Editor’s note, August 7: This story was originally published on July 28, 2022 and has been updated to reflect the Senate’s passage of the Inflation Reduction Act.
Congress cleared the biggest hurdle to passing historic climate legislation. After nearly 18 months of haggling and 15-straight hours of weekend votes, Senate Democrats passed the inflation-reduction bill in a strictly party-line vote Sunday.
The bill contains $369 billion in funding for clean energy and electric vehicle tax breaks, domestic battery and solar panel manufacturing and pollution reduction. It is the most important step the US has ever taken to combat the climate crisis. And arguably, it is one of the biggest climate investments ever made in the world.
If the bill’s policies work as planned, it will push American consumers and industry away from dependence on fossil fuels, penalize fossil fuel companies for excessive methane emissions, and channel much-needed funds 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, leading to fewer emissions from cars and electricity generation, and includes incentives for companies to manufacture this technology in the United States. It also includes money for a number of other climate priorities, such as investing in forest and coastal restoration and resilient agriculture.
These investments, spread over the next decade, are likely to reduce pollution by about 40% from 2005 levels by 2030, according to three separate analyzes by economic modelers at Rhodium Group, Energy Innovationand Princeton University. The legislation helps the US move a little closer to its stated goal of cutting pollution in half within a decade.
The main components of its climate change Inflation Reduction Act they are strikingly similar to the version the House passed last fall, a measure widely celebrated by climate activists — though it falls short of 2 trillion dollars Biden once envisioned. To win the support of Sen. Joe Manchin (D-WV), Democrats added provisions that clear roadblocks to certain fossil fuel projects and force the Interior Department to make more offshore oil lease sales. The Senate will also consider a separate bill that would speed up permitting for energy infrastructure, clearing a roadblock for Mountain Valley Pipeline to carry fracked gas 300 miles through West Virginia.
Even with these concessions, a climate deal that preserves tens of billions of dollars for clean energy and pollution cleanup was unthinkable just weeks ago.
Leah Stokes — a political scientist at UC Santa Barbara who has advised Democrats on the reconciliation package — called it an “absolute game changer” for the climate.
Most of the Inflation Reduction Act’s investments target climate change
There are many non-climate change acts. There is financing for the Affordable Care Act and prescription drug reform;. It also sets a minimum corporate tax – one of the ways the bill helps tackle inflation. But this is undeniably a climate bill, as climate initiatives make up the bulk of the bill’s investments.
The deal preserves most of the key programs of the Build Back Better Act, 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 aimed at reducing the cost of solar, wind, batteries, cars, heat pumps and other clean technologies. The idea is to push as much renewable energy growth as possible into the most polluting parts of the economy: transport and power 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 seek to increase consumption of renewable energy by offering Americans incentives to install heat pumps, go solar and buy electric cars.
On electric cars, for example, consumers would get $7,500 per new vehicle and about $4,000 for a used one by 2032, but with some new restrictions on where batteries were made and income limits (explored in depth on Twitter by Bloomberg Tom Randall).
Some of these programs specifically help low-income people, such as a $9 billion home energy rebate program to focus on home appliance retrofits and electrification. an additional $1 billion goes toward improving the energy efficiency of public housing.
The bill also provides $27 billion to create a National Green Bank, a program that would help leverage private financing for clean projects, including in lower-income communities.
Fossil fuels: The bill makes some inroads on the second most problematic climate pollutant, methane. Methane is 86 times more powerful a greenhouse gas from coal over a 20-year period and is also an incredibly leaky gas that is emitted at any point in oil and gas production – well drilling, compressor stations and LNG terminals. For the first time, Congress will set some industry-wide limits on methane leakage. Oil and gas companies that emit above a certain level of methane across all operations trigger a fee that will escalate over time. There is also a new royalty fee on all methane extracted from public lands, including the common practice of venting and flaring. And to top it all off, there’s additional funding to monitor 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 land and water as well. The bill raises royalty rates for the oil industry and increases minimum bids (from $2 an acre to $10). The environmental group Center for Western Priorities noted, however, that the bill also includes some new incentives for oil leasing, such as requiring the Interior Department to expand offshore oil offerings.
Pollution reduction and environmental justice: There is $60 billion for overall environmental justice priorities: $15 billion of that funding goes to a range of priorities, including clean energy and emissions reductions specific to low-income and disadvantaged communities. Community groups, governments and tribes can also qualify for $3 billion in block grants for programs such as cleaning up abandoned mines, monitoring air quality and improving resilience to extreme weather. And the bill contains $3 billion to restore and reconnect communities separated by freeways.
Industrial pollution: Currently, the industry is owned by the US the third most polluting sector, after transport and current. By 2030, it could be the most polluting sector. While cleaner cars and renewable energy are technologies that need to be adopted on a wider scale to make these sectors cleaner, heavy industry still relies on fossil fuels because of the high heat required to produce raw materials. So the bill helps in this area by providing energy efficiency incentives to industrial facilities to reduce their footprint.
Domestic production of clean energy: There is another $60 billion in incentives and funding to boost domestic production of clean energy technologies.
Most of those incentives will go toward accelerating U.S. manufacturing of solar panels, wind turbines, batteries and critical minerals, and to help build the facilities that will build electric vehicles.
The inclusion of $500 million for heat pumps and critical minerals is new, providing funding for Biden’s use of the Defense Authorization Act to boost production for energy-efficient technology.
Jason Walsh, executive director of the environment- and labor-focused BlueGreen Alliance, explained why domestic manufacturing of batteries, solar and offshore wind is so important. “These are big investments and they are risky. And if we expect manufacturers to make them in the United States, they’re going to need to have some long-term certainty and policy support,” he said.
The bigger picture on US climate action
The news that climate is back on the table came as a relief to advocates who have spent 18 months fighting to pass a climate deal.
With no new action from Congress or the president, economic modelers at Rhodium Group estimated that climate emissions are on track, by 2030, to be somewhere between 24 percent and 35 percent lower than they were in 2005, the peak year for carbon emissions. It’s not much, even if it sounds like it: Biden had set a goal under the Paris climate agreement to cut those 2005 levels in half by the end of the decade.
The deflationary law doesn’t necessarily get the US there. Federal regulations on power plants, auto pollution, and methane will continue to be important in filling the remainder of this gap.
But that’s a far cry from the bleak picture when it looked like Biden would have few limited regulatory options to tackle climate change. While Biden has faced pressure from the left to declare a climate emergency, his powers and lasting impact would be far more limited than anything Congress could do.
Although imperfect, Democrats hailed the bill as an important step forward in combating the climate crisis. Sen. Brian Schatz (D-HI) last week called it is “both historical and advance only”. 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.