What is the IRA?

By Riddhi Aggarwal 

Called the biggest climate legislation in American history by professionals, activists, and economists, the Inflation Reduction Act (IRA) was signed into law by President Biden this past August. The bill contains $500 billion in new spending and tax breaks which will boost clean energy, reduce carbon emissions, fund the Internal Revenue Service, and increase tax revenues. 

Key Points of the Inflation Reduction Act

The bill directs nearly $400 billion in federal funds to long-term initiatives aiming to promote clean energy technologies and substantially reduce carbon emissions. The IRA of 2022 is predicted to reduce US greenhouse gasses by 40 percent by 2030. This bill is also a huge, historic win for advanced clean energy technologies such as solar PV, wind, and battery energy storage. Additionally, the IRA encourages emerging technologies like carbon capture and storage and clean hydrogen. 

Approximately $12 billion will be allocated to the US Department of Energy’s Loan Program Office to expand its existing loan authority and create a new loan program. This new program is capped at $250 billion and will upgrade, repurpose, or replace energy infrastructure. 

States will also receive support towards their climate action efforts, obtaining funds for building electrification, energy efficiency initiatives, heavy-duty electric vehicles and charging stations, and more. A collective effort is necessary if the country as a whole plans to accelerate investments in clean energy. 

Tax credits majorly make up the energy and climate funding, with corporations as the biggest recipient with $216 billion. As corporations receive this money, it is expected that private investment in clean energy, transport, and manufacturing, will be catalyzed. 

Starting this year, tax credits of up to $7,500 will be available for qualifying EVs alongside $4,000 for new and used vehicles. Tax credits for up to 30 percent of the total cost (capped at $1,200 per year) will be available for qualifying home improvements. This creates consumer incentives to integrate green technologies into their home by making them more affordable. 

Shortcomings of the Inflation Reduction Act

The IRA is a decade-long bill, indicating that such initiatives will be introduced over the span of the next ten years. The bill mainly focuses on energy-efficient technologies and the reduction of carbon emissions, leaving out strategies to adapt to the immediate dangers of climate change. Many regions of the US don’t have the infrastructure to deal with climate change events, which inflicted over $152 billion in damage across the country in 2021. With the worsening of global warming and climate change, the world is projected to see an increase in the number and magnitude of natural disasters. The bill missed an opportunity to fortify and adapt infrastructure to withstand these upcoming hardships. 

Although the IRA intends to bolster US climate efforts, some measures may indirectly accomplish the opposite. The hydrogen tax credit, for example, will decrease the cost of hydrogen production, a relatively new climate solution. Yet this new solution could be potentially misleading, as leak-prone hydrogen will contribute to global warming when it enters the atmosphere. Current technology is not up to date with monitoring leaks, as only explosion levels are presently detectable. It will be difficult to ensure the funding goes towards initiatives poised to make a positive impact, instead of cleverly-disguised projects that do more harm than good.

Moreover, the Biden administration had previously committed to reducing emissions by at least 50 percent from 2005 levels by 2030. Despite the 40 percent reduction in emissions is considerably higher than the predicted 27 percent reduction without the IRA, it still falls short of President Biden’s promise. 

Nonetheless, the Inflation Reduction Act is worth celebrating, as it will make significant strides towards a cleaner earth. The US was historically the largest emitter, and now holds the title of second-largest emitter, creating an air of skepticism of questions of legitimacy when it came to climate action. But the Inflation Reduction Act is paving the way for a credible reputation in the fight against climate change, and hopefully inspires other nations to rally behind the US.