Saturday, August 27, 2022

The Inflation Reduction Act Delivers Long-Awaited Federal Action on Clean Energy & Climate

 After a year of fits and starts, after many months of breakthroughs and reversals, the US Senate has passed long-awaited federal action on clean energy back on August 7th. That was a dramatic reversal from mid-July of 2022, when climate activists were in near total despair suspecting that all hope was thought to be lost. This legislation, which started as “Build Back Better” and has since been retitled as the “Inflation Reduction Act” was also passed by the US House and Signed into law by President Biden on August 16th.

It was passed as a reconciliation bill so as to avoid needing to clear the legislative filibuster. While clean energy and emissions reductions standards could not get into a budget reconciliation bill, clean energy investments could. So it has a lot of carrots and few regulatory sticks.

The Bipartisan infrastructure package from Nov of 2021 was a bit different. The IRA is more of a tax and spend bill whereas the Bipartisan Infrastructure package was a capital bonding bill. The IRA involves about 10 times more carbon reduction capacity.

When Build Back Better first started, Budget Committee Chair Bernie Sanders wanted 6.5 Trillion for it. Then Biden proposed 3 trillion instead. Then Senator Joe Manchin said he would only accept 1.5 trillion. The IRA is about 10th of this original amount. However, the climate provisions from BBB are the only part of the package that crossed the finish line intact thanks to public pressure.

Tax credits for clean energy is essentially the same as Gov’t spending. While there is no tax credits for E-bikes, just about about everything in the way of clean energy and climate gets one- Wind, Solar batteries, nuclear power, heat pumps, clean vehicles, insulation, low income families switching appliances and upgrading electric panels etc.

Some of these clean energy federal tax credit expired 3 times in 10 years. Now the Tax credits of around 30% are extended until 2032 which has potential to put the energy transition on steroids.

It is estimated to save households $50 Million on electric bills.

As for clean vehicles, the incentive will now be at the point of sale rather than a buyer having to pay the full costs of the Eclectic Vehicle up front and then filing taxes to get it the incentive.

After close to 30 years of trying to put a price on carbon and other ways to make fossil fuels more expensive, the political resolution ended up being to make the clean stuff cheap rather than the dirty stuff expensive.


Read the full statement from MN350 on the IRA here.


The IRA has got its fair share of critique lately, namely because a raft of provisions that makes it easier to site harmful facilities in environmental justice communities and promote more oil, gas, and coal extraction. This was the result of the political sausage making process and it is no consolation to front line activists who have been maintain top removal in Appalachia or fighting a pipeline.

One deal was that if we could use the public lands for Renewable Energy then fossil fuel companies should also get leases for drilling on public lands. The side deal, which was agreed to in principle but not in formal bill involves enabling fossil fuel infrastructure to be build more easily, along with reform on easing of permitting for renewable energy infrastructure.

 Because the economics of fossil fuels is becoming increasingly grim, the worst-case scenarios for pipelines and fossil fuel extraction from the bill will not likely happen. But we are trying to drive down the demand for fossil fuel consumption.  

 We are already seeing (for example) many cases of oil and gas leases opening with no bidders, or bidders who ultimately conduct no extraction. For every ton of carbon increased as the result of the IRA, it would be coupled with 25 units of carbon going down.

 The IRA could have gone further in protecting environmental justice communities who have long borne the brunt of dirty energy pollution and climate risk, despite some limited funding for environmental justice projects. It falls short of 40% going to disadvantaged EJ communities. That is below what Build Back Better and Justice 40 would have given.

It is regrettable to see local communities impacted by fossil fuels and climate change are understandably incensed at once again being a bargaining chip sacrificed to make progress on climate. To dig more into the things about the bill that throw impacted communities under the bus and fail to address the root causes of climate change, read this summary in the Guardian or this direct response to the bill from the Indigenous Environmental Network.

Despite it being far from perfect, the IRA is still the single largest federal investment in climate solutions and clean energy action in US history, which is not exactly a high bar. It could be a long-awaited game changer for community-based renewable energy projects:

  • For the first time ever, the federal government has ever made an extension of clean energy investment tax credits to be longer than 2-3 years. The Investment Tax Credit cannot be used to help cover the cost of clean energy project is extended long-term through the early 2030. This will create predictability for clean energy developers in helping plan projects for the long term.
  • While the base level of the Investment Tax Credit available to any clean energy project regardless of type drops dramatically, the value is increased from 26% to 30% for any project that:
    • Is under 1MW AC and thereby supports development of more local and community-scale energy.
    • Meets prevailing wage and apprenticeship requirements (even if it is over 1MW), which supports family-sustaining jobs and increases racial equity in the workforce.
  • There are bonus credits of 10% for projects that are located in designated low-income communities or 20% for projects that deliver at least half of their benefits to low-income residents. Projects that stack these aspects together will qualify for a 40-50% tax credit, which is a major win for ensuring equitable access to clean energy.
  • Most importantly, solar tax credits will become refundable, meaning Clean Energy Developers can receive the value of the tax credit directly rather than having to go through an expensive, extended, and uncertain process of trying to find a private investor to partner with to use the tax credits. This will make the process of financing solar projects dramatically cheaper and easier in the years to come.

Overall, what President Biden said at Glasgow was that we will cut our emissions by 53% by 2030.

But the goal is getting emissions to zero most likely closer to 2040 than 2050.  

The bill gives us a chance but is not an endgame. Biden could declare a national climate emergency.

But it is humanity’s best chance to solve the problem.

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