Two weeks after blowing up hopes of a US climate deal, Senator Joe Manchin announced on Wednesday that he and Senator Chuck Schumer, the Democratic majority leader, had struck a compromise agreement that would provide nearly $400 billion for climate and energy projects.
It remains to be seen whether the sprawling spending package proposed by the Senate Democrats will pass in its current form, but if so, it will mark a critical win for their efforts to address climate change. With the midterm elections approaching, and the possibility that Democrats could lose control of one or both chambers of Congress, there are concerns that the window to pass anything significant on clean energy and climate is closing.
In announcing the new agreement, Schumer asserted that the legislation “puts the US on a path to roughly 40% emissions reductions by 2030.” And experts agree the bill could be a game changer in cutting the nation’s emissions in the coming years, helping to curtail warming and extreme weather events in the coming decades.
What’s in the bill?
In a word, billions. The bill includes hundreds of billions in grants, loans, federal procurements, and tax credits for research and development, deployment, and manufacturing in clean energy, transportation, and other sectors like agriculture.
“This is the transformative clean energy and climate rescue package that we’ve been waiting for,” Leah Stokes, an environmental policy professor at the University of California, Santa Barbara, who has been advising Democrats on climate legislation, said in an interview.
One major focus of spending in the bill is deploying clean energy: there’s roughly $30 billion in new tax credits for building wind, solar, and other clean energy projects, as well as extensions for existing credits. There’s also $60 billion in incentives for domestic manufacturing of everything from batteries to solar panels to heat pumps.
Subsidy increases in the bill could possibly make it economical for some fossil-fuel and industrial plants to add equipment that prevents climate pollution, increasing the potential role of what’s known as carbon capture and storage.
The bill includes $27 billion for research and development in clean technology, as well as $2 billion specifically for research at national laboratories.
Other sectors will see support for climate efforts too. Some $20 billion is earmarked to help cut emissions from agriculture, and there’s nearly $5 billion in grants for forest conservation and restoration projects.
Ryan Fitzpatrick, director of the climate and energy program at Third Way, said it’s an ambitious and politically pragmatic bill designed to boost US manufacturing, provide support where job sectors are shifting, and build out the infrastructure needed to shift to cleaner, modern energy systems.
“This would be the largest investment of its kind in American history,” he said.
What does it do for electric vehicles?
One of the provisions most directly affecting consumers has to do with electric-vehicle tax credits.
The bill preserves a $7,500 credit for people who buy a new electric vehicle and adds a $4,000 credit for those who purchase used electric vehicles. Both of these credits come with restrictions on income and vehicle price.
It will also incentivize domestic car production: in order for a buyer to get the credit for new cars, at least half the battery components must be manufactured or assembled in North America, starting in 2024. This number ratchets up after that, reaching 100% at the end of 2028.
Additionally, the bill includes $2 billion in grants and $3 billion in loans for facilities that produce electric, hybrid, or hydrogen-fuel-cell vehicles. There’s also $1 billion in grants for heavy-duty trucks and $3 billion for zero-emission vehicles for the postal service.
What else did the deal include?
The bill did not, unlike earlier versions, include tax credits for electricity transmission lines. That could complicate the buildout of solar and wind facilities since, after all, they’ll need to reach customers, as Rob Gramlich of Grid Strategies noted in the New York Times.
But, per a statement from Manchin’s office, the legislative deal did come with a handshake agreement to push forth this fall a “suite of common-sense permitting reforms” that would make it easier to approve and build major energy projects. That could include transmission lines, natural-gas pipelines, carbon storage projects, and power plants, likely encompassing both the clean and fossil-fuel variety.
The details of that remain to be seen, but it could amount to an important climate policy if it finds enough political support to pass, said Jesse Jenkins, an assistant professor at Princeton, in an interview.
One of the only restrictions in the bill is a fee on methane emissions beyond certain limits. Methane has a far more powerful warming effect than carbon dioxide during the first few decades in the atmosphere, so preventing leaks from wells and pipelines has become a high priority for climate action.
In a statement, the Clean Air Task Force said the fee would work in complement with stricter methane rules that the Environmental Protection Agency recently proposed.
"It would incentivize operators to quickly and efficiently reduce emissions, which is important in the short-term given the long lead time that will be required before all of EPA’s rules are implemented," the environmental organization said. It added that it also addresses emissions outside the scope of EPA’s proposed rules, like offshore production and liquified natural gas import and export terminals.
The bill also outlines royalty fees for all methane extracted from federal lands, and it includes additional funding for methane monitoring to help with enforcement.
But it also includes some compromises on fossil fuels, most notably setting aside millions of acres of land and offshore water for fossil-fuel projects.
What’s not in it?
The bill is all about spending and doesn’t include many new rules or restrictions for industry.
There’s no carbon tax, which many economists have long argued would be one of the most effective ways to cut emissions.
There’s no renewable portfolio standard, like the ones that have helped drive increases in the share of wind and solar power on the grids in California and New York. And there’s no emissions reduction mandates that would simply require utilities or other businesses to slash carbon pollution.
An earlier provision in the spending bill that would have used payments and penalties to nudge utilities to increase the share of clean electricity they sell, known as the Clean Electricity Payment Program, was one of the first casualties in the negotiations over the package.
Experts say the bill as written will achieve steep emissions reductions, but the lack of clear requirements does leave more up to chance, as it’s hard to predict how consumers and businesses will respond to the variety of incentives.
What will it all mean for emissions?
The spending provisions in the bill could kick-start clean energy projects, expand domestic production for technologies like solar panels, and accelerate deployment of new infrastructure projects.
That could all add up to significant cuts in US emissions.
The Repeat Project, a Princeton-led effort to analyze the impacts of proposed climate and energy policies, is in the midst of analyzing all the measures packed into the spending package.
But they estimate that the bill will likely cut emissions about 40% by 2030 over the US’s peak climate pollution levels in 2005, based on an earlier modeling of potential components of the deal. That’s about 800 million to 1 billion tons of additional reductions in that year, relative to the levels under current policies.
A separate analysis by the Rhodium Group came to similar conclusions, estimating the bill could cut US emissions by 31% to 44% in 2030, compared to 24% to 35% under current policies. In the latest targets submitted under the Paris climate agreement, President Joe Biden pledged that US would cut emissions by 50% to 52% by the end of this decade.
“In short, passing the Inflation Reduction Act would keep us in the climate fight and make it possible that executive action, state and local government policies, and private-sector leadership can get us across the finish line,” Jenkins, who led the Princeton effort, said in an email. “Without this bill, we’d be hopelessly far from our climate goals.”
Update: This story was updated to include additional reactions and analysis from the Clean Air Task Force and Rhodium Group, and to correct the university affiliation of Leah Stokes.
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