October 18, 2022
Estimated reading time: 6 minutes
Two months on… is Biden’s climate law working?
by Hannah Duncan.
The 16th of August 2022 was a momentous day for the planet. With the stroke of a fountain pen, President Biden signed the Inflation Reduction Act and the first serious US climate law was passed. In his own words, the move represented the, “Biggest step forward on climate ever ”. Speaker of the House, Nancy Pelosi proclaimed, “This legislation is historic. It’s transformative. It really is a cause for celebration”. Even former US President, Barack Obama dropped the formalities to tweet, “This is a BFD”.
But how much of a BFD is the legislation really? Two months on, we’re looking at what impact the Inflation Reduction Act has already made, and where it’s likely to go next.
What is included in the Inflation Reduction Act?
To encourage sustainable growth and innovation, the Inflation Reduction Act offers tax breaks and investment to “clean” industries. It also expands Obama-era social health reforms, making many medicines and treatments more accessible. To cover the costs, the Act narrows tax loopholes, imposes tariffs on some greenhouse gas emissions and repeals some expensive Trump-era health acts.
$485 billion towards environmental and healthcare investments
Over the following ten years, $485 billion is anticipated to go towards combatting the climate crisis and improving access to healthcare.
- Energy and Climate investments of $386 billion by 2031
These will mostly be distributed across clean energy, transport, infrastructure, air pollution, manufacturing and conservation projects
- Healthcare investments of $98 billion by 2031
This includes an expansion of Affordable Care Act subsidies, a redesign of prescription drug provisions, low income subsidies and better vaccine coverage
Funded by savings and revenues of $790 billion
These investments will be funded by saving money elsewhere, and also creating new revenue streams, for example, with taxes. Together, this is forecasted to rake in $790 billion.
- Health savings of $322 billion by 2031
The savings will be achieved by repealing the drug rebate rule, capping drug price inflation and negotiating drug prices.
- Taxes and other revenue of $486 billion by 2031
To help pay for the changes, there will be a 15% Corporate Minimum Tax, IRS Tax Enforcement funding, closure of the carried interest loophole, as well as methane fees, superfund feed and other revenues.
The Act has been heavily compromised
The Inflation Reduction Act, which started out as the “Build Back Better Act” has been on a tumultuous journey. And along the way, it lost many of its teeth.
It still falls short of the USA’s commitment to the 2015 Paris Agreement. Instead of reducing greenhouse gases by 50%, it’s now 40%. Much to the dismay of activists, it also includes some provisions to expand oil. And, as one expert pointed out, the Act, “replaces sticks with carrots”.
Nevertheless, getting the Act passed at all was an extraordinary achievement. And it’s possible that Democrats plan to chip away at the compromises over time. Earlier this month, the White House already released an executive order that “strengthens the Federal Government’s resilience to climate change impacts”. Clearly, they are looking to make progress quickly, but outraged Republicans have been busy too. The success of the Act could lie in the strength and fervor of the opposition.
Will the opposition accept it?
It’s no secret that the bill was fiercely contested, and dramatically watered down. Even corporate success story Bill Gates was brought into negotiations, to try to appeal to Republicans.
Everything from the scope of reduced emissions to the “stroke of genius” name change was remodeled to better fit with GOP (“Good Old Party”) sentiments. But despite all that effort, not a single one voted in favor of the bill.
Republican Mitch McConnell (often referred to as the “coal baron” for his interests in the fossil fuel industry) has been a leading voice in the Republican dissent. Although many of the compromises and amendments were rumored to have been made for him, he has declared the act was a, “Giant package of huge new job-killing tax hikes, Green New Deal craziness that will kill American energy, and prescription drug socialism that will leave us with fewer new life-saving medicines”.
His views are representative of many – though not all – Republican representatives. And if – as expected – they seize a majority in the House of Congress next Summer, this could spell trouble for the Inflation Reduction Act.
Even the few climate-conscious Republicans like Representative John Curtis want a much slower transition to a carbon-free economy. They’d prefer to see greenhouse gas emissions phased out glacially.
Already, we’re seeing some politicians rise up to weaken the Act. In particular, they’re fighting to repeal the drug price negations. And, rumors of causing “gridlocks and “shutdowns” for the new bill are circulating. In particular, the politicians are vigorously challenging the price negotiations for drugs. They seem keen to protect the interests of Pharma companies, as well as dismantle the Act itself.
How have companies been reacting to the Inflation Reduction Act?
A Republican storm may be brewing, but despite this companies have reacted positively to the new Act, and at record speeds. Solutions which have been left by the wayside after decades of climate concern are now ramping-up dramatically. On the 14th of October, less than two months since the Act was passed, energy tycoon Exxon Mobil has introduced a carbon capture project.
The decarbonization effort – which has been described as “unprecedented” for the State of Louisiana will see the collaboration of Exxon Mobil, CF Industries and EnLink Midstream. Together, they will capture around 2 million tons of carbon. No doubt, they will also benefit from the incentives and funding created by the Act.
The new legislation clearly had an influence in the project, which has gained relative approval around the world. President of Exxon Mobil Low Carbon Emissions, Dan Ammann directly referenced the bill in the press release. “This landmark project represents large-scale, real-world progress on the journey to decarbonize the global economy,” he commented. “We’re encouraged by the momentum we see building for projects of this kind, thanks to supportive policies such as the Inflation Reduction Act”.
But Exxon Mobil is not alone. Since the Act was passed, a whopping $28 billion in clean energy and manufacturing has already been awarded. And there seems to be no signs of a slow-down.
What happens if the bill runs its course?
Experts are predicting that the Inflation Reduction Act will have a significantly greater impact than the governmental forecast suggest… if it runs the course. Research from Credit Suisse found that the real amount invested in clean industries will be significantly more than the $386 billion estimated. Since the investment is uncapped, the bank predicts that the real figure will be more than double, at around $800 billion by 2031. This was first reported in early October by The Atlantic in a widely-shared and compelling article entitled, “The Climate Economy Is About To Explode”.
As entirely new green industries and jobs are created, the Inflation Reduction Act truly could limit inflation levels and boost the economy too. Research from Energy Innovation also found that the Act will likely, “Increase U.S. gross domestic product (GDP) by 0.65 to 0.77 percent in 2030”.
So, is it working?
Two months is not enough time to truly measure the success of legislature. But after a bumpy and controversial ride, the Inflation Reduction Act does seem to already be influencing companies to make greener choices. $28 billion of clean investment in just two months is a significant sum, and it’s likely to compound.
Despite some opposition, especially around the healthcare aspects, the bill has extraordinary potential to empower the USA and world to tackle the climate crisis. It’s not a perfect solution, but – if allowed to continue and evolve – it could prove to be President Biden’s greatest legacy.