Environmental Provisions of the 2022 Inflation Reduction Act
Environment Policy Brief #148 | By: Jacob Morton | September 5, 2022
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On August 16, 2022, President Joe Biden signed into law the Inflation Reduction Act (IRA), H.R. 5376. The new law is essentially a scaled-back version of the Biden administration’s Build Back Better Act, intended to reduce the national deficit and lower inflation while investing in domestic energy production, creating jobs, and lowering healthcare drug costs.
The law will extend the Affordable Care Act program for three years, through 2025, and allows Medicare to negotiate lower prescription drug prices, which will ensure affordable medications for those most in need. As for its environmental implications, the law calls for significant investments designed to lower energy costs, increase cleaner energy production, and reduce carbon emissions by 40% by 2030. Spending designated for energy security and climate change represent the largest investment made by the Inflation Reduction Act, totaling $369 billion, making this law “the single largest investment in climate and energy in American history.”
To make these investments possible while simultaneously reducing the deficit and lowering inflation, the law generates revenue by imposing a 15% corporate minimum tax on companies making more than a billion dollars per year, but without imposing any new taxes on families that make $400,000 or less or on certain small businesses. According to Democrats in Congress, the law will invest a total of $437 billion for its programs, but is expected to raise $737 billion, resulting in a deficit reduction of more than $300 billion. Since the law raises more revenue than it spends, the remaining difference becomes available for deficit reduction.
The $369 billion of spending designated for energy security and climate change programs consists of various incentives and tax credits for businesses and consumers, regulations on the use of public lands, drought resiliency aid for farmers and foresters in the West, and other miscellaneous provisions:
- Business Incentives and Tax Credits
- The federal government is offering incentives and tax credits to businesses for utilizing lower-carbon and carbon-free energy sources, for investing in and production of clean energy sources and carbon capture technology, as well as investments in battery storage and biogas. Bonuses will also be given to companies based on how much they pay their employees and for the domestic manufacturing of steel, iron, and other components in the U.S.
- Business and Consumer Incentives
- The new law offers homeowners tax credits towards the costs of installing residential clean energy technology, including rooftop solar, heat pumps, and small wind energy systems, as well as tax credits for business owners for energy efficiency improvements in commercial buildings. Tax credits will also be made available of up to $7,500 for the purchase of new electric vehicles (EVs) and $4,000 for used EVs.
Grants and loans will be offered to help companies reduce methane emissions from the burning of oil and gas, and fees will be levied on producers who emit excess levels of methane gas. Additionally, $27 billion will be invested in providing further incentives for the development and deployment of clean energy technologies, and to provide incentives for companies and consumers to make “cleaner energy choices.”
- Use of Public Lands
- The Inflation Reduction Act establishes stricter requirements for the federal government to be able to sell leases for new oil and gas production on public lands, however, the new law also seeks to stimulate more domestic fossil fuel production by requiring the Interior Department to hold at least three more offshore oil and gas lease sales by next October, and in a controversial move, calls for the reinstatement of a recent offshore oil and gas lease sale that was struck down on environmental grounds.
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The law also intends to better capitalize on domestic fossil fuel production by increasing the minimum royalties for companies that extract oil and gas on public lands and waters, as well as establishing an additional royalty on public lands and waters for the extraction of gas that is later burned off or released as “waste” instead of being sold as fuel. This “waste” methane will now come with a fee if the amount released exceeds the facility’s assigned maximum threshold.
Additionally, the IRA adds seven new sections to the Clean Air Act, all of which appropriate funding to the EPA for new grant programs, and GHGs are explicitly stated, for the first time legislatively, as being considered air pollutants under the Clean Air Act. However, this new designation of GHGs only impacts the new sections of the Clean Air Act and will not impact West Virginia’s major coal burning facilities. Regarding President Biden’s Environmental Justice agenda, the IRA will support environmental justice initiatives by providing funding for several new grant programs that address air pollution and GHGs.
According to a press release by Democratic senators, the $3 billion Neighborhood Access and Equity Grants included in the IRA support “neighborhood equity, safety, and affordable transportation access” by providing competitive grants to “reconnect communities divided by existing infrastructure barriers, mitigate negative impacts of transportation facilities or construction projects on disadvantaged or underserved communities, and support equitable transportation planning and community engagement activities.”
The new law also seeks to help underserved communities through the previously mentioned tax credits for used electric vehicles, grant programs for energy and water efficiency installations, and more than $200 million in funding for Air Pollution Monitoring that will benefit communities exposed to areas with persistent air pollution.
The new law also appropriates $5 billion for conservation efforts, specifically sustainable forestry. Forests play a huge role in regulating our climate; they can sequester carbon, cool surrounding areas, and provide essential habitat for wildlife. However, proper management is the key difference between a forest that remains resilient in the face of wildfire, disease, and climate extremes and one that weakens or gets destroyed completely.
The new law will not initiate new projects, instead, most funding will be used to bolster the budgets of existing programs or extend their operational lifespans. Most of the money for forestry in the IRA is destined for management projects, including the Forest Service’s Urban and Community Forestry Program, federal wildfire mitigation and prevention, an initiative to catalog and protect old growth forests, and grants to support non-federal forest management.
Susan Prichard, a research scientist at the University of Washington, says she is “really supportive of more funding going to more proactive management” of our forests.” She says, “I hope [the IRA] allows the Forest Service and public agencies to staff up—it takes so much planning, and then there’s a dearth of professionals that can get on the ground right now.”
Nadine Block, a vice president at the nonprofit Sustainable Forestry Initiative, which develops certifications and advocates for sustainable forestry, agrees with Prichard. Block says, “This bill creates tremendous opportunity… It’s really heartening to be getting some funding and getting projects moving to address the backlog of needs.”
While the Inflation Reduction Act falls far short of the original Build Back Better bill, most environmentalists agree that it is an important first step.
Even by the most optimistic projections, the law will not reach Biden’s goal of cutting the nation’s GHG emissions by 50% by 2030. However, climate policy think tank Energy Innovation and two other expert modeling groups predicted the IRA will reduce U.S. GHG emissions by about 40% by 2030, putting the U.S. within reach of that original target. Plus, the law gives the U.S. EPA new tools to drive emissions down even lower.
According to Don Fullerton, the Gutgsell Professor of Finance at the Gies College of Business at the University of Illinois Urbana-Champaign, a senior scholar at the Institute of Government and Public Affairs, and an expert in energy and environmental policy, the new law has its shortcomings, but is a necessary step in the right direction.
Fullerton says, “The government estimates it will create millions of green jobs in the clean energy sector. That estimate, of course, doesn’t count the jobs that might be lost over the long run in the fossil fuel sector, so the net change in jobs is probably small.
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But the law does extend and encourage a major transformation of energy in the U.S. that is already underway… It encourages progress on the all-important batteries necessary to store the power generated during sunny days and windy periods,… and by spending $369 billion on greenhouse gas-reduction investments, the Inflation Reduction Act can help the U.S. set an example for the rest of the world, especially when so many other countries look to the U.S. for the leadership necessary to get 200 nations on board to reduce this global climate crisis.”
Democratic Senator Joe Manchin of West Virginia, who has strong ties to the coal industry and is the Democrats’ own greatest critic of the Build Back Better agenda, said of the new law, “I support a plan that will advance a realistic energy and climate policy that lowers prices today and strategically invests in the long game.
This legislation ensures that the market will take the lead, rather than aspirational political agendas or unrealistic goals, in the energy transition that has been ongoing in our country.”
Even Bill Gates agrees, writing in the New York Times: “Through new and expanded tax credits and a long-term approach, this bill would ensure that critical climate solutions have sustained support to developing new industries.”
As EPA Administrator Michael Regan writes of the new law, “It’s been a long time coming.” Regan says, “It’s taken the heart and soul, sweat and tears of so many people to get us to this point. But President Biden pledged to deliver a clean, secure, and equitable future for our children. He worked with stakeholders across labor, climate, business, and environmental justice — and he delivered.”
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- Sustainable Forestry Initiative (forests.org): At the Sustainable Forestry Initiative®, we believe that sustainable forests are critical to our collective future. SFI® is a sustainability leader through our work in standards, conservation, community, and education. As an independent, non-profit organization, we collaborate with our diverse network to provide solutions to local and global sustainability challenges. SFI works with the forest sector, brand owners, conservation groups, resource professionals, landowners, educators, local communities, Indigenous Peoples, governments, and universities.
- Clean Air Task Force (catf.us): Pushing for the change in technologies and policies needed to get to a zero-emissions, high-energy planet at an affordable cost. The CATF imagines a world where the energy needs of all people are met efficiently without damaging the atmosphere.
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McGinn, M. (2022, August 19). 4 ways the Inflation Reduction Act invests in healthier forests and Greener Cities. Popular Science. Retrieved September 5, 2022, from https://www.popsci.com/environment/inflation-reduction-act-forests/
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Regan, M. (2022, August 26). The Inflation Reduction Act: A Big Deal for People and the Planet. EPA. Retrieved September 5, 2022, from https://www.epa.gov/perspectives/inflation-reduction-act-big-deal-people-and-planet
The United States Government. (2022, August 17). Fact sheet: Inflation reduction act advances environmental justice. The White House. Retrieved September 5, 2022, from https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/17/fact-sheet-inflation-reduction-act-advances-environmental-justice/