The US Senate makes America’s largest investment in climate change action with the approval of the Inflation Reduction Act, which will allocate $369 billion to investments in renewable energy and reducing greenhouse gas (GHG) emissions.
What is the Inflation Reduction Act?
The Inflation Reduction Act (IRA) consists of three main areas of interest including:
- Climate change action: The bill is the largest federal clean energy investment in U.S. history and would see more than $300 billion invested in energy and climate reform.
- Lowering the cost of prescription drugs: The bill caps Medicare recipients’ out-of-pocket prescription drug prices at $2,000 a year and would allow the federal health secretary to negotiate prescription prices.
- Tax reform: The bill includes a 15 percent minimum tax for corporations making $1 billion or more in income and bringing in more than $300 billion in revenue.
“It’s encouraging to see an investment in climate action that will undoubtedly impact millions of people across the United States and around the world. By providing the financial resources and incentives needed to address the impacts of climate change, the US is taking a big step toward building a more sustainable future. This legislation has been a long time coming and while there is more work to be done, this is a historic shift in the fight against climate change,” Ted Dhillon, FigBytes CEO and Co-Founder shared upon hearing the news.
The Inflation Reduction Act will help America to begin to tackle the increasing impacts of climate change. Here are three ways the Inflation Reduction Act will promote climate action:
Investment in clean energy, green tech, and green jobs
Billions of dollars will be invested in expanding clean and renewable energy production such as wind and solar power. This will help accelerate the energy transition while also helping reduce emissions.
The bill also includes incentives for companies to manufacture more green tech in the US, which should in turn create more green jobs. The bill will also make sure that companies taking advantage of the tax credits pay their workers fairly and offer chances for advancement.
Tax credits for electric vehicles and green home improvements
The bill includes tax credits for home improvements like solar panels, battery storage, heat pumps, or insulation, and allows homeowners to deduct 30 percent of the cost of improvements from their taxes. These credits should make it easier for individuals and businesses to make the switch to more renewable and efficient energy sources in their homes and offices.
The act also includes tax credits for electric vehicles (EVs), a $7,500 credit on new EVs, and $4,000 on used EVs for couples who earn less than $300,000 a year and individuals who earn less than $150,000. The aim of these credits is to encourage more individuals to upgrade to EVs to help reduce GHG emissions.
Billions for communities facing impacts of climate change
Around $60 billion of the Inflation Reduction Act will be used to help areas facing the worst impacts of climate change and pollution. The bill will provide resources to disadvantaged communities to clean up pollution and mitigate the impacts of climate change. With the recent flash flooding in St. Louis, Kentucky, and Death Valley and heat waves across the country show the immediate need for this portion of the act.
The bill also sets the first methane fee which will fine companies emitting excessive amounts. Methane is more than 25 times as potent as carbon dioxide, making this provision an encouraging step to regulate this major greenhouse gas emissions.
“I’m thrilled to see when drafting the Inflation Reduction Act that US politicians considered the human impact of climate change and included measures to mitigate the grave risk it poses, both in the form of fair pay for green tech workers and in aide to impacted regions. It’s encouraging to see the political focus expanding to include both profits and protection of the planet,” Dhillon expressed in regard to the main topics of the bill.
How the Inflation Reduction Act and the Bipartisan Infrastructure Law Will Work Together
Like the IRA, the Bipartisan Infrastructure Law passed in November 2021 also included a significant investment to tackle the climate crisis, advance environmental justice, and invest in disadvantaged communities. These two legislations will work together to reduce GHG emissions and fight the impacts of climate change, with investments in the following areas:
- Power Infrastructure
- Both bills include investments in new programs to support the development and deployment of cutting-edge clean energy technologies to accelerate the transition to a zero-emission economy. Combined the two acts amount to the largest investment in the clean energy transmission and power grid in American history.
- Both legislations include investments to make infrastructure more resilient to the impacts of climate change, including billions to protect against droughts, heat, floods, and wildfires, in addition to a major investment in weatherization.
- Both acts will fund projects to remediate environmental harms, address legacy pollution, and advance long-overdue environmental justice.
- The two bills include large investments in upgrading current transportation infrastructure with a major focus on climate change mitigation.
What Does This Mean for Individuals, Communities, and Businesses?
The next step for the Inflation Reduction Act is to go to the House of Representatives for a vote. If passed it will make it easier for individuals, communities, and businesses to create a greener future and reduce their carbon footprint.
- Individuals will see increased savings and tax credits on green purchases or expenses.
- Communities will receive financial support for clean and renewable energy infrastructure projects, which also means more jobs for the individuals in these communities.
- For businesses, this means a few things depending on the size of the organization. For larger companies (exceeding $1 billion in revenue) this means a new tax rate. For both large and small companies, the bill can also mean increased expenses via the methane fee (depending on the company). On the bright side, businesses will benefit from having more incentives and opportunities to manufacture green tech in the US and construct clean energy projects.
The Inflation Reduction Act will help the US to get closer to the goals set out in the Paris Agreement. The IRA is perhaps the most significant federal climate and clean energy legislation in U.S. history, and its provisions could result in the reduction of greenhouse gas (GHG) emissions by 37-41 percent below 2005 levels. Though this is only a first step, it is a big and important one in helping the US and the world to reduce the impacts of climate change and prepare for a more sustainable future.