Inflation Reduction Act: A Turning Point for US Climate Policy?

Inflation Reduction Act: A Turning Point for US Climate Policy?

Introduction

On August 16th, 2022, President Biden signed into law the Inflation Reduction Act (“IRA”), one of the most ambitious and potentially impactful climate policies in US history. It sets US emissions on a trajectory toward meeting its climate commitment to cut greenhouse gas (“GHG”) emissions in half by 2030, below 2005 levels. 

This marks a shift in US climate action and, by putting emissions firmly on a downward trajectory, it sends a global signal that the world’s largest historical emitter is now beginning to meet its responsibilities. 

Impact of the Inflation Reduction Act on US Emissions

Although implementation of the IRA is expected to accelerate the decline in US GHG emissions, its estimated that additional policies will be needed to reach the proposed 50-52% reduction target under the Paris Agreement.

Analysts with the Rhodium Group estimated the impact of the new Inflation Reduction Act (Blue) on net US greenhouse gas emissions compared to existing U.S. policies (Orange). Both are well short of the national target (Green) to cut emissions 50-52% below 2005 levels by 2030.

The legislation will inject $369 billion in the form of tax credits, grants and loans directed to develop and deploy clean energy technologies and investments that will be essential to decarbonizing the economy. 

These provisions lower the cost of commercial clean technologies like wind and solar, electric vehicles, and building efficiency, enabling them to become more competitive with incumbent fossil fuel technologies and driving a shift towards cleaner energy.

The current policy projection pathways show that ambitious climate policies such as the IRA, can have a meaningful impact on accelerating the emissions reduction needed to bring the NDC and a net-zero by mid-century within reach.

The net result of all the provisions in the IRA is that US net GHG emissions will decline to 32-42% below 2005 levels in 2030. That’s 10% more than under current policies, in which emissions are projected to be 24-35% below 2005 levels in 2030.

US Climate Action Rating & Summary

Given the high uncertainty about the outcome of the IRA and its implementation, the range of projected emissions pathways expands substantially into 2030. However, this range of policy outcomes for the US still spans two underperforming rating categories as “Insufficient” and “Almost sufficient,” according to the Climate Action Tracker.

This essentially means that, assuming no further policies are implemented, the US emissions are expected to decline to just 26-42% below 2005 levels, which is a distance from the 2030 target of 50-52% below 2005 levels. Despite this, the IRA can be seen as a major step forward and gives the world’s largest historical emitter credibility in international climate negotiations and leadership.

The passing of the IRA builds on President Biden’s efforts to change US climate policy during his tenure. On his first day in office, on January 20 2021, President Biden signed an Executive Order for the US to re-join the Paris Agreement, reversing the active undermining of climate ambition of the previous administration.

In November 2021, President Biden signed into law the $1.2 trillion infrastructure investment bill (“Infrastructure Investment and Jobs Act”), the largest federal investment into infrastructure projects in more than a decade. This Jobs Act comprises investments in a wide range of areas that can indirectly enable the transition to a low-carbon economy. The passing of the IRA is another key development and now represents the single largest action ever taken by Congress and the US government to combat climate change.

Cited Sources

https://climateactiontracker.org/countries/usa/policies-action/

https://rhg.com/research/climate-clean-energy-inflation-reduction-act/

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