The Inflation Reduction Act Is About to Jumpstart U.S. Climate Policy and Change the World

·5 min read
An oil pumpjack operates on August 5, 2022 near Ventura, California
An oil pumpjack operates on August 5, 2022 near Ventura, California

An oil pumpjack operates on August 5, 2022 near Ventura, California. Credit - Mario Tama—Getty Images

In July, a pair of Senators gathered reporters in the U.S. Capitol Building to deliver a message to President Joe Biden: it’s time to declare a climate emergency. It was, to be sure, something of a Hail Mary. The prospects of major climate legislation had dimmed, and the two Democrats were desperate, worried it could be years before Congress tackled climate change in a meaningful way. “Am I concerned that it will be a decade before we have a climate majority?” said Sen. Jeff Merkley of Oregon, alongside Sen. Sheldon Whitehouse of Rhode Island. “I am damn concerned.”

Less than three weeks later, Democratic Senators walked off the Senate floor in celebration after passing the Inflation Reduction Act, the most significant climate legislation in U.S. history. In the coming days, the House of Representatives is expected to follow suit, sending the bill to Biden, who will, with his signature, begin a new era of climate policy in America.

Experts say the legislation will dramatically accelerate the decline in U.S. emissions, putting the country within reach of the Biden Administration’s goal of slashing emissions in half by 2030 when compared to 2005 levels. That goal serves as a barometer of how much climate change-generated pain and destruction the world can avoid, and sets a destination of sorts for all U.S. climate policy. The Inflation Reduction Act offers a framework for how the U.S. will tackle climate change in the eight years until that deadline and beyond. It invests more than $360 billion in energy and climate change programs over the next decade, including enormous tax incentives to advance renewable energy and electric vehicles. The bill still leaves many details to be determined, and battle lines are already forming over the future of fossil fuel production and how to advance environmental justice.

Regardless of how those battles play out, the bill will give the U.S. newfound credibility as a climate leader on the international stage and help convince other countries that the energy transition is irreversible. It’s impossible to know exactly how well every climate provision of the Inflation Reduction Act will work, but what is clear is that once signed into law, it will jumpstart an economic transformation and rejigger international climate politics—with ripple effects that will shape communities large and small, and affect the way Americans live.

The bill’s ripple effects

The Inflation Reduction Act’s approach to cutting U.S. emissions is the result of decades of trial and error. President Bill Clinton attempted to pass an energy tax but fell short; climate advocates learned that upsetting big business could doom legislation. President Barack Obama supported congressional efforts to pass cap-and-trade legislation endorsed by big business; when the bill sputtered in the Senate after being passed by the House, climate advocates learned they would need to foster grassroots support to get legislation across the finish line.

Both of these lessons—and many others—paved the way for the Inflation Reduction Act. It relies largely on carrots over sticks—incentivizing businesses to decarbonize rather than penalizing them for not doing so. And it promises to create jobs and investment in Americans’ communities, making it more politically palatable for broad swaths of the voting public.

At the core of the legislation are tax credits for companies that build wind and solar power as well as a slew of other clean energy technologies. These credits, which last for ten years, will catalyze the creation of a decarbonized energy system and serve as the driving force behind the bill’s emissions reduction. Beyond that, a range of industries will be nudged to decarbonize. Airlines will get credit for buying lower-carbon fuel. Industrial firms will receive financial incentives to capture and store carbon dioxide in their production process. “This legislation truly is transformative,” says Dan Lashof, a director at the World Resources Institute. It “gives long-term investment certainty, which will really mobilize capital and transform our energy system.”

This may sound distant and wonky, but these changes will ripple across the economy—and into your backyard. Nascent technologies—from battery storage to hydrogen power—will get a boost, creating new jobs and inspiring new companies. The legislation gives the Department of Energy the authority to loan private companies up to $250 billion to advance clean energy programs. Tesla received a loan from that same program a decade ago, helping it expand its manufacturing. The next clean technology giant could benefit from a similar loan, if not other provisions in the Inflation Reduction Act.

You’ll notice the bill’s effects as a consumer, too. Tax incentives for home renovations will create new opportunities for Americans to make their homes more energy efficient. Analysts say that efficiency, combined with the lower cost of renewable power, will reduce consumer energy prices. And then there are the incentives for electric vehicles: buyers can receive a tax credit of up to $7,500 per vehicle. With such incentives, many consumers who aren’t even currently thinking of buying an electric car may find that their next vehicle will be one.

Democrats and climate activists didn’t get every provision they wanted in the bill, and they had to strike compromises to keep their caucus together. The legislation offers incentives for deploying carbon capture technology, which would allow a continued reliance on fossil fuels so long as companies capture the carbon emissions. Environmental justice activists argue that these technologies will do little to help the underserved communities that tend to bear the brunt of environmental pollution from fossil fuels. And, in what climate advocates call a poison pill, the legislation requires the federal government to auction some federal land for oil and gas drilling. The Inflation Reduction Act may help the U.S. confidently say that the energy transition is in full swing, but more work remains to ensure that the transition is just.

Still, we are entering a new era in the fight against climate change, and it opens with the Inflation Reduction Act.