On Friday, 12th of August 2022, United States Congress officially passed the Inflation Reduction Act, which now sits with President Joe Biden and is expected to soon be signed into law. The bill aims to combat inflation through a reduction in cost-of-living expenses, including energy prices, through domestic manufacturing investment and financial incentives.

Importantly, the legislation comprises a $737 billion USD spending package, with approximately $369 billion to be made available for energy and climate change initiatives – the most ever in US history.

The Legislation That Nearly Wasn’t

This bill’s path to enactment has been a bumpy one to say the least. The Inflation Reduction Act originally began life as part of Biden’s proposed Build Back Better bill, which included significant provisions toward tackling climate change, to the tune of $555 billion USD (the total bill sat at $3.5 trillion). An earlier public denouncement by Senator Joe Manchin seemingly killed the bill due to concerns around social spending and climate provisions that he believed would weaken the fossil fuel industry in his state of West Virginia. Without the full support of every Senate Democrat, there would be no path forward for the proposed legislation. Fortunately, a last-minute reversal in stance by Manchin allowed the bill to proceed, due in part to negotiations between Manchin and Senate Majority Leader Chuck Schumer (the pair are listed as co-sponsors of the amended act).

The Act is a win for climate conservationists.

What’s Included

Reducing greenhouse gas emissions is a major focus of the climate portion of the bill, which is slated to be achieved through multiple mechanisms. Firstly, there will be a broad push to replace fossil fuels with electrical and alternative energy solutions. Electric vehicles will be brought to market at lower and more affordable price points (primarily through tax credits) and the energy efficiency of both industrial and consumer devices will also be made a priority.

The bill also includes a significant emphasis on building up domestic manufacturing of clean energy technologies to power a greener, more energy conscious US. This includes increased support for solar panel and heat pump manufacturers to further ramp up production, integration of alternative power sources within the industrial sector and tax credits for consumers and businesses to help drive adoption of clean energy. With all this activity, it is reassuring to see that the stability of the electrical grid is also being considered; $30 billion is being set aside for energy storage provisions, with additional tax credits and grants to keep the infrastructure running smoothly.

Other provisions include establishing a program to reduce methane leaks from natural gas production by issuing fines to companies, investing in public transportation and tax credits for low-carbon renovations to homes. Even the US Postal Service is getting in on the Act, receiving $3 billion to aid in purchasing zero-emission vehicles.

Future Impact

Independent analysis has estimated that the bill could help to significantly reduce the United States emissions by 40% within the decade.

Though the proposed budget represents a portion of the original spending package with a narrower scope, independent analysis has estimated that the bill could help to significantly reduce the United States emissions by 40% within the decade. This estimate falls short of the 50-52% reduction promised as part of the Paris climate agreement, however its forecasted impact is enormous when you consider the role that the US plays in climate change. The country is one of the world’s worst when it comes to emissions, currently sitting at number two behind China.

Having one of the biggest polluters (and until recently, the world leader in emissions) commit to serious investment in combating climate change is a massive win at scale, and goes a long way toward helping to prevent, or at the least slow down the frequency of, future climate catastrophes. This Act shows that the US is finally committed to serious action on climate change, with a long-term roadmap paving the way for significant outcomes. Hopefully, their efforts inspire other nations to refocus environmental policy, combined with consumer and industry action, will allow us to avoid the critical global warming threshold of 2°C in 2050. Friday’s landmark Congressional action is a huge step toward a more sustainable tomorrow.

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