Policy Insights from the Inflation Reduction Act
On Sunday, the Senate passed a budget reconciliation bill on a party-line vote that included a number of landmark actions on tax, health care, and climate policy. The Inflation Reduction Act is expected to be passed by the House and signed by the President by the end of the week. We asked several Penn faculty affiliated with the Kleinman Center for their hot takes on the bill’s potential impact on energy policy.
The bill will provide nearly half trillion dollars in climate and clean energy provisions, representing the most aggressive climate investment ever taken by Congress. This is a big deal! Estimates by policy experts suggest that this bill will put the U.S. on a path to reduce carbon emissions by almost 40% by 2030, a critical step forward in tackling the climate crisis but not yet quite enough. We need at least 50% reductions by 2030 to be on a path to avoiding dangerous 3F planetary warming.
On the other hand, the bill’s commitment to building new gas pipelines and investment in new fossil fuel infrastructure is a step backward. It’s difficult to reconcile a promise to decarbonize our economy with a commitment to new fossil fuel infrastructure. The International Energy Agency has said this is incompatible with the goal of stabilizing warming below a dangerous 3F. We also still have a conservative Supreme Court that has blocked executive actions to address the climate crisis. This will continue to be a problem until the Supreme Court is expanded, something that can only happen if Democrats increase their majority in the Senate in the upcoming midterms elections.
This is a big step forward, restoring U.S. leadership on this issue and critical to getting countries like India and China to do their part, which is necessary for meaningful global action on climate. But there is more work to be done. More aggressive climate policy will require massive turnout by progressives in the mid-term elections and a larger democratic majority, since only one party seems interested in addressing the defining crisis of our time.
Barely over a week ago, U.S. climate legislation looked nearly impossible. A flood that tore through Appalachia, killing dozens in Kentucky, highlighted the horrific and unjustifiable inequities created by this impasse, since climate change disproportionately burdens the same communities of color and low-income communities that bear the greatest scars from our country’s fossil fuel addiction.
Against this backdrop, the Inflation Reduction Act delivers welcome if incomplete respite. It sets the U.S. on a plausible path to real climate progress. It also earmarks an estimated $60 billion for environmental justice initiatives—a sum that is considerably less than what is needed, but vastly more than nothing and a testament to the hard work of numerous advocates and activists. This money will jumpstart clean energy investments in disadvantaged communities and tackle the related challenge of energy poverty. The bill’s promotion of domestic manufacturing and high-quality clean energy jobs could also prove beneficial for many of the people and places worst ravaged by climate change and neoliberalism.
These are big wins for climate justice—but they come with compromises and costs that are also not equally distributed. The panoply of new clean energy incentives is cold comfort for the communities that will bear the brunt of the new fossil fuel infrastructure the bill also enables. Going forward, those committed to environmental justice owe these communities a concerted effort to continue to push beyond utilitarian climate politics, towards a transformational, coalitional approach to climate change policy that recognizes its deep entanglement with economic and racial justice.
Mark Alan Hughes
The biggest impact of the new bill will be the policy certainty that comes from the sum of its parts. For example, the consumer tax credits for purchases in energy production, like solar panels, and energy consumption, like heat pumps and induction cooktops, are guaranteed for ten years. This policy certainty allows a household to make reliable investments in many aspects of their home and cars. This will build in value over time as families spend the next decade changing how they heat and cool their homes, travel and commute in electric vehicles, and produce and store renewable energy.
A family that switches from gas-fired space and water heating to an efficient electric heat pump for both heating and cooling can know that tax credits will still be there next when they upgrade their electric panel and switch their unhealthy gas-fired cooktop to induction. They also know that the year after that, they can count on using the grants and tax credits to install rooftop solar with battery backup and an EV charger. And a year after that, they can rely on subsidies to switch from gas to electric vehicles. And families make these and other clean and reliable changes in any order and at any pace over the decade, upgrading in a way that best suits their needs and means.
The bill finally unleashes the full power of U.S. consumers to drive the energy transition forward and beyond the point of no return. And by doing so, it also builds the exact constituency needed to win elections and support legislation to do even more in coming years. American citizens are more than consumers. But when their pocketbook interests are mobilized, they can drive the energy transition faster and farther than any other force.
Further Reading from Our Colleagues
- On Inflation, Climate, and Compromise: 2022-2023 Visiting Scholar Meredith Fowlie
- Green Energy Jobs in the US: What Are They, and Where Are They?: Ioana Marinescu, Assistant Professor of Public Policy