The Inflation Reduction Act + Climate Change
I’m a tough old bird, but when I got the news that the Inflation Reduction Act (IRA) had passed through the House and Senate—projectile tears. For the first time, the United States government is putting what in my opinion is the proper priority on the threat of climate change to the web of life on the planet, and making it possible for us to do much of what is needed financially to fight it.
Now, as I read and attempt to understand the IRA’s enormous implications, I’m even more awed and so profoundly grateful for the extreme competence, even brilliance, of those who crafted this bill, and their deep grasp of what needs to be done to reduce the buildup of greenhouse gasses (GHGs) in the atmosphere. That they specifically addressed the challenges of reaching our most under-resourced communities, who are buckling under the heavy load of energy bill burdens, makes me bow my head in gratitude. That leaders in the Senate worked for weeks to negotiate compromises, enabling the bill to pass 51-50, steadied my wobbling confidence in our system of government.
The IRA’s climate & energy provisions, totaling $374 billion, are of a similar magnitude to FDR’s New Deal during the Depression, which cost $340 billion in today’s dollars, or LBJ’s Great Society, which introduced Medicare and Medicaid and other programs intended to eradicate poverty, at some $540 billion today.
And the aims of the IRA are perhaps even more bold, broad, and deep—such as corporate tax reform to help the bill pay for itself, reducing the price of pharmaceuticals, and extending health insurance subsidies under the Affordable Care Act. With the help of articles by The Atlantic’s Robinson Meyer, here are some highlights:
In passing this bill, Congress establishes that, by law, carbon dioxide is an air pollutant harmful to humans that must be regulated under the Clean Air Act. This is important, because the Supreme Court, in June 2022, limited the EPA’s power to regulate CO2, frequently citing the fact that Congress has never declared it an air pollutant. Now Congress has, restoring and broadening the EPA’s authority to regulate carbon emissions. The bill then provides subsidies to make it cheaper for companies to comply with the new regulations.
The bill subsidizes the generation of zero- and low-carbon power, such as wind, solar, and even nuclear (largely GHG-free from generation, and new ways of building and locating plants will make it safer), with technology-neutral tax credits. The total effect has been projected to be a roughly 40% reduction in carbon emissions by 2030, about 2/3 of what we need to achieve Paris Climate Accord goals. And the dynamics set in motion by the bill are likely to exceed that estimate.
Breathtaking.
After decades of, for the most part, rejecting industrial policy, with the IRA the U.S. government recognizes that market forces alone will not motivate industry to reimagine and retool to reduce GHG emissions in time to prevent catastrophic climate change. For example, the bill invests more than $11 billion to develop two nascent industries considered critical to managing climate change: the production of truly-clean hydrogen, a fuel that burns hotter than coal and emits no carbon but is currently too carbon-intensive to produce; and carbon removal from the atmosphere. The world will need to remove about a billion tons of carbon annually by 2050, and industry doesn’t know how to yet at scale. Companies will join federal agencies in new hydrogen and carbon-removal “hubs”, or geographically-concentrated areas, under the proven principle that when lots of people work on the same problem near one another, they can solve the problem faster (think Silicon Valley).
There are incentives also for production of the necessary materials & equipment here in the US, not China, such as solar panels and the batteries we will need to electrify many things. For example, people buying electric vehicles will initially enjoy larger credits for cars whose parts are made in America.
What the IRA means for Kansas Citians
About $60 billion of the IRA dollars are devoted to one of BTG’s favorite topics–energy efficiency in buildings. This includes money for households to insulate and to replace aging items like furnaces, water heaters, and ACs with much more efficient alternatives like heat pumps. Because of differing climates, the prescriptive list varies by state: click here to see these measures for Missouri and here for Kansas. Over time, these offer the potential to reduce energy burdens by at least 25%. Our team witnesses daily how sorely these things are needed in communities, where high energy bills are contributing to the affordable housing crisis and poor health outcomes.
For governments, cities, quasi-governmental groups like the Mid-America Regional Council (our metro planning agency), and non-profits like BTG, it means that funding may be available at never-before-seen levels to make climate plans a reality. All of us will be sharpening our grant-writing pencils like mad to apply for IRA funds which will flow through state and cities. Through such grants, BTG hopes to help households and even HVAC professionals understand the benefits of, choose and install energy-efficient devices. The bill has $1.5 billion just for urban forests to cool communities and conserve energy, and our KC urban forest needs a lot of help.
As the pandemic has taught us, shortages and bottlenecks could slow down the Inflation Reduction Act’s goals. We may face shortages in skilled labor, such as contractors who can install the new appliances and heating and cooling systems, as well as shortages in the equipment itself, possibly shortages even in the supply of appropriate trees for our region. Such shortages need to be anticipated, with workforce training and innovative solutions, like growing trees from seed in neighborhoods. The City of KCMO, already understaffed, will need to create new positions to address energy efficiency in homes, for example. And we’re looking to soon add a senior leader position with grant-writing experience to help us fund, design, and manage new programs. In other words, new capacity needs to be built.
As Robinson Meyer of the Atlantic writes, “The IRA isn’t like an EPA regulation that will modestly bend the curve of U.S. emissions. Instead, it catapults the country into a whole new landscape where the economics of every other climate action are different.” AT BTG, we can’t wait to be catapulted.