The Inflation Reduction Act Reconciles Multi-Sector Decarbonization
Days before Congress’s 2022 August Recess, the U.S. Senate surprised many by announcing a significant legislative proposal to meet today’s climate and energy security challenges. The Inflation Reduction Act of 2022, a budget reconciliation package that won’t gain the same bipartisan support as more recent legislation, represents the compromise needed to activate opportunities that reclaim the promise of a better tomorrow.
This 725-page legislative proposal is limited to issues related to spending, revenues, deficits and debt, but it also provides a useful policy-making tool that enables Congress to better align existing spending and revenue with current priorities. As written, the Inflation Reduction Act would strengthen the prospect of a long-term, comprehensive, multi-sector strategy to decarbonize every sector of the economy by authorizing over $360 billion for the transportation, industry, power and energy, agriculture, land use and buildings sectors to meet carbon emission intensity reduction standards.
This bill would build on the successful agreements that have defined the past year of legislative activity. Dozens of new programs that were authorized by the Infrastructure Investment and Jobs Act to decarbonize infrastructure would be further supported by the Inflation Reduction Act’s Greenhouse Gas Reduction Fund, which would authorize the first national green bank. This Fund would disburse and manage clean energy investments based more on carbon intensity standards than profitability. Also, the Department of Energy’s recent announcement that 146 programs meet the Justice40 Initiative requirements is further supported by the Inflation Reduction Act’s Environmental and Climate Justice Block Grants, building on current federal environmental justice grants to address climate change in communities that are marginalized, underserved and overburdened by pollution.
For industry, power and energy, buildings, agriculture and land use, this bill would update and extend the production and investment tax credits for renewable energy projects, providing bonus credits for projects that benefit disadvantaged communities and direct pay options for tax-exempt entities. For the industry and energy sectors, tax credits would be available for domestic manufacturing of clean energy storage systems, solar, wind, and electric vehicles to ensure the full life cycle of our clean energy transition integrates equity-focused climate resilience and supports local supply networks. For transportation and communities, Neighborhood Access and Equity Grants would enable local governments to improve walkability, equity, safety, and affordable access by enhancing connectivity and mitigating carbon pollution, especially in economically disadvantaged communities. For agriculture and renewable energy in rural communities, nearly $20 billion in financial and technical assistance would be available to meet climate change-related goals.
As of today, Friday, August 5, 2022, the future of the bill remains uncertain. The Senate is scheduled to take a key vote this weekend while COVID, a “vote-a-rama,” a 50-50 Senate, and a “Byrd Bath” could eliminate key provisions of the bill. Although a meaningful majority of voters support the Inflation Reduction Act, there is still disagreement and uncertainty about some of the impacts. Inclusive collaboration remains a key element needed to create solutions that meet the scale of our sustainability challenges.