Democrats may be on the verge of passing historic climate legislation after all.
The $369 billion of climate spending in the Inflation Reduction Act that Sen. Joe Manchin (D-WV) announced on Wednesday includes funding for clean energy and electric vehicle tax breaks, domestic manufacturing of batteries and solar panels, and pollution reduction.
If the bill’s policies work as intended, it would push American consumers and industry away from reliance on fossil fuels, penalize fossil fuel companies for excess emissions of methane, and inject needed funds into pollution cleanup.
The bill would use tax credits to incentivize consumers to buy electric cars, electric HVAC systems, and other forms of cleaner technology that would lead to less emissions from cars and electricity generation, and includes incentives for companies to manufacture that technology in the United States. It also includes money for a host of other climate priorities, like investing in forest and coastal restoration and in resilient agriculture.
If Democrats pass this bill, which they can do with a simple majority under Senate rules for reconciliation, it would be the single most important legislative step the US has ever taken to combat the climate crisis.
Manchin and Senate Majority Leader Chuck Schumer claimed in their joint statement that the bill delivers enough on climate to cut pollution by roughly 40 percent by 2030. (Economic modelers at Rhodium Group said that after an initial review of the bill, the 40 percent figure was “plausible.”) The legislation helps move the US a little closer to its stated goal of cutting pollution in half within the decade.
The climate change components of the Inflation Reduction Act look shockingly similar to the version the House passed last fall, just on a slightly smaller scale. To win Manchin’s support, Democrats also reportedly struck a deal to approve a separate measure that would speed up permitting for energy infrastructure, potentially including natural gas pipelines.
The topline spending for climate is $369 billion, distributed over the next 10 years. That’s less than the House’s bill with $555 billion for climate investments, but even at the smaller sum it preserves many of the original key programs.
“Total game changer” for the climate was how Leah Stokes — a political scientist at UC Santa Barbara who has advised Democrats on the reconciliation package — put it. [Continue reading…]
The bill’s main tool, its proverbial bludgeon, is a new set of tax credits that could remake the way America generates electricity.
To understand why they’re important, remember that, for the past decade, the U.S. has encouraged the growth of wind and solar through a particularly kludgy set of tax credits. For instance, a developer could get a tax break by investing in, but not producing, solar power. And if Congress wanted to increase the market share of any new zero-carbon form of power generation, it had to pass a new law creating a tax credit for that specific technology. Because of the way these tax credits were structured, they typically had to run through a large bank or investment firm, and they couldn’t be used at all by a publicly owned utility or nonprofit.
However tedious this approach was, it worked. It helped drive massive declines in the cost of wind and solar power and cut carbon pollution from the U.S. power sector 40 percent below its all-time high.
The new bill will significantly broaden the scope of these incentives, replacing them with technology-neutral tax credits that can be used for any low- or zero-carbon form of power generation. At the outset of a project, developers can make a choice: Either they can take the new investment tax credit, which will cover 30 percent of the cost of their project, or they can take the new production tax credit, which will pay them for every kilowatt-hour of zero-carbon electricity that they generate.
When economists at the University of Chicago and the Rhodium Group analyzed an earlier version of this proposal last year, they found that these technology-neutral tax credits were strikingly efficient, creating $1.5 trillion in economic surplus while eliminating more than 5 billion tons of carbon pollution. The tax credits had a benefit-to-cost ratio of about 3 to 1, Michael Greenstone, the Milton Friedman Distinguished Service Professor in Economics at the University of Chicago, told me. “It’s very rare that we get opportunities to have policies with a benefit-to-cost ratio of 3 or 4 to 1. Normally it’s, like, 1.3 to 1, and we economists get very excited,” he said. [Continue reading…]