CLIMATE CRISIS AND THE US INFLATION PROTECTION ACT

Researchers in a new study have put actual dollar figures on economic harm caused by the countries most responsible for the climate crisis, and the ground-breaking data could serve as a starting point for legal action against the world’s wealthiest nations.  The Dartmouth College study found that just five of the world’s top emitters of planet-warming gases – the United States, China, Russia, India, and Brazil – caused around a $6 trillion loss in gross domestic product from 1990 to 2014, adjusted for 2010 dollars, or about 11 percent of total global GDP.  The study also shows the US and China – the two biggest contributors to the climate crisis – individually caused global economic losses of more than $1.8 trillion each during that same period.

It is no secret anymore that the US had not taken any palpable action needed to condense its carbon dioxide (CO₂) emissions in order to meet the targets committed under the Paris Agreement, until the Inflation Reduction Act (IRA) was signed into law on August 16, 2022. The objective of the Act is to bring down consumer energy costs, increase American energy security, while substantially reducing CO₂ emissions which represents the single biggest climate investment in US history, by far.

Energy analysts who favour strong climate action say the plan should bring the US within shouting distance of Biden’s pledge under the Paris Agreement: Cutting domestic greenhouse gas (GHG) emissions in half compared to 2005 levels by 2030.

The IRA is born out of the Build Back Better (BBB) agenda which was proposed a year back.  The scope of the BBB was included a range of social programs and climate change which would have cost nearly $4.5 trillion over a 10-year budget horizon whereas the IRA raises nearly $750 billion over 10 years through higher taxes on large corporations and wealthy individuals, and lower Medicare prescription drug costs with the objective to: Pay for nearly:

• $370 billion in tax breaks and additional government spending to address climate change;
• $80 billion to lower health insurance premiums for American benefiting from the Affordable Care Act; and
• $300 billion to reducing the federal government’s future deficits.

The focus of the Act is to nudge the economy and inflation in the right direction, while meaningfully addressing climate change and reducing the government’s budget deficits.

Here is the configuration of $370 billion allocated for climate change:

• Two-third of this amount is in the form of federal tax credits that:
  1. Extend, enhance or create incentives to produce electricity from clean energy sources;
  2. Invest in renewable energy technologies and address climate change through carbon sequestration;
  3. Renewable fuel production; and
  4. Clean energy manufacturing. 

The by-product of this investment is the lower cost to householders and businesses of investing in energy efficiency and purchasing electric vehicles; and

• The remaining, one-third of this investment represents appropriations by the federal government which includes:
  1. Funds to support conservation practices that will help mitigate emissions from agriculture and forestry; and
  2. Grants, rebates and federal procurement will promote the adoption of clean energy technologies, as well as energy efficiency improvements in housing.

Additionally, the IRA also invests in the climate resilience of at-risk communities and addresses air pollution.

In accordance with the Democrats Senate, Summary of the Energy Security and Climate Change Investments in the Inflation Reduction Act of 2022, the provisions granted under the IRA in the name of investments have been classified into the following 5 categories:

• Lower Consumer Energy Costs. 1: The IRA will provide a range of incentives to consumers to relieve the high costs of energy and decrease utility bills. This includes direct consumer incentives to buy energy efficient and electric appliances, clean vehicles, and rooftop-solar, and invest in home energy efficiency, with a significant portion of the funding going to lower income households and disadvantaged communities. Here is a table to quantify the investment amounts under each item:

	1. LOWER CONSUMER ENERGY COSTS
No	Description	Billion $
1	Consumer Home Energy Rebate Programs:  Focused on low income consumers, to electrify home appliances and for energy efficient retrofits;	9.0
2	10 years of consumer tax credits to make homes energy efficient and run on clean energy, making heat pumps, rooftop solar, electric HVAC and water heaters more affordable;
3	$4,000 Consumer Tax Credit for lower/middle income individuals to buy used clean vehicles, and up to $7,500 tax credit to buy new clean vehicles; and
4	Grant Program to make affordable housing more energy efficient.	1.0

• American Energy Security and Domestic Manufacturing. 2: The IRA supports energy reliability and cleaner energy production coupled with historic investments in American clean energy manufacturing. It includes over $60 billion to on-shore clean energy manufacturing in the US across the full supply chain of clean energy and transportation technologies. These manufacturing incentives will help alleviate inflation and reduce the risk of future price shocks by bringing down the cost of clean energy and clean vehicles and relieving supply chain bottlenecks. Here is a table to quantify the investment amounts under each item:

	2. AMERICAN ENERGY SECURITY AND DOMESTIC MANUFACTURING
No	Description	Billion $
1	Production Tax Credits to accelerate U.S. manufacturing of Solar Panels, Wind Turbines, Batteries, and critical minerals processing;	30.0
2	Investment Tax Credit to build clean technology manufacturing facilities, like facilities that make electric vehicles, wind turbines and solar panels;	10.0
3	For the Defense Production Act for Heat Pumps and critical Minerals Processing;	0.5
4	Grants to Retool Existing Auto Manufacturing Facilities to manufacture clean vehicles, ensuring that auto jobs stay in the communities that depend on them;	2.0
5	Loans to build new clean vehicle manufacturing facilities across the country; and	20.0
6	National Labs to accelerate breakthrough energy research.	2.0

• Decarbonize the Economy. 3: The investments in the IRA will reduce emissions in every sector of the economy, substantially reducing emissions from electricity production, transportation, industrial manufacturing, buildings, and agriculture. Here is a table to quantify the investment amounts under each item:

	3. DECARBONIZE THE ECONOMY
No	Description	Billion $
1	Tax Credits for Clean Sources of Electricity and Energy Storage and Grant and Loan Programs for states and Electric Utilities;	30.0
2	Tax Credits and Grants for Clean Fuels and Clean Commercial Vehicles to reduce emissions from all parts of the transportation sector;
3	Grants and Tax Credits to Reduce Emissions from Industrial Manufacturing Processes, and for a new Advanced Industrial Facilities Deployment Program;	6.0
4	For Federal Procurement of American-made Clean Technologies to create a stable market for clean products, including $3 billion for the U.S. Postal Service to purchase zero-emission vehicles;	9.0
5	For Clean Energy Technology Accelerators; and	27.0
6	A Methane Emissions Reduction Program to reduce the leaks from the production and distribution of natural gas.

• Invest in Communities and Environmental Justice. 4: Building on regular engagement with Energy Justice leaders from across the country, this package includes over $60 billion in environmental justice priorities to drive investments into disadvantaged communities. Some of the highlights include. Here is a table to quantify the investment amounts under each item:

	4. INVEST IN COMMUNITIES AND ENVIRONMENTAL JUSTICE
No	Description	Billion $
1	The Environmental and Climate Justice Block Grants, invest in community led projects in disadvantaged communities and community capacity building centers;	3.0
2	The Neighborhood Access and Equity Grants, support neighborhood equity, safety, and affordable transportation access with 4 competitive grants to reconnect communities divided by existing infrastructure barriers, mitigate negative impacts;	3.0
3	Grants to Reduce Air Pollution at Ports, funded at $3 billion, support the purchase and installation of zero-emission equipment and technology at ports;	3.0
4	For Clean Heavy-Duty Vehicles, like school and transit buses and garbage trucks; and	1.0
5	Like the technology accelerator and consumer home energy rebate programs are important to disadvantaged and low-income communities.

• Farmers, Farmland Owners and Resilient Rural Communities. 5: The IRA makes historic investments to ensure that rural communities are at the forefront of climate solutions. The investments affirm the central role of agricultural producers and forest landowners in the climate solutions by investing in climate-smart agriculture, forest restoration and land conservation. It also makes significant investments in clean energy development in rural communities. Here is a table to quantify the investment amounts under each item:

	5. FARMERS, FOREST OWNERS, AND RESILIENT RURAL COMMUNITIES
No	Description	Billion $
1	To support Climate-Smart Agriculture Practices;	20.0
2	To support Healthy, Fire Resilient Forests, Forest Conservation and Urban Tree Planting;	5.0
3	Tax credits and grants to support the domestic production of biofuels, and to build the infrastructure needed for sustainable aviation fuel and other biofuels; and
4	Grants to Conserve and Restore Coastal Habitats and protect communities that depend on those habitats.	2.6

Here is a summary of the dollar amounts which were mentioned on all 5 graphs:

No.	Description	Billion
1	Lower Consumer Energy Costs	$   10.0
2	American Energy Security and Domestic Manufacturing	$   64.5
3	Decarbonize the Economy	$   72.0
4	Invest in Communities and Environmental Justice	$   10.0
5	Farmers, Farmland Owners and Resilient Rural Communities	$   72.6
	TOTAL	$229.1

It’s worth mentioning that there are 6 items (Bold) on these 5 graphs which have no specific investment figures. These 6 items represent “Tax Credits and Grants”. Perhaps it’s to assume that the remaining amount ($370-$229.1 ), $140.9 billion may have been allocated to those 6 items, Tax Credits and Grants.

A preliminary report: The Climate and Energy Impacts of the Inflation Deduction Act, published in August 2022 by the Princeton University (ZERO LAB); summarizes its major findings:

• Annual Capital Investment in Energy Supply Related Infrastructure:  The IRA would:
  1. Drive nearly $3.5 trillion in cumulative capital investment in new American energy supply infrastructure over the next decade (2023-2032). That includes more than $20 billion in annual investment in CO2 transport & storage and fossil power generation w/carbon capture by 2030. Annual investment in hydrogen production (including electrolysis and methane reforming w/carbon capture) increases to $3 billion annually by 2030, triple levels under current policy, and rises to over $50 billion by 2035;
  2. Have the greatest impact on investment in wind power and solar PV, which nearly doubles to $321 billion in 2030, versus $177 billion under current policy;
  3. Drive substantial additional investments by households and businesses on the demand side of the energy system, including purchases of more efficient and electric vehicles, appliances, heating systems, and industrial processes; and
  4. Provide tens of billions of dollars in grants, tax credits, and loan programs to develop manufacturing and supply chains for clean energy components, batteries, electric vehicles and critical minerals, spurring additional capital investment (and associated jobs) not captured in this report.

• Annual Change in Net U.S. Greenhouse Gas Emissions Relative to Current Policy:  The IRA would:
  1. Cut US emissions primarily by accelerating deployment of clean electricity and vehicles, reducing 2030 emissions ~360 Mt and ~280 Mt respectively;
  2. Incentivize installation of efficiency upgrades and carbon capture in industrial sectors, contributing ~130 Mt of reductions. Rebates, tax credits and grants to spur electrification and efficiency improvements in buildings;
  3. Reduce in methane emissions in the oil and gas sector spurred by the methane fee and grants; and
  4. Invest funds to improve conservation and carbon sequestration in forest and agricultural lands also contribute important reductions (~210 Mt collectively).
• Historical and Modeled Net US Greenhouse Gas Emissions (Including Land Carbon Sinks): The IRA would:
  1. Cut annual emissions in 2030 by an additional ~1 billion metric tons below current policy (including the Bipartisan Infrastructure Law);
  2. Close two-thirds of the remaining emissions gap between current policy and the nation’s 2030 climate target (50 percent below 2005);
  3. Get the US to within ~0.5 billion tons of the 2030 climate target; and
  4. Reduce cumulative GHG emissions by about 6.3 billion tons over the next decade (through 2032).

Here is a graph to illustrate the impact of the IRA. It accentuate the percentage of the potential reduction for each sector, including the Emission Gap (34 percent):

The bottomline is:

• The Inflation Reduction Act closes about two-thirds of the remaining emissions gap between current policy and the nation’s 2030 climate target (50 percent below 2005);
• By driving down the cost of clean energy and other climate solutions, the IRA also makes it easier for states or cities or companies to increase their climate ambitions; and
• It also reinforces the economic benefits of any future federal regulations.

Ottawa, Ontario, Canada 27 August 2022