There is an immense amount of misinformation surrounding the Inflation Reduction Act (IRA), making it a challenge to comprehend the full implications of this bill. In this article, I aim to give readers a fuller understanding of the IRA spending priorities, as well as a summary of the current criticisms of the bill.
The Inflation Reduction Act (IRA) marks the most significant piece of climate legislation in U.S. history. Studies have found that the IRA as a package will put the U.S. on course to reduce greenhouse gas emissions some 32 to 42 percent below 2005 levels by 2030, compared to a 24-35 percent reduction without it. The bill will also provide an array of economic benefits for the American people, reducing the average household energy costs an estimated $112 per year by 2030 through the implementation of various energy-related tax credits. However, despite being championed as a climate-saving bill by Democratic Party politicians and the Liberal media, parts of the climate justice movement are heavily critical of the overarching approach of the bill—namely the decision to incentivize renewable energy without also taxing fossil fuels. The movement is also outraged with West Virginia Senator Joe Manchin, whose deciding vote gave him the leverage to add notable fossil-fuel friendly provisions to the bill, as well as negotiate his own side-deal that was drafted by an oil and gas lobbying group.
The Inflation Reduction Act is focused on three main areas: tax policy, healthcare reform, and energy and climate policy. Over the next 10 years, the IRA will produce over $765 billion in Federal government revenues. It will also lay out some $489 billion to support government programs around renewable energy, climate change, and environmental justice, and aims to reduce the federal deficit by about $300 billion. A large portion of government revenue and savings comes through adjustments to tax and healthcare policy. The new 15 percent minimum corporate income tax will bring in an estimated $222 billion, particularly from large companies such as Amazon, Berkshire Hathaway, Bank of America, Verizon, Intel, Wells Fargo, Comcast, and Google. These companies currently pay less than 15 percent. Other IRA-related tax policies, including a stock buy-back tax and enhanced IRS enforcement, will collect a combined $250 billion. Healthcare reform, including drug-price negotiations, price-caps on drugs, and other policies, will bring in around $280 billion.
As for spending priorities, around $100 billion of the act’s expenditures are healthcare related, centering around Affordable Care Act subsidies. The estimated $390 billion remaining is allocated for climate and energy related policies. These policy priorities are outlined below.
Around $130 billion of the IRA expenditures will fund tax credits for the installation of wind and solar projects and grid-scale batteries, incentivizing power producers to invest in renewables. These projects will lower energy costs for consumers and lessen overall CO2 emissions.
In order to receive all of the bill’s tax credits, manufacturers and power producers need to meet wage and apprenticeship requirements. For example, the IRA mandates that 10-15 percent of certain project labor hours go to U.S. Department of Labor registered apprentices.
In regards to manufacturing, $37 billion will be used to build out an American renewable energy industry. This portion of the bill will provide incentives for companies to domestically produce clean energy technologies, including wind turbines, solar panels, batteries, and necessary minerals. This investment will lower the cost of these products for energy companies to purchase, in turn lowering costs for the consumer.
The bill also provides $20 billion in loans to build new clean vehicle manufacturing facilities, and $5 billion will be used towards reducing emissions from energy intensive sectors (such as chemical, steel and cement plants).
One of the limitations of wind and solar is that they are intermittent energy sources, even with the significant investment in battery storage in the IRA. There is an ongoing debate around the use of nuclear energy and whether it is necessary for a transition to a non-fossil fuel based economy. The IRA allocates $30 billion in tax credits for existing nuclear power plants, given that they meet specific energy-price and worker wage requirements. This is one of the more controversial features of the IRA from both an environmental and economic perspective, as nuclear power is extremely expensive in comparison to renewables.
The IRA also makes significant 'direct-to-consumer' investments, with $22 billion to be invested in helping homeowners improve their homes through the electrification of previously gas-based appliances. These include electric-powered heat pumps to heat and cool homes, heat pump water heaters, and electric stovetops. These credits become available beginning in 2023. This is an important investment, as shown by a Rewiring America study, which states that “replacing furnaces and water heaters alone, could immediately lower costs for 103 million of America’s 121 million homes in every zip code, generating $37.3 billion in additional discretionary income across the country per year.” While these appliances already save homeowners money in the long-run, this funding will assist with upfront costs that may have been preventing them from making the switch to electric equipment.
Some $14 billion in the bill will be used for a 30 percent tax credit for other home-efficiency improvement credits, covering the costs related to insulation, windows, doors and roofing, which are capped at $1,200 per year starting in 2023. This section of the bill also increases a solar-installation and battery-storage installation credit to 30 percent with an unlimited cap beginning next year. Unfortunately these credits are not extended to renters, which has been a source of criticism. Many renters are students and the elderly living on fixed incomes, as well as residents living in low-income communities and/or communities of color.
Many consumers are intrigued by the tax credits available for electric vehicles through the IRA. Around $14.2 billion of the bill will be used to provide incentives towards the purchase of emission-free vehicles. The bill also incentivizes the commercial and residential installation of EV charging stations, allowing consumers to apply the EV tax credit at purchase. It also removes a cap on the amount of vehicles that manufactures can claim for credits. While the government has said that EV owners can receive up to $7,500 in tax credits, there are limitations. For instance, individuals or families in higher tax brackets do not qualify. New vehicles over $55,000 and used vehicles over $25,000 also do not qualify. Furthermore, domestic manufacturing requirements will make it harder for consumers to claim these tax credits. In fact, the Alliance for Automotive Innovation has stated that over 70 percent of the EV’s on market today do not meet these standards. Critics of the bill argue that the fight to include a domestic manufacturing element in a bill aimed at emission-reductions could have been a mistake. The availability of the consumer tax credit will come down to how important individual manufacturers believe the credit is to sales. There are indications that manufacturers may retool and/or build new production facilities in the U.S. in order to allow potential customers to take advantage of such credits. Otherwise, they will be left behind by their competitors in the EV auto market.
As discussed in our report, A Green New Meal: How Factory Farming Fuels Climate Injustice and What We Can Do About it, commercial agriculture and factory farming are both major sources of greenhouse gas emissions. To address this problem, some $16 billion in the bill focuses on agricultural conservation, specifically funding farming practices that will reduce emissions. In the US, farming accounts for 10 percent of climate-affecting emissions each year. The Environmental Quality Incentives Program (“EQIP”) will receive a total of $8.45 billion, and the bill prioritizes reduction in methane emissions from cattle. It also supports projects that improve soil carbon sequestration and reduces agricultural carbon emissions. Around $5 billion will be spent towards forest conservation, including measures to make forests less susceptible to fires. An additional $10 billion will go to drought resilience and coastal weather and climate resiliency measures.
The IRA will also push $27 billion towards the creation of an EPA Greenhouse Gas Reduction Fund. Of this funding, around $8 billion in grants will be invested in low to medium-income communities, while $7 billion in grants will invest zero-emission technology projects in low-income communities.
Other interesting elements of the bill include $3 billion in funding for Environmental and Climate Justice Block Grants, which invest in community-led projects in disadvantaged communities that address pollution-related public health issues and climate change. The Neighborhood Access and Equity Grants will receive $3 billion, which support neighborhood equity, safety, and affordable transportation access, while working to mitigate the negative impacts of construction or transport projects on underserved communities. The bill also plans to allocate $3 billion to the electrification of the U.S. Postal Service truck fleet, and $5 billion to the improvement of federal buildings and highways.
The IRA undoubtedly contains many positive elements regarding climate policy. Nevertheless, some movement-based critics are not happy with the bill, even calling it a “legislative ransom note written by a fossil fuel industry.” Many environmentalists’ qualms with the bill center around both the overarching philosophy of the bill, which incentivizes renewable energy instead of taxing fossil fuels, and the provisions added by Senator Manchin which are extremely generous to the fossil fuel industry.
Some are calling this bill the death of the carbon tax - a policy-idea first conceptualized in 1981 by Yale economist William Nordhaus. The carbon tax was once thought of as a bipartisan policy, namely for its climate focus and market-oriented functionality which would not increase government spending. At the Paris Climate Summit in 2015, President Obama emphasized his support to put a price on emissions. In recent years, however, momentum for the carbon-tax has been dwindling. Most climate justice advocates have instead favored an opposite approach: to incentivise renewable energy instead of demanding carbon taxes be placed on fossil fuels in order to discourage their use.
This alternative strategy can be seen in the litany of IRA tax-credit incentives and lack of new taxes on fossil fuels. Some climate activists are skeptical because this leaves the door open for fossil-fuel corporations to continue polluting without punishment. In other words, the IRA could lead to the expansion of renewable energy without a corresponding decrease in the use of fossil fuels and carbon-emissions. Some elements of the movement are also concerned over the bill's investment in debateable (or false) climate solutions like ‘clean’ hydrogen ($13.2 billion), or the investment in carbon capture and storage schemes ($3.2 billion)—an expensive and potentially dangerous technology considered to maintain U.S. reliance on fossil fuels. The IRA provisions for “dirty renewable” energy sources like biomass are also considered to be highly problematic.
One key frustration for the climate justice movement is Senator Joe Manchin. As the deciding vote in the Senate for passage of the legislation, he was able to force several fossil-friendly policies into the IRA. Senator Manchin added the re-opening of an offshore lease in Alaska’s Cook Inlet by the end of 2022 and two leases in the Gulf of Mexico by mid 2023 - two clear handouts to oil and gas interests. These leases were previously vacated after the Department of the Interior found that they did not meet greenhouse emissions standards. Furthermore, the Alaska lease will directly impact Indigenous peoples who live along the Cook Inlet. The excellent opinion-piece titled, “President Biden, please save our Native village’s life-sustaining waters — for our children’s sake,” written by Nanwalek Village Chief John Kvasnikoff, illuminates how devastating developments like these leases are to Native populations.
Many in the climate movement are also unhappy about a provision in the IRA added by Manchin that requires the government to also make federal land available to oil and gas drilling leases if it makes land available for renewable development. While this seems dire on first read, and some environmental groups have called the provision a “climate suicide pact”, this element may not be as disastrous as it seems. The bill does not require the government to lease land to oil and gas companies, but only that a corresponding parcel of land is made available for potential oil and gas leases if a parcel is made available to renewable projects. According to the Columbia Law School, oil and gas industry interests in federal land leases have been decreasing recently. In fact, the Trump administration offered nearly 12 million acres of federal land for oil and gas leases in 2017, but industry bid on less than 800,000 acres. Furthermore, the Rhodium Group states that, “it’s worth keeping in mind that only a fraction of public land acreage put up for sale actually gets purchased, and only a fraction of sold leases actually get developed.” This section of the bill essentially protects fossil fuel leases from being banned in the next 10 years, but does not necessarily increase the amount of developed leases.
Any critique of this section of the bill must also acknowledge that the IRA will effectively end non-competitive leasing—a process where auctioned public land that has not received bids is offered at no-bid fixed rates to oil and gas companies. This process has led to public lands sitting idle under ownership of fossil fuel and development companies at little to no cost. In Montana, “1.4 million acres—or 67 percent—of all public lands leased for oil and gas development are sitting idle.” Some 32 percent of all Montana lands leased through BLM since 1987 that remain under lease were sold noncompetitively at the no-bid price of $1.50 per acre.
Additionally, the bill also introduces a tax on oil and gas federal land leases that sit idle without development, further disincentivizing this practice. This evidence is not to say that this section of the law is may not be as worrying as originally thought, or that it will substantially undermine President Biden’s climate plan to ban new oil and gas permitting on public lands and waters. While this aspect of the IRA is in need of further investigation, it does suggest that there is a general misunderstanding of the law’s leasing provisions by both the media and the movement.
Manchin also came extremely close to achieving his own side-deal, which went from a near certainty to being scrapped on September 27th from current negotiations, signifying a significant win for the climate change movement. Part of this side-deal would have permitted the construction of the Mountain Valley Pipeline that would transport gas for 300 miles through the Appalachian region. Considered by many to be in the backpocket of the fossil fuel industry, Senator Manchin has personally received over $1.3 million
in donations this year from the oil and gas, pipeline, mining, coal, and electric utility industries that make up the heart of the Polluter-Industrial Complex. This is more than double than any other member of Congress. It should be no surprise then that the American Petroleum Institute, one of the leading fossil fuel lobbyists in the nation, authored the original draft of the side bill.
The passage of the IRA this past August is expected to dramatically expand renewable energy production and tax-incentives for green technologies, paving the way for the U.S. economy to transition away from fossil fuels towards renewables. Despite the host of renewable incentives, the Act’s fossil-fuel friendly elements will likely harm frontline communities, specifically in Alaska and the Gulf of Mexico. These potential impacts must be fought in the name of climate justice. These concessions are evidence of the corruptive power that the fossil fuel industry still wields over our democracy. Still, the scrapping of Manchin’s side deal—and with it, the halting of production on the Mountain Valley Pipeline—marks a crucial win for the grassroots climate justice movement and their allies in Congress. In its totality, the IRA is the most significant piece of climate legislation passed in U.S. history. After decades of climate policy dying a painful death in Congress, the climate justice movement can find hope in the passage of such significant climate legislation. Despite this, the IRA's notable compromises signify how far we still have to go. In this sense, the IRA is not the end of our political struggle for climate justice policies. It is just the beginning.