What is the Inflation Reduction Act and what does it mean for Climate Change?

What is the Inflation Reduction Act and what does it mean for Climate Change?

This week President Biden signed a new Bill into law addressing healthcare and climate change. The Inflation Reduction Act makes an unprecedented investment of USD 369 billion in climate action to drive down US emissions by 40% against 2005 levels by 2030. This gets the US closer to its commitment to a 50% reduction by 2030.

This matters because the US is responsible for over 20% of historical emissions since the start of the industrial revolution. As a major emitter it has to show leadership on the global stage to maintain trust in the multilateral system and to avoid the risk of other countries taking licence to step back on their national commitments.

The Inflation Reduction Act uses carrots in the form of investments and tax breaks to incentivise climate actions, rather than sticks like emissions reduction targets or carbon taxes which we are more familiar with in Ireland and Europe. The Act is the result of long and difficult negotiations on Capitol Hill to get a balance between the need to drive investment in clean energy and satisfy the needs of fossil fuel promoting Senators whose votes were critical to get the Bill through. In the past various approaches to cap and trade and emission regulation have failed to get through Congress, so a new approach was needed.

The result is an historic, if imperfect, step forward. It makes concessions to oil and gas, and it falls short of ending gas and oil exploration or even phasing out fossil fuels – but the overall assessment is that, if implemented in full, it moves the US significantly closer to its carbon reduction targets.

The USD 369 billion of investments to be made this decade will fund clean energy, sustainable agriculture, create jobs, improve infrastructure, support research and forecasting and develop new low carbon technologies. It aims to catch the US up with China in manufacturing zero carbon solutions like solar PV and electric vehicles. It has provisions to help homeowners insulate their homes and upgrade appliances and to encourage the adoption of EVs.

The legislation also addresses climate and environmental justice. There are block grants for disadvantaged communities to address the legacy of pollution and there are supports for a just transition in coal mining communities. The volume of support is not enough, and the communities will have to go through a process to access the funds, but it is a step in the right direction.

The shortcomings of the Act include a lack of focus on climate impacts and adaptation, things like support for flood prevention, drought management, wildfire prevention and resilience building. With climate change already happening and extreme events already claiming lives and property – this aspect of climate action needs attention in tandem with the focus on emissions reductions.

The investment in the US will need to be matched by flows of climate finance to developing countries to help them to take climate action. No country is safe unless all countries reach net zero emission by 2050. The US has pledged USD 11.4 billion per year in climate finance and delivering on this is critical to maintain trust in the international climate system and to deliver real world emission reductions and adaptation measures.

The science is clear that we cannot achieve the 1.5oC goal if we keep developing new oil and gas. The US is not yet ready to turn away from the fossil fuels it grew its economy on, but the investment in alternatives to fossil fuels this law initiates provides the foundations and the hope that this can happen over time.

While businesses in Ireland get to grips with the implications of sectoral emissions targets, US businesses will be looking at how best to access and avail of the incentives in this legislation to help them achieve net zero goals and to reap the opportunities posed by more sustainable business practices.

Irish businesses with interest in the US should watch developments closely as the measures announced are implemented and the tax credits and investments start to flow into the real economy.

We work with businesses across all sectors to support them in achieving their sustainability and climate goals. Contact us today: info@changebydegrees.com

Dr Tara Shine – Co-CEO of Change by Degrees and co-facilitator of a UN science policy dialogue to review progress towards the goals of the Climate Convention.

Listen to Dr Tara Shine discussing the Inflation Reduction Act and what it means for Climate Change here.

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Madeleine Murray

Madeleine Murray

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