The Inflation Reduction Act signed by President Joe Biden into law on Tuesday will pour roughly $370 billion into energy security and efforts to fight climate change, including through providing tax credits for companies and residents transitioning to clean energy.
The newly signed law, which cleared both the House and Senate last week along party lines, includes efforts aimed at slashing greenhouse gas emissions by roughly 40% of 2005 levels before the year 2030.
The law is the largest climate measure in U.S. history, even as it falls far short of earlier efforts proposed by Democrats — such as the Green New Deal proposed by liberals within the party or the Democrats’ more recent $2 trillion Build Back Better climate and spending bill that failed to clear the Senate last fall.
The new law also mandates the sale of oil and gas leases on federal lands and waters, a key compromise made to appease Sen. Joe Manchin (D-WV), even as it breaks with campaign trail promises made by Biden to halt such lease sales upon taking office.
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ELECTRIC VEHICLES
The bill revamps a $7,500 tax credit provision for electric vehicles manufactured in North America. That provision was included in hopes of spurring broader EV adoption and incentivizing U.S. companies to build out supply chains for critical minerals, which are a key component for EV production.
The bill lifts a per-manufacturer cap limiting the tax credit per units sold, a provision meant to encourage more EV sales. But it also imposes a new requirement that 40% of EV battery components should be manufactured and assembled in North America beginning in 2023 — something automakers say could make it hard for most car manufacturers to qualify for the credit in the short term.
TAX INCENTIVES FOR CLEAN ENERGY
The bill offers a range of tax incentives to nuclear power generators and access to funding for the production of uranium, a necessary component to fuel advanced reactors and support nuclear growth. The law also sets aside another $60 billion in production tax credits for companies involved in domestic clean energy manufacturing.
METHANE FEE
The law also includes a first-of-its-kind methane emissions provision, allowing the Environmental Protection Agency to fine oil and gas companies if they are found to be exceeding excess amounts of the potent greenhouse gas. The fees would begin in 2024 and would be charged at $900 per metric ton — a number that would increase annually. Efforts to reduce methane emissions have been endorsed in recent months by a number of prominent industry groups, including the American Petroleum Institute, AXPC, and the Chamber of Commerce.
The measure also allocates $9 billion to help homeowners switch to renewable energy instead of natural gas, largely through the creation of a 10-year consumer tax credit program designed to drive down the costs of heat pumps, rooftop solar panels, and electric HVAC units for those seeking to electrify their homes.
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‘ENVIRONMENTAL JUSTICE’ PROVISIONS
Another $60 billion is set aside for environmental justice programs in disadvantaged communities that have been hard-hit by climate change, including by funding programs to help rural communities deal with pollution or flooding and to help economies dependent on fossil fuels to make the switch to clean energy.
