On Tuesday, August 16, President Biden signed The Inflation Reduction Act of 2022 (IRA). The news has been heralded with a series of splashy headlines celebrating the steps the bill will take to address our warming planet, an enthusiastic endorsement from a former vice president, and one video of Ethic’s own Jay Lipman dancing in the street.
So, is this bill as big a deal as these sources state? Absolutely. However, with around $370 billion devoted to climate and clean energy programs, there is a lot of new data to sift through. The expansive nature of the bill raises the question- what’s actually in this thing? What steps towards solving the climate crisis will be gained in the passage of this bill, and what elements stall or work against those solutions? To answer that question, we’ve broken down the components of this bill that are worth celebrating, the bits that are (as Jay might say) a tad cheeky, and what the package means for investors.
Why is this bill a boon for climate advocates?
While smaller than the $2 trillion deal the Democrats initially sought, this Inflation Reduction Act remains the United States’ largest single investment in combating the climate crisis. That investment could allow the United States to cut carbon emissions by about 40% by the year 2030. What is actually in the $370 billion plan to cut those emissions? We’re so glad you asked. Here are three big takeaways.
1. The methane fee
Methane, as many of you may know, is a powerful, leaky gas. 86 times more damaging to our atmosphere than carbon over a 20 year period, it is emitted at virtually every stage of oil and gas production. In this bill, for the first time ever, Congress sets industry-wide limits on that leakage and imposes penalties on oil and gas companies that emit more than 25,000 metric tons of CO2 equivalent annually. That fee will start at $900 per metric ton of emissions that exceed federal limits in 2024 and increase up to $1,500 in ‘26. This methane fee will likely raise $6.3 billion from the oil and gas industry over a decade, much of which will be reinvested in measures to help prevent methane leaks. This fee on fossil fuel companies is hands-down one of the most exciting elements of the bill- one could almost call it…spicy.
2. Long-term certainty for renewables
This bill “affects nearly every aspect of US energy production” and creates some legislative constancy for an industry that has been plagued by instability. The IRA offers $160 billion in tax breaks for clean energy companies to distribute more solar, wind, and batteries on the grid, extending existing credits another 10 years. Another cluster of tax breaks are designed for individuals, allocating $37 billion in clean energy incentives to drive consumption of renewables such as electric cars or solar panels. The big takeaway here: energy companies that have invested in renewable energy technology will likely be in good financial shape going forward to capitalize on new funding streams.
3. Funding for environmental justice
Notably, The Inflation Reduction Act jumpstarts new investments in the communities most impacted by climate change and pollution- specifically, non-white and poor communities. In total, the bill assigns $60 billion in total investments in environmental justice, prioritizing bringing clean energy to and reducing emissions for low-income communities. Breaking that down here, some particularly exciting investments are the $3 billion in Climate Justice Block Grants and another $3 billion in Neighborhood Equity Grants for community-led programs to reduce air pollution and tackle urban heat islands as well as green schools and community solar. Another $1 billion is allotted for clean garbage trucks, school buses, and transit buses, and finally, $3 billion is dedicated to restore communities divided by highways. Yes, the funding itself is a huge win for environmental justice organizers. However, another important upshot here is that this could create momentum for further investment in environmental justice—ideally future legislation that meets the standards of the Justice 40 initiative.
So what’s the big takeaway here? Well, $370 billion towards combating the climate crisis, the largest investment ever in tackling that existential threat, is nothing to sniff at. However, this bill is just the first step in a much longer road that we need to travel down if we are going to truly achieve the goals necessary to avoid the worst impacts of climate change. Taking off our rose-colored glasses for a moment here, it’s worth noting that the predictions for emissions reductions are a best case in some ways. Those numbers are what we can collectively hit if implementation goes perfectly according to plan. That big “IF” however, is a fantastic argument for viewing this “landmark” bill as a landmark first step. Yes, the Inflation Reduction Act could make a significant dent in U.S. emissions, fast-track the transition to renewable energy, and aid those most vulnerable to the impacts of climate change. BUT far more work by both the public and private sectors is required to remain below 1.5°C and preserve our big, beautiful planet. Let’s continue that work.