Inflation Reduction Act (IRA) 2022: A Bill To Make US ‘The Clean Energy Leader’

Highlights :

  • Inflation Reduction Act provisions Tax credits for wind and solar energy projects and electric vehicles
  • The Bill imposes a fee on methane leaks from oil and gas drilling
  • Tax deduction to low and middle-income households to go electric

On August 7, 2022, the US Senate approved a Bill titled the Inflation Reduction Act (IRA) 2022 after a series of discussions and debates between the Democrats and Republicans. What makes the Bill more interesting is its special focus on climate friendly provisions.

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Climate action has been a priority ever since President Joe Biden came into office. From committing an ambitious target of cutting emissions by 50-52 per cent below 2005 levels by 2030 to signing a methane deal to curb methane emissions from the oil and gas industry, his administration has been vocal for climate change concerns. The IRA Bill is like a scaled down version of President’s Build Back Better Act (BBBA), which failed to get approval from the Senate, where the democrats do not have a majority.

In recent years, the USA has seen an alarming increase in frequency and intensities of extreme climatic events, such as heat waves, wildfires, cyclones, floods, and hurricanes. Recent events like floods in Kentucky due to heavy rainfall, and the wildfires in California resulting from dry lightning are becoming a major concern for the country. It is common knowledge that there exists a link between extreme weather events and climate change that necessitates climate action to turn off the ticking time bomb of natural disasters. This has certainly gone some way in pushing some fence sitters to do more to mitigate the damage.

Provisions Boosting Climate Hopes

The new Inflation Reduction Act 2022 focuses on climate, healthcare, and tax provisions to address inflation. What’s eye-catching is that it includes packages worth whopping $369 billion for the clean energy transition. The Bill may also help the U.S. compete with China in terms of renewable production as China is a leading producer of solar energy.

Targeting Low Income and Tribal Groups

It takes into consideration the need to extend a helping hand to low income strata so that financial status won’t hinder progress in the path to clean future. The bill provides a tax deduction to low and middle-income households to go electric and seeks to lower the energy bills of American households. It also aims to bolster the domestic production of heat pumps and critical minerals. Building up from bottom for disadvantaged low-income communities and tribal communities, the Bill provides funding to benefit from zero emission technologies which reduce greenhouse gas emissions, enhance climate resilience, and mitigate risks from extreme heat.

Tax Credits

The Bill offers a significant amount of investment in renewable energy niche provisioning tax credits for wind and solar energy projects and electric vehicles. It mandates taxing the largest and most profitable companies in order that they pay their fair share. On the other hand, it prohibits taxes for households with income less than $40,000 per annum.

What About the Fossil Fuels?

While the Bill imposes a fee on methane leaks from oil and gas drilling, at the same time, it also aims at more investments in fossil fuels. Ironically, it seeks to expand oil and gas drilling, with the federal government offering land for onshore and offshore drilling as a prerequisite for developing renewable energy.

Will It Help US in Achieving Climate Targets?

The Inflation Reduction Act can prove to be a turning point for global climate action as the U.S. is one of the largest emitters of greenhouse gases globally. However, it must be seen as the first step toward achieving the climate target.

US has committed a climate target of achieving 50-52 per cent emissions reduction below 2005 levels by 2030. According to Rhodium Group, the fruition of the Bill has the potential to reduce greenhouse gas emissions by 31 to 44 per cent by 2030. While more actions are needed to cut emissions by 50-52% below 2005 levels, this new package may lighten the burden considerably.

Along with the emissions reduction benefits, it offers additional benefits. A combination of clean energy investments in the package with present energy market conditions and existing policies promoting technological advancements may help to reduce household energy costs in the medium-term.

The administration may also expect a breather from volatile global fossil fuels prices by reduction in energy imports of the country and gain of energy security with the new policy.

Policies Elsewhere

Although the Bill is not enough to address the climate crisis at large, these type of crucial initiatives by global leaders in greenhouse gas emissions can be a benchmark for other large emitters to push their climate action programmes as well.

Similar packages have been announced recently by many other big time contributors of fossil fuels emissions. For instance, in May 2022, Japan announced its ‘Invest in Kishida’ plan. The plan aims for a $1.1 trillion investment to bolster the Japanese economy as the country aims transition to clean energy and achieve 46% reduction in GHG emissions by 2030.

The European Union is one of the largest emitters, in terms of per capita, in the world. In June 2021, EU proposed a similar plan called ‘Fit for 55’. It aims to reduce emissions by 55% by 2030. Although the plan hasn’t become a law, such steps by major emitters set global trend toward major policy decisions for the rest of the world.

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Junaid Shah

Junaid holds a Master of Engineering degree in Construction & Management. Being a civil engineering postgraduate and using his technical prowess, he has channeled his passion for writing in the environmental niche.

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