dioxide, so how they are managed can affect how much carbon is in the atmosphere. The IRA will spend $20 billion on climate-smart agricultural practices (rotating crops instead of planting the same ones in the same place every year, for example) and $5 billion for forest conservation and urban tree planting.
The bill also incorporates tax credits and grants to support the domestic production of lower-carbon biofuels and $2.6 billion in grants to conserve and restore coastal areas that are needed both to absorb carbon and to manage storm surges that are becoming severe because of climate change, via rising sea levels and more intense storms.
The bill also includes some measures that were needed to win Manchin’s support that will actually make climate change worse, such as requirements that the federal government lease swaths of federal land and coastal areas for oil and gas drilling. As with the electric vehicles, Manchin is focused on producing as much energy domestically as possible. Still, the overwhelming majority of environmentalists are exultant at the IRA’s overall potential to reduce the severity of climate change.