Inflation Reduction Act of 22: What will the bill mean for US carbon emissions?

The US senate is set to pass the Inflation Reduction Act of 2022, which would include the largest climate spending package in US history. How big of an effect could it have?

By James Dinneen

In an about-face from what appeared to be stalled negotiations just last week, the US Senate is set to pass the largest climate spending package in US history as part of a bill called the Inflation Reduction Act of 2022. The Senate is expected to begin debate on the legislation on Saturday. Here are some of the things it contains and what it could mean for climate change.

What is the Inflation Reduction Act of 2022?

The Inflation Reduction Act aims to address inflation through policies that would reduce the cost of energy as well as the federal deficit. According to a draft version of the bill, it is expected to raise an estimated $739 billion in revenue from a new corporate minimum tax, improved tax enforcement and prescription drug reform. In addition to spending on health care, $369 billion is marked for energy and climate change priorities.

What are the most important climate provisions in the bill?

The bill aims to reduce greenhouse gas emissions in two main ways: electrifying things that currently run on fossil fuels and generating more electricity using renewable and clean energy sources.

On the electrification side, the bill currently includes a $4000 tax credit for used electric vehicles and a $7500 credit for new electric vehicles, as well as tax credits for low-carbon renovations to homes, like installing heat pumps and rooftop solar panels. It also puts $6 billion towards reducing emissions from hard-to-decarbonise industries like cement, chemical and steel plants. The US Postal Service – the largest source of federal emissions second to the US military – gets $3 billion to buy zero-emission vehicles.

On the electricity generation side, the bill contains $30 billion in grants and establishes tax credits for states and electric utilities to adopt clean energy and energy storage, which is key for maintaining the stability of the grid with higher levels of intermittent renewable sources. This includes support for hydrogen and carbon capture technology, as well as new tax credits to keep nuclear power plants running. And it includes $60 billion to support clean energy manufacturing intended to accelerate production of solar panels, wind turbines, electric vehicles and heat pumps.

The bill also establishes a program to reduce leaks of methane – a super-potent greenhouse gas – from natural gas production by fining companies for each ton emitted. Beyond cutting emissions, it includes $60 billion in support for environmental justice initiatives, like improving public transportation in underserved communities and reducing air pollution at ports.

How much would the bill reduce US emissions?

An early analysis from Rhodium Group, an independent energy think tank, estimates the bill would reduce US greenhouse gas emissions by 31 to 44 per cent below 2005 levels by 2030; other modellers found similar reductions. Without the bill, Rhodium found the US was on track to reduce emissions by 24 to 35 per cent below 2005 levels by 2030. The expected reductions still fall short of the Biden administration’s target of a 50 per cent reduction by 2030, but the gap could be made up through executive actions, says Holly Burke at Evergreen Action, a US climate advocacy group.

Why has the bill been controversial among some environmental groups?

While praising the bill’s support for climate priorities, environmental groups pilloried its simultaneous support for new fossil fuel development.

One provision in the bill says approval for renewable energy development on federal lands is contingent on auctioning oil and gas leases. The bill also requires the Department of the Interior to sell leases for oil and gas drilling in the Gulf of Mexico and off the coast of Alaska. “The bill is a hostage situation,” says Jean Su at the Center for Biological Diversity, a US environmental advocacy group. “There are great renewable energy investments in this bill, but at the same time there are awful fossil fuel giveaways.”

The draft bill was negotiated in secret by Senator Joe Manchin of West Virginia and Senate Majority Leader Chuck Schumer of New York. Manchin had said he would not support similar legislation, but in a surprise announcement on 27 July he revealed that the senators had reached a deal.

Manchin’s support was contingent on the passage of a separate bill meant to speed up the permitting process for new energy projects, including a natural gas pipeline in West Virginia. Speedier permitting could be a boon for building renewable energy projects and transmission lines, but Su says it could also help fossil fuel projects and create an environmental review process that leaves out communities and threatens wildlife.

Arizona Senator Kyrsten Sinema’s announcement on Thursday that she would support the bill gives the Democrats enough votes to pass the bill through a process called budget reconciliation, which would allow the bill to pass with 50 votes. The Senate is set to begin debate on the bill on Saturday if it passes review by the Senate parliamentarian.

What are the other parts of the bill to watch climate-wise?

The bill puts $27 billion towards a “green bank” to invest in public-private partnerships that cut emissions, with $8 billion specifically directed to disadvantaged communities. It also contains significant funding for research, with $2 billion for basic research within national laboratories, including for fusion and high-energy physics infrastructure.

Other parts of the bill focus on agriculture, which accounted for 11 per cent of US greenhouse gas emissions in 2020. The bill sets aside $20 billion for “climate-smart agricultural practices”, such as reducing methane emissions and building up soil carbon. There are grants and credits to support biofuels, including infrastructure for more sustainable jet fuel. And $5 billion will go towards making forests more resilient to wildfire as well as urban tree planting. $2.6 billion will go to funding and grants to protect coastal communities and habitats.