On the Issues: Inflation Reduction Act Becomes Law

This week, President Joe Biden signed the Inflation Reduction Act (IRA) into law, shortly after the US Senate and House of Representatives approved the bill in two separate votes last week. The IRA contains an estimated $369 billion of investments in energy security and climate change mitigation, which leading research groups project will reduce US greenhouse gas emissions by around 40 percent by 2030 compared to 2005 levels. That reduction would represent progress on US climate goals, but 40 percent still falls short of the Biden administration’s aim to decrease emissions by 50–52 percent by 2030.

The IRA targets greenhouse gas emissions and the negative impacts of climate change by investing in environmental justice projects and the decarbonization of US industry. The law offers incentives for clean energy production, too—but it also contains provisions that support oil and gas leasing. The extent of the provisions and their implications are a lot to absorb—so this week, we’ll highlight some of the things we think you should know about what’s in the IRA.

How will the tax credits for electric vehicles in the Inflation Reduction Act affect the adoption of electric vehicles in the United States?

The IRA incentivizes the adoption of electric vehicles (EVs) by offering tax credits both for the purchase of EVs and for the cost of building the charging infrastructure that’s needed by the growing number of EVs on US roads. For commercial medium- and heavy-duty (MHD) EVs, the tax credit for a vehicle purchase is capped at $40,000; for passenger vehicles, the cap is $7,500. The bill provides a tax credit for building EV charging infrastructure in commercial vehicle lots, in the amount of 30 percent of the cost per charger, up to $100,000. In a pair of recent blog posts, Beia Spiller, a research fellow and director of the Transportation Program at Resources for the Future (RFF), examines how these credits may affect the adoption of EVs in the United States. “The IRA inherently incentivizes adoption of … smaller MHD EVs,” says Spiller, explaining that “smaller MHD vehicles, such as cargo vans or box trucks … are cheaper and have more similar price points relative to their electric versions than larger MHD vehicles.” EV tax credits also incentivize the domestic manufacturing of EVs and domestic sourcing of critical minerals. “The bill requires a percentage of [an EV] battery’s minerals and manufactured parts to be produced domestically (or by countries with fair-trade agreements),” says Spiller in another blog post, “and increases that percentage every year.”

How will the concessions for new oil and gas leases in the Inflation Reduction Act affect US and global greenhouse gas emissions?

One of the compromises that helped secure Senator Joe Manchin’s (D-WV) vote for the Inflation Reduction Act was the inclusion of provisions designed to spur the administration to sell new oil and gas leases on federal lands and waters. Some environmental groups have criticized this compromise because it ostensibly offers governmental support for more fossil fuel production and, hence, more greenhouse gas emissions. But RFF Fellow Brian C. Prest estimates in a recent blog post that the IRA reduces greenhouse gas emissions to a degree that far outweighs the potential increases in emissions due to the law’s oil and gas leasing provisions. “The other provisions in the IRA, considered in the aggregate, would cut US emissions by around 1,000 million tons of carbon dioxide equivalent in 2030,” Prest says. Even accounting for the projected effects of the bill’s oil and gas provisions on global emissions, Prest says the “carbon dioxide equivalent reductions that we might expect to result from the IRA’s other provisions still exceed even my highest … estimates by a factor of 10 or more.”

How does the Inflation Reduction Act consider and involve environmental justice communities that historically have been overburdened by pollution and natural disasters?

The benefits of environmental and energy policies historically have eluded or even produced worse outcomes for low-income communities and communities of color. Climate change exacerbates the problem, and climate policy typically does not incorporate environmental justice. “The impacts of climate change … [on] lower-income, socially vulnerable populations … can be addressed through effective adaptation and resilience programs—not through policies that reduce greenhouse gas emissions,” RFF economist Margaret A. Walls asserts in a new blog post. Still, she says, the IRA provides funding to alleviate environmental problems and climate impacts in frontline communities, along with incentives for underserved communities to adopt clean energy technology. “We have a long way to go to right the historical wrongs in many disadvantaged communities in the United States and to align the square peg of climate policy with the round hole of environmental justice,” says Walls. But the IRA “is an important step in the right direction.”

#ChartOfTheWeek

A recent analysis by RFF researchers Nicholas Roy, Kevin Rennert, and Dallas Burtraw projects that the Inflation Reduction Act will reduce retail electricity prices in the United States by 5.2–6.7 percent over the next decade, which could save the average household $170–$220 on their electricity bills and the costs of goods and services each year.

Inflation Reduction Act Will Reshape US Climate Policy and Diplomacy

In a new op-ed published in Foreign Affairs, RFF President and CEO Richard G. Newell examines how the Inflation Reduction Act will shape US climate and trade policy, returning the United States to a leadership role on international climate action. “The enactment of the Inflation Reduction Act into US law should be very welcome news for other countries committed to climate action,” says Newell. “Although the economic and political calculus for including provisions that support local economic development is clear, the decision could have foreign policy reverberations, disrupting aspects of cooperation on the international stage, from climate negotiations to international trade.”

Exploring the Role of Fuels Management in Mitigating the Risks and Impacts of Wildfires

On September 7, a panel of experts from state, federal, and tribal governments will convene to discuss forest fuels management, which can protect communities and natural resources but is not without risks and is often politically controversial. The panelists will discuss the benefits and challenges of deploying strategies for forest fuels reduction at scale, the effectiveness and costs of fuels management, and how these considerations bear on energy and construction product markets. RSVP to the webinar here.

Improving Public Data on the Carbon Intensity of the US Electric Grid

A new blog post coauthored by RFF Senior Fellow Karen Palmer, Fellow Brian C. Prest, and consultant Stuart Iler offers recommendations for how the US Energy Information Administration could improve the ways it collects and reports emissions from the electricity grid. “Demand is growing for data on the carbon intensity of US electricity production and consumption,” they say. The US Energy Information Administration “is poised to play an important role in providing such data and in contributing to the development of the broader carbon-data ecosystem.”

Upending the Conventional Wisdom on Carbon Pricing in the Power Sector

In the latest episode of Resources Radio, University of Chicago Professor Ryan Kellogg discusses why carbon pricing, long the preferred emissions-reduction tool for most economists, actually may not be as efficient as other policies. “The potentially happy coincidence is that, if the most expensive plants to keep running … also happen to be the ones that have high emissions rates,” says Kellogg, “then a [clean electricity standard] and carbon pricing, which really target those high emitters, are going to wind up wiping out the fossil generators in the same order—in the order of highest emissions rate down to the lowest emissions rate.”

California Cap and Trade Explained

In a recent conversation, RFF Senior Fellow Richard D. Morgenstern and Daniel M. Adler, the deputy director for climate finance in the California Infrastructure and Economic Development Bank, discuss how California’s cap-and-trade program limits carbon emissions, creates a market for tradable emissions credits, and funds decarbonization projects. “The prices are rising,” says Adler, “producing an interesting stream of investment capital that the state is using, through what we call a Greenhouse Gas Reduction Fund, to support a range of environmental goals.”

Developing Sustainable Fuels for the Aviation Industry

In a recent episode of Resources Radio, Zia Abdullah of the National Renewable Energy Laboratory discusses challenges for the United States in reaching the federal government’s goals for producing sustainable aviation fuel. “It’s not going to be easy,” notes Abdullah. “It has to be done in a way that engages in a very positive way with existing industries that already work on the fossil side or on the farming side and get them to buy into this new vision and be leaders.”

🎨 Climate in the Culture 🎵

“Climate in the Culture” spotlights a recent book, exhibition, or work of art that features climate change as a central theme.

The World as We Knew It: Dispatches from a Changing Climate, published this summer, is an anthology of personal essays about the effects of climate change on individual lives and the broader course of history. Amy Brady, a coeditor of the anthology, opens the book by reflecting on the summer nights she enjoyed as a kid growing up in Kansas: “It never occurred to me that nights like those wouldn’t always be possible.” In another essay, Omar El Akkad explores the potential consequences of climate change on our understanding of the past. “The places in which our stories took shape will become entirely changed,” he says, “and the changes will birth new stories, a new telling of forgotten pasts—ghost towns rising out from the bottom of vanishing lakes, secret histories written into the rings of severed trees.”

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