The US Congress Finally Passes a Climate Bill
5 Min Read
Yesterday, on the 16th of August, President Biden signed into law the biggest piece of climate legislation that the US has ever managed to pass.
The Inflation Reduction Act is the result of years of negotiations within the Democratic party and passed with no Republican support in either the Senate or the House. The bill provides significant investments in climate, energy and healthcare, which are projected to help reduce America’s CO2 emissions to 40% below their peak by 2030.
So how did the bill finally pass, what is actually in it, and what effect will it have?
A long and winding road
Climate legislation in the US has always been difficult to pass.
The country is heavily reliant on fossil fuels in many sectors, democratic institutions are badly exposed to the effects of lobbying, and one of the two main political parties has been steadfastly against any federal actions to limit climate change.
For an in-depth walk through all the ups and downs of climate legislation in the US, I recommend listening to David Roberts’ Volts Podcast episode on the Inflation Reduction Act
There have been attempts before. In 2009, under Obama, the Waxman-Markey Bill was proposed but it died in a Democrat-controlled Senate. Why? One key aspect was that it was essentially introducing a carbon tax, known as Cap and Trade, it would have established an emissions trading scheme similar to the European Union’s. That idea, while it may have reduced emissions in the long run, was not popular among lawmakers.
A period of relying on “Executive Action” followed, including the US joining the Paris Agreement, and then withdrawing under a climate-sceptic President Trump. And yet, emissions in the US continued to fall slightly, thanks to the decline of coal and the leadership of States and Cities stepping up where the federal government did not.
Meanwhile, Democrats and climate activists were envisaging what a climate bill would look like that would actually treat climate change as the threat that it is. The ideas they came up with became known as the Green New Deal. This policy platform helped shift the ambition of the climate plans of various democratic candidates for president in 2020, including Joe Biden.
After becoming President, Biden attempted to pass two mammoth bills at the same time, the Bipartisan Infrastructure Act, and the Build Back Better plan. Much has been made of the political shenanigans that ensued, but essentially the Infrastructure Act passed and is now law, and the Build Back Better plan (including almost all the climate change provisions not related to infrastructure funding) was killed by Senator Joe Manchin of West Virginia. The Climate & Medical provisions were taken into a separate bill, killed off, revived, killed off again, negotiated in secret and finally proposed as the “Inflation Reduction Act”.
To pass any climate legislation Democrats needed all 50 of their senators on board, so they could use a process called Budget Reconciliation to pass their laws and avoid a Republican filibuster (requiring 60 votes to pass most laws). This meant all 50 Democratic senators had to sign off on the bill, meaning each had a lot of bargaining power to include provisions they wanted and to cut provisions they didn’t. Both Senators Joe Manchin and Kirsten Sinema used this power to make various changes to the final text, but in the end they all agreed to the bill, it passed the Senate, then the House of Representatives, and was signed into law by President Biden on the 16th August.
So what is in the Bill?
The bill includes $490 billion in spending on climate and health provisions, paid for by $764 billion in new tax revenue and savings. The most significant investment by the US government in clean energy ever, by a long way.
The health provisions are very significant in their own right, allowing lower drug prices to be negotiated by Medicare, but in this blog we will focus on the climate and energy aspects. The New York Times have produced a full breakdown of what is included in the bill, but some of the key provisions are:
Over $100 billion in new and extended tax credits for emissions-free electricity sources and storage (wind, solar, geothermal, advanced nuclear)
$30bn tax credit to extend the life of existing nuclear power stations
$6.8bn in funding to the Loan Programs Office to provide funding for energy infrastructure projects
$3.2bn tax credit on carbon capture and storage technologies
$9bn in clean energy rebates and grants for residential buildings (installing heat pumps and retrofitting homes)
$37bn in incentives for companies to manufacture clean energy technologies in the U.S. rather than abroad, through tax credits and the Defense Production Act
$37bn extending and increasing tax credits for energy-efficient properties
$14bn in incentives ($7500 rebate per person) for purchasing emissions-free vehicles, with income limits, and for installing alternative fueling equipment.
$13bn for clean hydrogen production
$8.6bn creating new credits for low-carbon car and airplane fuels, and extending credits for biodiesel and other renewable fuels
$2.9bn in loans and grants for the production of hybrid, electric and hydrogen fuel cell cars
$20bn to set up a Green Bank, with 55% of its fund earmarked for disadvantaged communities
$14.2bn in funding for monitoring and reducing pollution, and grants for disadvantaged neighbourhoods
$35bn for agricultural conservation, rural development, and forest conservation and restoration
$19.7bn in other funding for tribes, national parks, weather and drought resilience, data collection, zero emission post service vehicles, federal research, and wildlife recovery.
$1.5bn to promote methane detection and measurement in the oil and gas sector & a fee of up to $1,500 per ton on methane emissions from oil and gas producers, pipeline operators and others.
All in all it provides $392bn in investments in clean energy and emissions reduction technologies. A historic amount of funding that essentially shows the full force of the US government is behind the energy transition, with a focus on making as much of the technologies as possible in the US and with a strong thread of Environmental Justice running throughout the bill.
One missing piece from previous iterations of the bill is the inclusion of environmental standards which could not be included due to the reconciliation process, but individual states continue to lead the way in that area and the investments it does propose are truly significant.
The Poison Pills
To pass, this bill had to be signed off by every single Democratic senator, which gave some senators the opportunity to include provisions that most Democrats and activists would oppose.
Joe Manchin insisted on an inclusion in the permitting rules that means that several pipeline projects (including in his state) will go ahead. He also insisted that permitting for Oil and Gas project on federal land not be banned, and, inexplicably, that permitting on federal lands and waters be offered to Oil and Gas projects first before they could be offered to renewables projects.
Senator Kirsten Sinema from Arizona’s only wish was that a tax loophole exploited by Hedge Fund managers remain intact, showing the continued effectiveness of lobbying, but thankfully she left most of the climate and energy provisions alone.
There is no doubt that these provisions are bad policy and won’t help reduce emissions, but Democratic lawmakers decided to not make Perfect the enemy of Good and included them to ensure they got the votes.
The results
Despite these last-minute inclusions, the bill will still very much have a net positive effect on emissions in the US.
Several models have now been run attempting to quantify the reductions, such as Rhodium Group, who found that:
“The IRA is a game changer for US decarbonization. We find that the package as a whole drives US net GHG emissions down to 32-42% below 2005 levels in 2030, compared to 24-35% without it. The long-term, robust incentives and programs provide a decade of policy certainty for the clean energy industry to scale up across all corners of the US energy system to levels that the US has never seen before.
The IRA also targets incentives toward emerging clean technologies that have seen little support to date. These incentives help reduce the green premium on clean fuels, clean hydrogen, carbon capture, direct air capture, and other technologies, potentially creating the market conditions to expand these nascent industries to the level needed to maintain momentum on decarbonization into the 2030s and beyond.”
The bill will provide American citizens with much more support than is currently available to make choices in their everyday lives that reduce emissions, such as installing a heat pump ($8000 rebate) or buying an EV ($7500 rebate). The bill’s electricity generation provisions will help boost the renewable energy industry, the growing offshore wind industry and the nascent hydrogen industry, and will likely hasten the decline of coal powered electricity generation in the US:
And climate scientists have reacted favourably:
“Finally we have some good news, this is historic legislation, it is by far the largest commitment we have made to clean energy…we’re finally putting our thumb on the right side of the scale, we’ve been providing subsidies and incentives to the fossil fuel industry to produce energy that is degrading our climate and finally now we are getting the incentives on the right side and that’s going to make a real difference.” - Professor Michael E Mann speaking to MSNBC
“We just passed climate legislation through Congress. Something that felt impossible for so long. Every single Democrat just voted YES on climate. What a big day! More to do. But right now, I'm feeling joy.” - Professor Leah Stokes
Despite the scale not being quite as large as initial bills, and despite some unhelpful permitting provisions, the final bill does provide an enormous set of incentives for businesses and citizens to make choices that will ultimately reduce emissions and sets the wheels in motion for a raft of further investments in clean energy.
Passing a climate law in the US has proven to be incredibly difficult, and while no bill would be enough to “solve” climate change on its own, the way the Inflation Reduction Act incentivises choices that lead to a cleaner future will really shift the US closer to where it needs to be, and the scale of the investment being made is still impressive.
Whisper it quietly, but this may just put the US back in position as a leader in the fight against climate change.
To hear/read more about the bill check out the links below:
Some thoughts on the Inflation Reduction Act; A little history and context to help understand the bill's significance. - David Roberts. Volts Podcast.
What to make of the Democrats' last-minute climate bill; A conversation with Jesse Jenkins and Leah Stokes about the Inflation Reduction Act. Volts Podcast.
A detailed picture of what is in the Democrats Climate and Health Bill - New York Times
How Democrats Salvaged a History-Making Bill - The Daily
A Congressional Climate Breakthrough - Rhodium
Preliminary Report: The Climate and Energy Impacts of the Inflation Reduction Act of 2022 - Repeat Project