While many environmentalists argue that the Inflation Reduction Act – which authorizes $369 billion in climate and energy incentives – is either not enough or contains too many compromises, it’s a very strong step in the right direction. Here’s why I think that.
For the first time in almost two decades, the U.S. government will provide incentives to produce and manufacture clean-energy products such as solar panels and wind components as a result of the Inflation Reduction Act, creating an estimated 9 million jobs as a result. Iaremenko Sergii/Shutterstock.com
Firstly, the funding will go farther than in the past. The funding in the Inflation Reduction Act is small when compared with the original Build Back Better Act, and is about half the size of the infrastructure bill Congress passed last year. But the cost of solar and wind has dropped by 90 percent in the last 10 years and the risks and costs of carbon pollution are now quantifiable and knowable. As a result, the dollars authorized by the Inflation Reduction Act will go much farther than in the past.
In addition, the private sector will step up. Most of the funds in the bill are incentives: tax credits, rebates and business and homeowner loans. These will stimulate private-sector investment in clean energy. Five billion dollars in public funds are expected to leverage $250 billion in private investment. The law also capitalizes a national green bank with $27 billion. This leverages at least $81 billion in private funds to help poor and middle-class homes switch to clean energy.
The law also gives the U.S. enormous global clout. John Kerry, as the first U.S. special presidential envoy for climate, is working hard with his team to negotiate the terms for the upcoming global climate summit this November in Egypt. With Congress behind him, Kerry now has the credibility to ask other countries to step up and take action.
Another reason the Inflation Reduction Act provisions are better than meets the eye is that the current market conditions favor renewables. New oil and gas leases were included in the law out of political necessity. But the economics don’t support them. Renewables are cheaper, so it’s unlikely that much new oil and gas infrastructure will be built. A lease auction in Alaska’s Arctic National Wildlife Refuge last year saw few bidders and low prices, clear evidence of low demand.
The Inflation Reduction Act also supports manufacturing. The U.S. government hasn’t provided incentives to produce and manufacture clean-energy products in almost two decades. As a result, almost no solar panels, batteries or wind components are built in the U.S., even though most of the technology was developed here. The Inflation Reduction Act changes that. Loans and tax credits in the law will stimulate U.S. production. Analysts project that 9 million jobs will be created as a result.
Finally, the Environmental Protection Act is now authorized to regulate greenhouse gases. Buried in the Inflation Reduction Act was language directing the EPA to regulate greenhouse gases. This is a response to the recent Supreme Court decision in West Virginia v. EPA, where the court said that, without an explicit directive, the EPA did not have the authority to regulate these gases. Now they do.
There are those who will say we can’t afford the Inflation Reduction Act because of increased inflation. But the truth is the costs of not taking action to address the climate crisis would be far more than the incentives in the bill. Plus, the bill includes specific mechanisms designed to more than offset its costs. Some $78 billion in new IRS funding is expected to result in $204 billion in additional tax collections over the next 10 years. A 15 percent minimum corporate income tax (only for corporations with revenues of over $1 billion) is expected to raise $220 billion. And a 1 percent tax on corporate stock buybacks is expected to raise $74 billion.
In order to ensure a healthy future, we cannot let up on taking action to address the climate crisis. All things considered, the Inflation Reduction Act is a win for the environment, a win for the American people, and a win for the world at large.
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