President Biden recently signed the IRA, authorizing $369 billion in climate and energy incentives. While many environmentalists argue that the bill is not enough or contains too many compromises, on balance it’s a strong step in the right direction. Here’s why:
- The funding will go farther than in the past.
The funding in the IRA is small when compared with the original Build Back Better Act, and is about half the size of the infrastructure bill Congress passed last year. But the cost of solar and wind has dropped by 90% in the last 10 years and the risks and costs of carbon pollution are now quantifiable and knowable. As a result, the dollars authorized by the IRA will go much farther than in the past.
- The private sector will step up.
Most of the funds in the bill are incentives—tax credits, rebates, and business and homeowner loans. These will stimulate private sector investment in clean energy—five billion in public funds are expected to leverage $250 billion in private investment. The Act also capitalizes a national Green Bank with $27 billion. This leverages at least $81 billion in private funds to help poor and middle class homes switch to clean energy.
- The IRA gives the US enormous global clout.
John Kerry and his team are working hard to negotiate the terms for the upcoming global climate summit (COP 27) this November in Egypt. With Congress behind him, Kerry now has the credibility to ask other countries to step up and take action.
- Market conditions favor renewables.
New oil and gas leases were included in the IRA out of political necessity. But the economics don’t support them. Renewables are cheaper, so it’s unlikely that much new oil and gas infrastructure will be built. A lease auction in Alaska’s Arctic National Wildlife Refuge last year saw few bidders and low prices, clear evidence of low demand.
- The IRA supports manufacturing.
The US government hasn’t provided incentives to produce and manufacture products in almost two decades. As a result, almost no solar panels, batteries, or wind components are built in the US, even though most of the technology was developed here. The IRA changes that. Loans and tax credits in the IRA will stimulate US production. Analysts project that nine million new jobs will be created as a result.
6. The EPA is now authorized to regulate greenhouse gases.
Buried in the bill is language directing the EPA to regulate greenhouse gases. This is a response to the recent Supreme Court decision in West Virginia vs. EPA, where the court said that without an explicit directive, the EPA did not have the authority to regulate these gases. Now they do.
There are those who will say we can’t afford the IRA, because of increased inflation. But the truth is the costs of not taking action to address the climate crisis would be far more than the incentives in the bill.
Plus the bill includes specific mechanisms designed to more than offset its costs. $78 billion in new funding for the IRS is expected to result in $204 billion in additional tax collections over the next ten years. A 15% minimum corporate income tax (only for corporations with revenues of over $1 billion) is expected to raise $220 billion. And a 1% tax on corporate stock buybacks is expected to raise $74 billion.
In order to ensure a healthy future, we cannot let up on taking action to address the climate crisis. But all things considered, the IRA is a win for the environment, a win for the American people, and a win for the world.