The Inflation Reduction Act, a Sleeper Success

The biggest slice of the pie goes to decarbonizing the U.S energy supply, followed by clean manufacturing and commercial buildings. Though the smallest slice goes to carbon removal, the scale of the bill is so large a $3 billion dollar investment essentially means that the government subsidy to remove one metric tonne of carbon increased from $50 to $85. Great news for fossil fuel companies looking to keep in business, though to be fair, also good news for essential manufacturing industries that are hard to decarbonize like steel and cement. 

The vast majority of IRA funding goes to updating the electricity grid which intuitively makes sense since energy is the backbone of any civilization. What’s surprising to me though is that despite the majority of the U.S.A’s carbon emissions (28% of 2021 greenhouse gas emissions) coming from the transportation sector, it receives a relatively smaller slice of the pie. It may be due to the fact that decarbonizing the transportation industry would increase the overall energy demand because let’s face it, your electric car that gets electricity from a coal power plant would defeat the purpose. Another reason why the IRA focuses mostly on energy supply is because of an earlier historical record-breaking bill passed in November 2021. The infrastructure investments and jobs act includes the largest federal investment in public transit in history of $105 billion dollars. Another $110 billion is on fixing roads and bridges and includes measures for climate change mitigation and improving access for cyclists and pedestrians. I must admit, President Biden wasn’t a really inspiring candidate, but he did get stuff done. 

In terms of how the money would be deployed to where it’s needed, Businesses tax Credits make up the majority of how the funds would be delivered to the active zones of this climate war. My first reaction to this is, ‘what an optimistic take on human nature!’ But the same way Universal Basic Income has been shown to have promising effects on reducing poverty and fostering economic growth, giving green to make businesses go green may actually be a strong strategy. Here is a list of credits and deductions under the IRA for both individuals and businesses. 

Implications

Overall, the Inflation Reduction Act has done a lot of great things for the climate justice movement. Based upon 9 independent state of the art models, the IRA is on track to reduce U.S. greenhouse gas emissions to 43–48% below 2005 levels and produce more than 1 million solar and wind jobs by 2035. This makes me look at our goal of reaching net zero by 2050 not a pipeline dream, especially as more news comes out with our positive trajectory. 

BloombergNEF’s predicts the U.S. clean energy sector is on track to deliver 600 gigawatts (GW) of solar, wind and energy storage capacity by the end of the decade. The report notes that the White House’s Inflation Reduction Act has contributed to this massive boom of renewable energy capacity. Assuming continuous output of one year, 1 GW can power up to 876,000 households for 1 year and the approximate average electricity consumption of the United States would be around 438 GW. This is a good starting point, but we’re going to have to climb higher to reach the summit. According to researchers,  for the U.S to provide 94% of its energy for renewable sources, it’ll need 930 GW of power for 6 and a half hours of capacity. 

A lot more solar and wind energy infrastructure will need to be added and improved upon if the U.S were to meet its climate goals. With 1 GW is equivalent to 3.125 million photovoltaic cells and 333 utility scale wind turbines, the whole decarbonization task looks a lot more daunting. Rather than curling up into a ball and crying, the U.S has started to make the manufacturing process of renewables easier, and more efficient, and it’s a direct thanks to the Inflation Reduction Act. 

Renewable manufacturing is booming in the U.S with nearly 100 new facilities or factory expansions announced between August 2022 to May 2023, totalling over $70 billion in new investments. Much of the manufacturing in the U.S is gravitating to States in the South like Alabama, Georgia, and Texas. At least so far, most of the manufacturing investments look likely to go to communities represented by Republican lawmakers in Congress, all of whom voted against the Inflation Reduction Act.

One company, Enphase, opened its first manufacturing company in South Carolina leading the charge of Solar domestic manufacturing. They plan to open two more manufacturing sites this year where a total 1,800 jobs are expected to be created from the three locations. 

Foreign based companies, excited to get in on the green pie, have accounted for more than half of the clean energy manufacturing announcements made and roughly two-thirds of the investment funds. Countries like South Korea, Japan, and China, are flocking to the U.S where the land fertilized by the IRA, will help them grow their battery manufacturing businesses. Japan’s Panasonic is preparing a site in Kansas for a $4B EV battery mega factory and Hyundai is looking to prepare their own $5.5B EV assembly and battery plant in Georgia. 

Now the effects of this cannot be understated, and whether this is intentional or not is a bit fuzzy for me. If the U.S farts the whole world smells it and President Biden may have kickstarted a global decarbonization arms race. We’ve already seen how the generosity of the IRA is attracting hordes of companies to set up shop in the U.S. Many countries are accusing the U.S of protectionism and begrudgingly introducing their own policies to keep or attract green businesses. 

The EU is looking to implement a 4 pillared strategy called the Green Deal Industrial Plan where the legislation aims to speed up clean tech permit acquisition, speed up access to funding, increase labor force for green jobs, and improve open trade. And Canada has revealed their own knock off version of the IRA, a $80 clean energy plan in the clean energy tax credits and infrastructure, to make sure their businesses won’t leave them.

Summary

I’ll admit, I went into this article with a fairly jaded lens, thinking that just throwing money at the problem would at best, barely treat the symptoms, and at worst, fund the problem itself. But my opinion has softened. This large piece of legislation was more far reaching than I initially thought. By making the U.S a manufacturing hotspot for green tech, they invite growth and prosperity back into their nation, incentivize and raises the bar for other nations to do the same, and helps create a spillover effect which will allow other nations to implement green tech at a lower price. 

But we’re just getting started. For the following years to come, republicans we’ll continue to say republican’t and will try to repeal the IRA. Some democrats will push back against legislation that makes meaningful change based on their constituency. With all the money added to the green industry, engineers, construction workers, people from all walks of life will need to work together for us to reach net zero by 2050 and here are some IRA programs y’all can benefit from as we work towards that future.