The Inflation Reduction Act (IRA) passes! What does this mean for the climate?

The IRA, combined with greater federal executive action and continued leadership from state and local governments, could put the U.S. on the path to meeting President Biden’s target of a 50-52% reduction in climate pollution by 2030.

40% Reduction in Emissions estimated due to IRA

According to an analysis from Senate Majority Leader Schumer’s office, the IRA would cut climate pollution by 40% below 2005 levels by 2030. A separate independent analysis, conducted by the Rhodium Group, estimates a 37.5% reduction as its central estimate for emissions reduction by 2030. A third analysis, conducted by the firm Energy Innovation, found a central estimate of a 39% reduction in emissions by 2030, and that “further, for every ton of emissions increases generated by IRA oil and gas provisions, at least 24 tons of emissions are avoided by the other provisions.” And a fourth analysis, by the Rapid Energy Policy Evaluation and Analysis Toolkit (REPEAT) Project at Princeton University, found that the IRA would deliver a 41% reduction in emissions by 2030.

Key elements of the IRA’s climate provisions are:

Clean Electricity

Cleaning up the power sector is the first linchpin to decarbonizing the economy, especially as other sectors, like transportation and buildings, increasingly rely on electricity to power their needs. President Biden has pledged to achieve 100% carbon-free power by 2035, and the substantial investments in the IRA—especially new and extended tax credits for clean energy—will be essential in keeping that target within reach.

• Clean Energy Tax Credits — The key driver of decarbonization and lower consumer energy costs in the IRA is the long-term extension, and expansion, of clean electricity tax credits. The bill extends the current federal investment and production tax credits (ITC and PTC) for solar and wind energy through 2024—estimated at $65 billion—and establishes new technology-neutral tax credits for all zero-carbon (and some very low-carbon) electricity generation technologies from 2025-2032, estimated at $62 billion.  The bill also includes new tax credits aimed to support grid energy storage, and to keep nuclear power plants online (which currently provide half of all carbon-free power in the U.S.). The IRA also provides $37 billion in clean energy incentives for individuals, including the 25D tax credit for residential rooftop solar.

These incentives could more than triple U.S. clean power production, which would drive retirements of fossil fuel power plants and reduce climate and conventional air pollutants, including in fenceline communities.

• Loans for clean Energy DOE Loan Guarantees — The bill includes $8.6 billion for Department of Energy (DOE) loan guarantees, enabling $290 billion in loan guarantee authority. The DOE Loan Guarantee Program is a powerful tool for leveraging major private sector investment in clean and innovative energy technologies, especially for grid decarbonization.
• Rural Electricity Investments — The IRA includes $12.8 billion to help rural communities deploy more clean energy, including $9.7 billion for U.S. Department of Agriculture (USDA) loans to rural electric cooperatives to obtain renewables and other carbon-free energy. A further $3 billion is available for rural energy loans and grants for renewable energy, including through the USDA Rural Energy for America Program.
• Grid Improvements – Electric Transmission Investments — Includes over $3 billion for transmission infrastructure (the grid).

Clean Transportation

The transportation sector contributes the greatest share of greenhouse gas pollution in this country, along with major contributions to local air pollution that results in harmful health outcomes for Americans—especially communities of color, low-income, and Indigenous communities. The IRA will make significant investments in curbing transportation pollution by addressing emissions from the most-polluting sources in the sector, such as both light- and heavy-duty vehicles, and ports. And it will help to grow U.S. leadership in manufacturing the clean cars that will dominate the 21st-century global economy. Last year, Evergreen called on Congress to include critical clean vehicle investments in budget reconciliation legislation.

• Electric Vehicle Tax Credits for consumers — Eligible individuals to receive up to $7,500 o the purchase of a new EV, or $4,000 o a used vehicle. This bill prioritizes low and medium-income consumers, and affordable electric vehicles, by establishing an income cut-off for credit recipients. Cars and light-duty trucks are the largest sources of the most climate-polluting sector of the economy.
• Clean Heavy Duty Vehicles — The IRA contains $1 billion for investment in zero-emission heavy-duty vehicles, as well as related infrastructure and workforce development. Of these funds, $400 million will be allocated specifically to areas that do not meet air quality standards, which are historically low-income, Black, Brown, and Indigenous communities. Heavy-duty vehicles make up over a quarter of transportation pollution and contribute greatly to pollution like particulate matter and nitrogen oxides that create smog and soot.
• Grants to Reduce Air Pollution At Ports — The bill provides $3 billion for zero emissions port equipment and the development of climate action plans. 40% of these funds are set aside for areas that do not meet air quality standards. Ports tend to be pollution hot spots because of all the heavy-duty vehicles and ships that are required to move goods in and out.
• Federal Government Clean Vehicle Fleets — The bill provides $9 billion for federal government procurement of clean technologies, including $3 billion for the USPS to purchase ZEVs, and associated infrastructure. The USPS is one of the largest civilian fleets in the world with over 230,000 vehicles, which means
  electrification will have a major impact–for local communities and the climate alike.
• Made in USA Investments in Domestic Clean Vehicle Manufacturing — The bill appropriates $2 billion for the Domestic Manufacturing Conversion Grants program, supporting the domestic production of hybrid, plug-in electric, and hydrogen fuel cell electric vehicles. This financial support will be critical for auto manufacturers retooling operations toward zero-carbon vehicles.
• Cleaner Planes – Sustainable Aviation Fuels Tax Credit — The IRA also creates a new tax credit for Sustainable Aviation Fuels (SAF). Lower-carbon fuels are likely the best short-term option for progress toward decarbonizing the aviation sector.

Clean Buildings

The built environment is America’s fourth-largest source of climate pollution, accounting for 13% of national greenhouse gases. The vast majority of this pollution comes from inefficient, fossil fuel-burning appliances. Building energy use is also a major driver of the rising energy costs facing Americans—particularly in their homes. And the sector provides a powerful opportunity for investment in economic opportunity and revitalization, with good jobs.

• Rebates for Home Electrification & Energy Efficiency — The IRA invests in new programs that provide $9 billion in rebates to Americans for high-efficiency electric appliances, and for whole-home home energy retrofits.
• Residential Energy Eciency Tax Credit — The IRA extends the 25C Residential Energy Eciency Tax Credit for a decade, and updates it to include new standards for efficient and electrified appliances for home installation. The extended credit will directly benefit homeowners seeking to cut their utility bills and reduce indoor air pollution from fossil gas appliances.
• Tax Incentives for Energy Eciency in Commercial Buildings and New Homes — More deductions for properties that achieve higher levels of efficiency
• Efficiency and Resilience Investments in Affordable Housing — The IRA directs $1 billion to grants and loans for improving energy efficiency, water efficiency, and climate resilience in affordable housing.
• Funding for Federal Green Buildings — The bill provides $250 million to convert federal buildings into high-performance green buildings.  result in lower water and energy use.

Clean Manufacturing and Industrial Decarbonization

The IRA makes substantial investments, of over $60 billion, in boosting clean and competitive American manufacturing, cleaning up high-polluting industrial processes. The full suite of manufacturing and industrial investments would strengthen domestic supply chains, create good jobs, and tackle carbon pollution from one of the hardest-to-abate sectors.

• Clean Energy Manufacturing Tax Credits — The IRA extends the credit, dedicates 40% of funds to legacy coal communities and establishes manufacturing production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing, estimated to invest $30 billion in these industries.
• Advanced Industrial Facilities Deployment Program — The IRA appropriates more than $5.8 billion to DOE’s Office of Clean Energy Demonstrations to support the installation of ecient, climate-smart equipment at high-polluting industrial facilities, like cement plants and steel refineries.
• Methane Emissions and Waste Reduction Incentive Program —  Methane Emissions and Waste Reduction Program would incentivize oil and gas companies to cut their emissions of this potent greenhouse gas, and place a fee on those companies that don’t.
• Enhanced use of Defense Production Act of 1950 — The IRA appropriates $500 million to support applications of the Defense Production Act. President Biden recently directed DOE to support the manufacturing of several critical clean energy technologies under the DPA, including heat pumps, grid components, and solar panels, among others.
• Industrial Decarbonization Tax Credits — Supporting clean hydrogen production, and carbon capture, utilization and sequestration—two credits that could drive decarbonization of industrial processes and facilities. A new Clean Hydrogen Production Tax Credit, estimated at $13 billion, is established to support hydrogen production that meets certain lifecycle greenhouse gas pollution standards.

Climate-Smart Agriculture & Forestry, and Conservation

America’s farms, lands, and waters have the potential to be powerful natural carbon sinks. But when agricultural lands and forests are used or forced into unsustainable practices, they become a potent source of climate pollution. In 2020, the agricultural sector made up roughly 11% of America’s greenhouse gas pollution.

• Agricultural Conservation Investments — The IRA injects $20 billion into various agriculture conservation programs, including the Environmental Quality Incentives Program (EQIP) to reduce methane emissions, improve soil carbon, and sequester carbon pollution, as well as the Regional Conservation Partnership Program (RCPP), Conservation Stewardship Program (CSP), and an agriculture conservation easement program.
• National Forest System Restoration and Fuels Reduction Projects — The bill will use $2.15 billion to support wildfire management via hazardous fuels reduction projects, as well as national forest system restoration, including projects that protect carbon-sequestering and biodiverse old-growth forests.
• State and Private Forestry Conservation Programs — The bill will channel $2.2 billion into state and private conservation programs, including tree planting activities and urban and community forestry programs that will help cool our cities. Competitive grants will prioritize applications that offer significant natural carbon sequestration benefits or provide benefits to underserved communities. This program will increase the tree canopy in urban areas.
• Investing in coastal communities and community resilience — The IRA appropriates $2.6 billion to the National Oceanic and Atmospheric Administration (NOAA) to provide direct funding, grants, cooperative agreements, and technical assistance to coastal states, Tribal Governments, local governments, NGOs and more, to protect and restore coastal and marine habitats, as well prepare for extreme storms.

Environmental & Climate Justice

The impacts of pollution and climate change do not fall on all communities equally, rather Black, Indigenous, people of color, and low-income communities have suffered and continue to suffer the most. These communities also suffer from a legacy of economic disinvestment and exclusion, which the transition to a clean energy economy can, should, and must address, with prioritized investment. Toward that end, the IRA directs at least $60 billion of investments for programs identified as priorities by environmental justice communities and advocates, through a variety of programs that reduce pollution and make zero-emission infrastructure more affordable and make related economic development more equitable.

• Environmental and Climate Justice Block Grants — The bill provides $3 billion for community-led projects covering a range of eligible activities, from pollution monitoring and prevention, to mitigating health risks from climate events like heat and wildfires, to climate resilience and adaptation, to increasing community engagement in public processes like rulemakings. The fund includes $200 million to provide technical assistance to communities. This program could be a powerful force-multiplier for disadvantaged communities, with resources that can be used to leverage other public and private sector funds for reducing pollution and driving sustainable economic development. This program is especially important in that it will help build community capacity, as modeled by successful state-level initiatives like California’s Transformative Climate Communities program.
• Greenhouse Gas Reduction Fund — Within the Greenhouse Gas Reduction Fund created in the IRA there is provided $7 billion to programs aimed at deploying clean energy, like rooftop solar, and pollution-reducing technologies in low-income and disadvantaged communities. The fund also provides an additional $8 billion for eligible institutions that provide financial assistance, in the form of direct investments and financing, for clean energy projects benefiting disadvantaged communities.

• Climate & Economic Justice Screening Tool — The IRA provides $32.5 million to support the White House Council on Environmental Quality’s (CEQ) work on a Climate & Economic Justice Screening Tool. This tool, which was first released in February 2022, is intended to help the federal government identify those disadvantaged communities impacted by environmental harms and economic disinvestment.
• Neighborhood Access and Equity Grant Program — The bill provides $3 billion for projects that will improve transportation access and aordability which will allow residents to get to necessary destinations with more ease. This program also allows for the mitigation of harms caused by transportation systems, such as air pollution, that impact disadvantaged or underserved communities.
• Air Pollution Monitoring — The IRA provides $3 million for disadvantaged and low-income communities to benefit from improved air quality monitoring, along with $117 million for fenceline air pollution monitoring, and $50 million for multi-pollutant monitoring stations. These investments will empower the EPA and local clean air agencies to more accurately track the pollution burden in the most vulnerable communities.
• Improving Energy, Water Eciency, and Climate Resiliency of Affordable Housing — The IRA provides up to $4 billion to fund projects that will improve energy and water efficiency, improve indoor air quality or enhance climate resiliency of aordable housing. The IRA further provides $550 million for constructing water access projects in disadvantaged communities that do not currently have reliable access to water.
• Tribal and Native Hawaiian Climate Resilience — The IRA provides investments for confronting climate change and building economic opportunity through clean energy, for Tribal and Native Hawaiian communities. The IRA includes $220 million for Tribal climate resilience and adaptation programs.
• Addressing Air Pollution at Schools — The bill provides $50 million for schools in low-income and disadvantaged communities to address air pollution. Of the available funds $37.5, million will provide grants to schools for air monitoring and emissions reduction technologies, and the remaining $12.5 million will support schools through technical assistance to identify and mitigate air pollution hazards. This program is a critical investment to protect children who are particularly vulnerable to air pollution.
• Reinstating Superfund — The IRA reinstates a critical “polluter pays” tax to cover the cost of remediating environmentally contaminated sites. Specifically, it reinstates and adjusts for inflation the Superfund Tax, This fund supports emergency cleanup and hazardous waste sites needing long-term remediation.

Why is it the Inflation Reduction Act?  IRA

Expert analysts also point to this bill delivering massive economic and public health benefits. The IRA would reduce inflation, according to Moody’s Analytics and other economic experts, and help Americans cut their energy costs by $200-$1000 per year by 2030, according to Resources for the Future and Rhodium. An analysis commissioned by the BlueGreen Alliance, from the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst, found that the bill would grow the workforce by 9 million jobs over the coming decade. And the aforementioned Energy Innovation analysis showed the IRA would help prevent up to 3,900 premature deaths by 2030.

Source:  Evergreen Action 

The complete Evergreen memo lays out the toplines of this budget reconciliation legislation, with standout policies in key economic sectors and policy areas. From clean energy tax credits and consumer rebates, to programs advancing environmental justice and domestic advanced energy manufacturing, the IRA takes a comprehensive ica’s clean energy future.