What the New US Climate Law Does and Where It Fails

A precondition for new wind power leases is increased oil and gas development. (Photo:  Rossographer/Creative Commons)

Analysis: U.S. climate policy is currently putting observers through a roller coaster of emotions: just a few weeks ago, the Supreme Court limited the authority of the U.S. Environmental Protection Agency to issue far-reaching climate regulations. Now, after decades of unsuccessful legislative attempts, the U.S. Congress has passed the most comprehensive American climate legislation ever by a razor-thin majority. The $369 billion package is now law with President Biden’s recent signature. The legislation is intended to lead to drastic emissions reductions over the next decade and transform the U.S. energy sector and the U.S. economy. What some see as an expression of goal-oriented climate pragmatism, in which the perfect must not become the enemy of the good, others see as a Faustian bargain that tightens rather than loosens the fossil fuel industry’s stranglehold on the U.S. economy. So what exactly is in the package?

The sweeping climate package, embedded alongside health care and tax reforms in the surprise passage of the more than 700-page Inflation Reduction Act, represents the largest U.S. funding boost to date to reduce greenhouse gases and promote climate-friendly “green” technologies. It is roughly four times what was authorized for climate action under President Biden’s Democratic predecessor Obama in 2009 in what was then the American Recovery and Reinvestment ActThis spending is in addition to the more than $200 billion in clean energy and climate action investments that a majority Democratic Congress already approved last year in a massive infrastructure funding bill. 

Passage of the bill is a much-needed win for the Biden administration, whose approval ratings are extremely low given the impact of inflation on American households. It comes just months before the November midterm elections, in which Republicans are expected to win.

Carrots instead of sticks: financial incentives instead of bans

The law includes neither a carbon price nor a CO2 cap under a federal emissions trading system. It also fails to radically address the main cause of climate change, namely the extraction and burning of fossil fuels. Thus, the measure clearly relies on carrots rather than sticks, in part because previous attempts to push a climate bill through Congress that relies on carbon taxation have repeatedly failed over the past several decades. Then-Vice President Al Gore’s push in 1993 failed to gain traction, as did the Markey-Waxman emissions trading plan of 2010.

So instead of punitive measures and restrictions, the package prioritizes financial support as an incentive and emphasizes how much the investments will support the American economy, create jobs and benefit consumers. This also secured the almost euphoric support of the U.S. business sector for the proposed legislation, with letters of support from more than 1,000 companies, investors and trade groups, including major oil companies, as well as labor unions. The Biden administration has purposefully pursued this approach, which justifies climate protection with green jobs and economic growth, since the beginning of his term in office as part of his reconstruction strategy to Build Back Better after the pandemic-related economic crisis.

Accordingly, the White House stressed that the Inflation Reduction Act “secures America’s position as a world leader in domestic manufacturing and clean energy supply chains,” creates and sustains “good-paying union jobs in construction and manufacturing, including in rural communities,” and lowers annual energy costs for Americans by an average of up to $1840, according to expert estimates.

Expansion of the US markets for renewable energies and e-mobility

To spur expansion of the U.S. renewable energy market and phase out fossil fuels through price incentives, the bill provides about $260 billion in tax creditsover the next ten years. They are intended to go to private companies and public utilities for energy production through wind, solar, geothermal or hydropower, but also to boost domestic industrial production of wind turbines or solar cells, clearly fueling competition with China, which currently dominates globally in the expansion of renewables.

Individuals can get up to 30 percent tax credits for installing home solar systems, as well as up to $14,000 per household for energy efficiency measures, including up to $8,000 for installing heat exchange pumps.

Already, some analysts are speculating that these tax giveaways will stimulate demand to such an extent that, in the short term, there could be “greenflation” in the U.S. primarily due to rising costs and a shortage of skilled workers to install such systems. In the medium to long term, however, the hoped-for Americanization of supply chains could offset this.

In addition to clean energy production, the package also seeks to accelerate the decarbonization of the transportation sector. The growth of e-mobility is to be helped by around $23 billion in tax breaks for electric vehicles, with up to $7,500 for the purchase of a new, and as much as $4,000 for a used e-car – all but only if vehicle manufacturers use batteries with a high percentage of components “made in the USA” or assembled in North America. Some $3 billion is also being set aside for the electrification of the entire U.S. Postal Service vehicle fleet. As important as these investments in greener transportation are (which also include massive tax credits for biodiesel and seek to promote hydrogen and fuel cell technologies), they remain focused on the automobile. One looks in vain for meaningful funding allocations for public transportation systems in the legislation. And curiously, electric bicycles are also excluded from the otherwise generously spread tax credits.

A (rotten) compromise

The Inflation Reduction Act, with its hodgepodge of climate measures, is what remains of progressive Democrats’ multi-trillion dollar Green New Deal agenda of 2019 and the $2 billion Build-Back-Better framework legislation that President Biden pushed last fall. The Build Back Better package, which promised to spend $550 billion on energy and climate action, about a third more than the now-passed legislative package, failed last fall because of opposition from conservative Democrats, most notably Senator Joe Manchin of the coal state of West Virginia, a fossil fuel advocate also owing his personal wealth to coal and gas ventures.  In a 50-50 Senate, Senator Manchin thus used his de facto veto power. The fact that the slimmed-down climate action package was now surprisingly pushed through in early August, against all expectations and after a year and a half of tug-of-war among Democrats, was achieved thanks to a complex closed-door deal negotiated between Senate Democratic Leader Charles Schumer and Senator Manchin.

The Senate vote, in which Vice President Kamala Harris cast the decisive 51st Senate vote, had only become possible at all because the bill was negotiated as part of a budget reconciliation process for which Democrats needed only a simple majority, not the 60 votes, to override a filibuster by Republicans united in rejecting the package.

The majority of Democrats and climate experts celebrates the package as a historic success of pragmatic climate policy, in which good legislation was not sacrificed in the name of hoping for an even better ideal—especially in the face of the expected Republican win in the midterm elections, which could block U.S. climate legislation for the rest of the decade so critical for accelerated climate action. Exemplary of many other voices, Al Gore, former vice president and winner of the Nobel Peace Prize for his climate change efforts, underscored the importance of passage for the world in the face of the planetary climate crisis and emphasized that yes, improvements could and must still be made in the implementation of the bill.

Safeguarding the fossil fuel industry

The many-voiced chorus of those hailing the legislative coup drowns out the critical voices from the progressive U.S. climate movement, who castigate what they see as a rather rotten compromise and a Faustian bargain. That’s because in order to win Manchin’s approval, numerous pledges were made that solidify the fossil fuel industry’s stranglehold on the U.S. economy instead of reducing its influence. Chief among these is the provision requiring the U.S. Department of the Interior to agree to millions of acres of new oil and gas development concessions over the next decade as a precondition to leases for offshore wind and solar and wind farms on federally owned land, including in the Gulf of Mexico and Alaska’s Cook Inlet. Each year, for example, an area of ocean the size of the U.S. state of Wyoming, about 60 million acres, could be opened to offshore drilling. While such extraction concessions need not necessarily lead to expanded fossil fuel production, their forced linkage to permits for new renewable energy projects could slow such clean investments.

In addition, Manchin received a green light from the White House and congressional Democrats to expedite the controversial Mountain Valley Pipeline, which has been stalled for years and would transport natural gas from West Virgina to East Coast markets. It  could emit as much additional greenhouse gases as 19 million cars annually, according to Oil Change International. This concession is part of a far-reaching side deal under which Manchin was promised an early vote on an additional bill that could reform the permitting process for new fossil fuel infrastructure projects, such as pipelines or gas terminals, but also for renewable energy projects, and make it much easier by imposing strict timelines and reducing legal objections from environmentalists, for example. This plan would require at least 60 Senate votes, and thus Republican support, but that is considered possible. This would further consolidate the influence of the fossil fuel industry on the U.S. legislature.

Also contributing to the long-term consolidation of fossil fuel infrastructure in the U.S. (rather than a move away from fossil fuels) is the expansion of tax giveaways for carbon capture and storage (CCS) technology support, which thanks to the climate package will now be rewarded at $180 per ton for direct air capture by increasing the existing 45Q tax rebate threefold, potentially creating a boom. The U.S. Carbon Capture Coalition, which cheered in a press release that the Inflation Reduction Act “addresses all of the coalition’s legislative priorities for the current 117th Congress,” believes a thirteen- fold expansion in the use of such technologies is possible by 2035 thanks to the bill. Companies like Alphabet and Meta, as well as Tesla’s Elon Musk, are already waiting in the wings.

US emissions reduction: good, but not good enough

Proponents of the compromise bill point out that every additional ton of emissions generated by fossil fuel tax support provided in the climate package will be more than offset by the savings of 24 tons of greenhouse gases. They cite as an example the $1.5 trillion for a new methane reduction program that will reward oil and gas companies that reduce their methane emissions.

In fact, the enacted climate action bill is technology agnostic, and includes, for example, tax support for nuclear plant lifetime extensions. Rhodium Group estimates that without the bill’s funding commitments, about one-third of U.S. nuclear plants would have to shut down by 2030 due to cost. Hundreds of millions of dollars also support nuclear fusion research.

Overall, climate measures in the Inflation Reduction Act are expected to reduce U.S. greenhouse gas emissions by about 40 percent by 2030 compared to 2005 levels, according to Princeton University’s REPEAT analysis, compared to an estimated 30 percent reduction without the legislative package. Some critics, however, see these assumptions as overblown because they do not factor in greenhouse gas impacts from new fossil fuel construction projects, such as thousands of miles of pipelines or storage tanks for CCS infrastructure. However, even in the best-case scenario, emissions reductions are still well below what would be needed to meet the climate pledge President Biden has made to the global community, which calls for the U.S. to reduce emissions by 50 to 52 percent from 2005 levels by 2030. Additional efforts through presidential executive orders, but which have lost implementation bite due to the recent Supreme Court EPA ruling, or programs set up by states would thus be necessary for the U.S. to meet its nationally determined contribution (NDC) to the Paris climate agreement.

Climate justice deficits

Many U.S. climate activists view the passage of the legislative package with mixed feelings , if not outright anger and disappointment, including in light of critical equity deficiencies in its design and foreseeable implementation. After all, it was their political pressure on Democrats, their mobilization of votes, and their implementation proposals over recent years, which made the Inflation Reduction Act even possible. The reality that the package of measures represents the limit of what can be done in a polarized bipartisan political system in which Republicans refuse to embrace more far-reaching climate reforms does not console them that marginalized and low-income, predominantly black and brown populations will feel its potential negative effects the most. Indeed, they suffer most severely from the pollution, health and community impacts caused by the fossil fuel infrastructure, extraction facilities and power plants that are primarily found in their neighborhoods, and which are given a boost by the law, such as in so-called “Cancer Alley” in Louisiana.

“This bill is not enough. It leaves people out. Many communities will still be left to a status quo of pollution and degradation in the places they live and work,” said for example, Varshini Prakash, co-founder of the Sunrise Movement, who like many liberal environmental groups has seen the trillion-dollar vision of a U.S. program for comprehensive social and environmental justice shrink more and more over the past two years, in the Washington Post.

There are a number of initiatives in the climate package that are targeted to benefit disadvantaged black and brown communities and populations most affected by climate and pollution and to provide greater environmental justice in order to improve their quality of life. These include, for example, a $3 billion program at the U.S. Environmental Protection Agency (EPA) with block grants for climate action at the local level for communities of color and low-income communities.

Native American and other Indigenous groups and tribal authorities are also to receive financial support for electrification on reservations and for climate resilience planning and activities. And a $27 billion new greenhouse gas reduction fund to finance clean energy infrastructure projects within the U.S. requires that at least 40 percent of these investments benefit disadvantaged communities.

These financial allocations, however, are not enough to offset the systemic environmental racism in the U.S. which, according to observers, is perpetuated by the Inflation Reduction Act. This is all the more so because the law does not include any significant social support measures other targeted health care reforms, which were an essential part of the original vision of a Green New Deal.

International impacts

At the international level, perceptions of the recently adopted U.S. climate package also fluctuate between newly awakened optimism and disappointment, and at best are a mixture of both. As historically the largest climate polluter, and given the urgency of the climate crisis, so far the U.S. has  fallen significantly short of contributing adequately to collective emissions limitation efforts, so the passage of the Inflation Reduction Act sends a hopeful signal that the Biden administration is serious about climate action. This increases the credibility of U.S. climate diplomacy efforts in international climate negotiations ahead of the COP27 climate summit in Egypt in November. However, even with successful implementation of all measures in the climate package, the U.S. climate pledge under its NDC to reduce U.Semissions by 50-52 percent from 2005 levels by 2030 will remain unfulfilled.

Whether the missing 10 percent emissions reduction can be achieved through additional efforts, particularly at the state and municipal levels, is uncertain. And the U.S. NDC pledges themselves fall far short of what would be needed for the U.S. to make a fair contribution to addressing the global climate crisis, according to many climate experts. To the disappointment of developing countries and international climate justice groups, the climate package also includes no money for international climate finance, such as support for the Green Climate Fund, to which the U.S. still owes $2 billion promised by the Obama administration, and which has just started negotiations for its second replenishment period. Finally, international observers are always concerned about the durability of U.S. climate promises, especially if the Republicans return to the White House after the presidential election in two years.

Now US climate policy really begins

So, the question is what happens next? What are the next critical steps? The Inflation Reduction Act does not mark the end of U.S. climate policy, but rather its beginning in earnest. The Biden administration must now move aggressively to draft legislation so that climate legislation can be implemented quickly. For example, the EPA must now finalize its methane regulation, which has been in draft form since last November. Similarly, regulation of automobile tailpipe emissions must be finalized no later than mid-2024, and thus months before the next presidential election, or such administrative regulations could be voided under the Congressional Review Act if Republicans win the election.

Many progressive climate groups in the U.S. see the passage of the climate package, despite or more precisely because of all its flaws, as an incentive to ramp up their climate activism in the run-up to the midterm elections and to keep up the pressure on Democrats to implement more progressive legislative goals if more progressive climate activists can be elected to Congress. They have not yet given up hope that President Biden might yet declare a national climate emergency, as they have requested, which would allow him, via presidential decrees, to, for example, halt U.S. crude oil exports, limit private investment in fossil fuel projects abroad, or spend defense budget money on renewable energy. And they are also counting on young climate activists in particular to become more involved at the local level in the coming years in order to politically implement their vision of far more comprehensive climate-just social and environmental protection rules in cities and municipalities in all U.S. states.

This post is licensed under: CC-BY-NC-ND 4.0 It was originally published by the Heinrich Böll Stiftung, Washington DC.

Liane Schalatek is the Associate Director of the Heinrich-Böll-Stiftung Washington, DC, where she spearheads the foundation’s work on climate finance.