A climate change revolution?

If the Inflation Reduction Act of 2022 becomes law, it will be the largest and most consequential US climate legislation in history, according to experts.

The bill, which includes $369 billion in funding for climate and clean energy provisions, was passed by the US Senate 51-50, with voting taking place along partisan lines. It now heads to the House of Representatives where, given the Democrat majority, it is also expected to be passed.

The bulk of the bill is composed of tax credits aimed at unleashing a boom in clean energy deployment, along with payments to keep ageing nuclear facilities and other sources of low-carbon energy online.

A new system of fees will be imposed to stem leaks of methane, a potent greenhouse gas, from oil and gas drilling operations. The vast fleet of trucks used by the US Postal Service would go electric.

Consumers will be able to access a rebate of up to $7,500 for a new electric vehicle, or up to $4,000 for a used car, along with up to $8,000 to install a modern electric heat pump that can both heat and cool buildings.

Further rebates are also on offer, such as $1,600 to insulate and seal a house to make it more energy efficient.

Key proposals:

  • Electricity generation

The bill contains $30 billion in grants and establishes tax credits for states and electric utilities to adopt clean energy and energy storage, which is key for maintaining the stability of the grid with higher levels of intermittent renewable sources. This includes support for hydrogen and carbon capture technology, as well as new tax credits to keep nuclear power plants opening. It also includes $60 billion to support clean energy manufacturing intended to accelerate production of solar panels, wind turbines, electric vehicles and heat pumps.

  • Electric vehicles

It includes a $4000 tax credit for used electric vehicles and a $7500 credit for new electric vehicles, as well as tax credits for low-carbon renovations to homes, like installing heat pumps and rooftop solar panels. It also puts $6 billion towards reducing emissions from hard-to-decarbonise industries like cement, chemical and steel plants. The US Postal Service – the largest source of federal emissions second to the US military – gets $3 billion to buy zero-emission vehicles.

  • Emissions

The bill also establishes a program to reduce leaks of methane from natural gas production by fining companies for each ton emitted. Beyond cutting emissions, it includes $60 billion in support for environmental justice initiatives, such as improving public transportation in underserved communities and reducing air pollution at ports.

According to analysis from energy think tank Rhodium Group, the bill would reduce US greenhouse gas emissions by 31-44% below 2005 levels by 2030.

According to Rhodium, in the high emissions case, which features cheap fossil fuels and more expensive clean technologies plus faster economic growth, the IRA can accelerate emissions reductions to a 31% cut below 2005 levels in 2030, compared to 24% under current policy. 

On the flip side, Rhodium said, in the low emissions case, with expensive fossil fuels and cheap clean technologies, the IRA can drive even larger reductions, from 35% below 2005 levels under current policy to 44% below 2005 levels with the bill.

Clean energy

Other thinks tanks concur. Energy Innovation suggests that passing the IRA will reduce greenhouse gas emissions an estimated 870-1,150 million metric tons carbon dioxide equivalent (CO2e) in 2030 despite the oil and gas leasing requirements: “Those reductions would put US emissions at 37-41% below 2005 levels and make significant progress towards achieving the 2030 US NDC of 50-52% below 2005 greenhouse gas emissions.”

“In other words, the IRA would enable the US to close 50-66% of the emissions gap between BAU and the NDC in 2030. Realistic executive, state and local actions could lead the US to its 2030 NDC commitment.”

Significantly, according to Energy Innovation, the bill’s provisions also greatly encourage domestic manufacturing of the clean energy technologies that will need to be deployed at a rapid rate across the economy, helping to onshore jobs:

“Hence, the IRA’s climate benefits provide substantial economic and public health co-benefits for Americans by generating at least 1.4 million jobs in 2030 and avoiding more than 3,600 deaths in 2030.”

Green banks

The bill also puts $27 billion towards a ‘green bank’ which is intended as a repository for investments in public-private partnerships that cut emissions, with $8 billion specifically directed to disadvantaged communities. It also contains funding for research, with $2 billion for basic research within national laboratories, including for fusion and high-energy physics infrastructure.

The bill also sets aside $20 billion for “climate-smart agricultural practices”, such as reducing methane emissions and building up soil carbon. There are grants and credits to support biofuels, including infrastructure for sustainable aviation fuel.

Some $5 billion will also go towards making forests more resilient to wildfire as well as urban tree planting. $2.6 billion will go to funding and grants to protect coastal communities and habitats and $4 billion will go towards addressing the water crisis in the western US, which is currently experiencing severe drought conditions.

The bill contains $30 billion in grants and establishes tax credits for states and electric utilities to adopt clean energy and energy storage, which is key for maintaining the stability of the grid with higher levels of intermittent renewable sources. This includes support for hydrogen and carbon capture technology, as well as new tax credits to keep nuclear power plants opening.

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