Inflation Reduction Act

Inflation Reduction Act
The Inflation Reduction Act of 2022 (IRA) is a landmark United States federal law which aims to curb inflation by possibly reducing the federal government budget deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy. It was passed by the 117th United States Congress and signed into law by President Joe Biden on August 16, 2022.
It is a budget reconciliation bill sponsored by Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV). The bill was the result of negotiations on the proposed Build Back Better Act, which was reduced and comprehensively reworked from its initial proposal after being opposed by Manchin. It was introduced as an amendment to the Build Back Better Act and the legislative text was substituted. All Democrats in the Senate and House voted for the bill while all Republicans voted against it.
According to the nonpartisan Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT), the law will raise $738billion from tax reform and prescription drug reform to lower prices, as well as authorize $891billion in total spending – including $783 billion on energy and climate change, and three years of Affordable Care Act subsidies. The law represents the largest investment into addressing climate change in United States history. It also includes a large expansion and modernization effort for the Internal Revenue Service (IRS). According to several independent analyses, the law is projected to reduce 2030 U.S. greenhouse gas emissions to 40% below 2005 levels. The projected impact of the bill on inflation is disputed.
Background
The Build Back Better Plan was a legislative framework proposed by United States President Joe Biden between 2020 and 2021. Generally viewed as ambitious in size and scope, it sought to make the largest nationwide public investments in social, infrastructural, and environmental programs since the 1930s Great Depression-fighting policies of the New Deal.
The plan was divided into three parts: one of them, the American Rescue Plan, a COVID-19 relief spending bill, was signed into law in March 2021. The other two parts were reworked into different bills over the course of extensive negotiations within and among Congressional entities. The American Jobs Plan (AJP) was a proposal to address long-neglected infrastructure needs and reduce America's contributions to climate change's destructive effects; the American Families Plan (AFP) was a proposal to fund a variety of social policy initiatives, some of which (e.g. paid family leave) had never before been enacted nationally in the U.S.
The Build Back Better Act was a bill introduced in the 117th Congress to fulfill aspects of the Build Back Better Plan. It was spun off from the American Jobs Plan, alongside the Infrastructure Investment and Jobs Act, as a $3.5trillion Democratic reconciliation package that included provisions related to climate change in the United States (centered around Senator Ron Wyden's technology-neutral, tax incentive-first approach) and social policy, lowered to approximately $2.2trillion. The bill was passed 220–213 by the House of Representatives on November 19, 2021.
In December 2021, amidst negotiations and parliamentary procedures, Senator Joe Manchin publicly pulled his support from the bill citing its cost and a too-aggressive transition to clean energy, then retracted support for his own compromise legislation. This effectively killed the bill as it needed 50 senators to pass via reconciliation, and all 50 Republican senators opposed it.
In the summer of 2022, Manchin and Senate Majority Leader Chuck Schumer engaged in negotiations over a revised reconciliation bill with about $1 trillion in revenue from tax reform, $500 billion in climate and health care spending, and $500 billion in deficit reduction. However, Manchin announced abruptly on July 14, 2022 that he wouldn't support new climate spending or tax reform due to his fear that the bill would worsen inflation. He later stated that he would be open to revisiting those elements a few months later, provided that inflation slowed meaningfully. Biden nonetheless conceded defeat on a climate bill, urging Congress to pass whatever Manchin would agree to (a slim, $280 billion health care bill that would acquire its revenue from allowing Medicare to negotiate prices and spend $40 billion on Affordable Care Act subsidies).
Unbeknownst to nearly everyone in Washington, Manchin and Schumer reengaged in secret negotiations on July 18, 2022. On July 27, hours after the Senate passed the CHIPS and Science Act, the two men released a statement announcing the $891 billion Inflation Reduction Act of 2022, which included climate spending and tax reform.
The sudden deal was widely regarded as a 'shocker' as Democrats had voiced that there was little hope for a revival of their climate and tax priorities in addition to Manchin himself being rather pessimistic on the prospect of an expanded bill in public.
As the revised bill made its way through the chambers of Congress, the new reality of Biden unexpectedly having a clear path to enacting substantial portions of his domestic agenda into law led to a wide reevaluation of the success of the Biden presidency thus far and was expected to give the President and his party a boost in the 2022 midterm elections.
Legislative history
The Build Back Better Act, which passed the House on September 27, 2021, was used by the Senate as the legislative vehicle for this legislation. On August 6, 2022 Senate Majority Leader Chuck Schumer proposed an amendment which would replace the text of the previously passed bill with the text of the Inflation Reduction Act of 2022. This substitute amendment was later adopted.
Schumer's lead staffer, Gerry Petrella, recalls the surprise phone call came from Manchin's office just prior to the August recess and the breakthrough negotiations occurred on the final summer weekend.
On August 7, 2022, following the vote-a-rama, an unlimited marathon voting session on amendments, that lasted nearly 16 hours, the Senate passed the bill (as amended) on a 51–50 vote, with all Democrats voting in favor, all Republicans voting against, and Vice President Kamala Harris breaking the tie. On August 12, 2022, the bill was passed by the House on a 220–207 vote, with all Democrats voting in favor and all Republicans voting against it. On August 16, 2022, the bill was signed into law by President Joe Biden.
Provisions
Over a period of 10 years, the law is estimated to raise revenue from:
Prescription drug price reform to lower prices, including Medicare negotiation of drug prices for certain drugs (starting at 10 new ones per year by 2026, increasing to more than 20 additional ones per year by 2029) and rebates from drug makers who price gouge – $281billion
Imposing a selective 15% corporate minimum tax rate for companies with higher than $1billion of annual financial statement income – $222billion
Increased tax enforcement – $181billion
Imposing a 1% excise tax on stock buybacks – $74billion
2-year extension of the limitation on excess business losses – $53 billion
In the same time period, it would spend this revenue on:
Addressing domestic energy security and climate change, including funding for drought resiliency in western states – $783billion
Continuing for three more years the expansion of Affordable Care Act subsidies originally expanded under the American Rescue Plan Act of 2021 – $64billion
Changes to Medicare Part D, low-income subsidies, vaccine coverage, and insulin – $44 billion
Increased funding for the IRS for modernization and increased tax enforcement, including the hiring of 87,000 new IRS employees – $80billion
$663 billion of the law's climate action investments are embedded in the federal tax code. As part of the overall investment into clean energy, the law created a green bank, extended the solar investment tax credit for 10 years and invested $30 billion in nuclear power. It also invests $12 billion in electric vehicle incentives, $14 billion in home energy efficiency upgrades, $22 billion in home energy supply improvements, and $37 billion in advanced manufacturing. (The latter amount includes $5.46 billion for a DOE program for zero-emissions industrial tech demonstrations, $10 billion for the renewed 48C tax credit, and more than $5 billion to the USDOT and GSA to lower embedded emissions in procurement.) $19.5 billion goes to investments in climate-smart agriculture, more than $5 billion goes to revising remediation programs for those affected by discriminatory USDA lending practices, $5 billion goes to forest protection and urban heat island reductions, and nearly $3 billion goes to coastal habitat protection.
Alternatively, the Act's climate investments can be summarized as follows: $220–372 billion in energy, $67–183 billion in manufacturing, $28–48 billion in building retrofits and energy efficiency, $33–436 billion in transportation, $22–26 billion in environmental justice, land use, air pollution reduction and/or resilience, and $3–21 billion in agriculture.
The law contains provisions that cap insulin costs at $35/month and will cap out-of-pocket drug costs at $2,000 for people on Medicare, among other provisions.
Several provisions in the initial deal between Schumer and Manchin were changed after negotiations with Senator Sinema: a provision narrowing the carried interest loophole was dropped, a 1% excise tax on stock buybacks was added, manufacturing exceptions were added to the corporate minimum tax, and funding for drought relief for western states was added.
Projected impacts
Economic
The CBO estimated that the Act would have no statistically significant effect on inflation. The Penn Wharton Budget Model also estimated that the Act would have no statistically significant effect on inflation, and initially projected that it would reduce cumulative deficits by $264 billion. Its second analysis, with a higher projection of total spending, does not include deficit reduction.
The nonpartisan Committee for a Responsible Federal Budget analyzed the Act and concluded that the "deficit reduction, along with other elements of the bill, is likely to reduce inflationary pressures and thus reduce the risk of a possible recession." It further estimates that the Act would reduce the federal deficit by $1.9trillion over a 20-year period. This figure includes the resulting savings on interest payments.
The World Economic Forum, a Swiss business lobbying non-profit, states "…in the medium to long-term, the impact of the IRA is likely to be deflationary" and cites a prediction by the University of Massachusetts that the law will generate 912,000 jobs per year.
The Tax Foundation, a fiscally conservative think tank, stated that the Act "may actually worsen inflation by constraining the productive capacity of the economy." It estimated the Act would result in a loss of 29,000 full-time equivalent jobs and a 0.2% reduction in GDP, while resulting in $324billion of additional revenues, which would go towards deficit reduction.
Modeling by the Energy Innovation group, a nonpartisan energy and climate think tank, estimated that this bill would lead to the creation of 1.4 million to 1.5 million additional jobs and increase the GDP 0.84–0.88% by 2030.
The climate think tank Rocky Mountain Institute estimated that if businesses and consumers take sufficient advantage of the Act's provisions to meet national climate goals, Texas would see investments of $131 billion creating 116,000 jobs, California would see $117 billion creating 140,000 jobs, Florida $62 billion creating 85,000 jobs and Illinois $38 billion creating 42,000 jobs. The same analysis notes that the states seeing the four largest per capita investments from the Act, ranging between roughly $7,000 and $12,000, would be Wyoming, North Dakota, West Virginia, and Louisiana, all Republican-leaning states.
Energy and climate change
The Inflation Reduction Act is the largest piece of federal legislation ever to address climate change. According to the CBO and JCT, it will invest $783 billion in provisions relating to energy security and climate change. This includes $663 billion in tax incentives, and $27 billion for a green bank created by amending the Clean Air Act. However, other forecasts differ from the CBO's and JCT's reports. A report by Credit Suisse projects that the total climate spending in the Act would be $800 billion, Goldman Sachs predicts a total of $1.2 trillion, the Penn Wharton Budget Model predicts $1.045 trillion, and an analysis by the Brookings Institution finds a central case of $902 billion.
The summary provided by Senate Democrats identifies primary goals as driving down consumer energy costs, increasing energy security, and reducing greenhouse gas emissions, with an emphasis on neutral treatment of technology choice for the energy tax credits, as described by Ron Wyden. According to science communicator Hank Green, the largest allocation areas are: $128 billion for renewable energy and grid energy storage, $30 billion for nuclear power, $12 billion for electric vehicle incentives, $14 billion for home energy efficiency upgrades, $22 billion for home energy supply improvements, and $37 billion for advanced manufacturing. (The latter amount includes $5.46 billion for a DOE program for zero-emissions industrial tech demonstrations, $10 billion for the renewed 48C tax credit, and more than $5 billion to the USDOT and GSA to lower embedded emissions in procurement.) An assortment of additional measures includes $32 billion for investments in rural economies, racial justice in farming, forestlands and coastal habitats, $3 billion in tax incentives for installing carbon capture and storage at existing power plants, $3 billion to electrify the USPS fleet, $3 billion to reconnect neighborhoods harmed by infrastructure potentially via freeway removal, investments in sustainable aviation fuel, grants for high voltage electric power transmission and decarbonization of port equipment, garbage trucks, school buses and local government fleets, and purchases of rural electric cooperative debt alongside other assistance to cooperatives.
Climate scientist Miriam Nielsen's alternative summary of the Act's climate provisions, using much broader categories and rough estimates from Ben Beachy of the BlueGreen Alliance, is as follows: $220 billion in energy, $67 billion in manufacturing, $48 billion in building retrofits and energy efficiency, $33 billion in transportation, $26 billion in environmental justice, land use and resilience, and $21 billion in agriculture. Wharton's estimates, however, yield $372 billion in energy, $183 billion in manufacturing, $28 billion in building retrofits and energy efficiency, $436 billion in transportation, $22 billion in air pollution reduction, and $3 billion in agriculture. Credit Suisse projects at least $250 billion in advanced manufacturing tax credits and $326 billion in energy tax credits will be used.
The Act aims to decrease residential energy costs by focusing on improvements to home energy efficiency. Measures include $9 billion in home energy rebate programs that focus on improving access to energy efficient technologies, and 10 years of consumer tax credits for the use of heat pumps, rooftop solar, and high-efficiency electric heating, ventilation, air conditioning and water heating. The Act extends the $7,500 tax credit for the purchase of new electric vehicles while also providing a $4,000 tax credit toward the purchase of used electric vehicles, in an effort to increase low- and middle-income access to this technology. This is projected to lead to an average of $500 in savings on energy spending for every family that receives the maximal benefit of these incentives. The Act includes a 30% tax credit ($1,200 to $2,000 per year) and different types of rebates (reaching $14,000) for homeowners who will increase the energy efficiency of their house. In some cases, all upgrade expenses will be returned.
The Act changes the Section 45V tax credit to offer increased percentages to green hydrogen and pink hydrogen producers for each kilogram produced via electrolysis of water, allowing 100 percent coverage for very low-carbon methods, thus potentially enabling more than $100 billion in forgone revenue to go toward building the hydrogen economy. Upcoming Treasury Department guidance on eligibility is set to determine whether or not most of these electrolyzers must be placed near new clean energy production sites, and run at the same time as peak supply periods.
The Act allocates $3 billion for helping disadvantaged communities with transportation matters, including reconnecting communities separated by transport infrastructure, assuring safe and affordable transportation "and community engagement activities". This should improve transit-oriented development. Projects improving connectivity and walkability in these neighborhoods can get grants reaching 80–100% of the overall cost. The Act also supports biking.
There are also funds allocated to national clean energy production. This includes the continuation of the production tax credit ($30 billion) and investment tax credit ($10 billion) toward clean energy manufacturing, including solar power, wind power, and grid energy storage. Modifications to these credits effectively allow the federal government to predictably and directly pay utility cooperatives and publicly-owned utilities without them needing to attract investment firms, in a manner similar to the Earned Income Tax Credit. Some $14 billion of the clean energy package will go to rural areas, and include building biofuel infrastructure. This includes $9.5 billion for a new grant program called Empowering Rural America, with cooperatives encouraged to apply during a window from July 31 to September 15, 2023.
The Act also provides funds toward the decarbonization of the economy in other areas, providing various tax credits and grants and loans toward decarbonizing the industrial and transportation sectors. One $27 billion competitive grant program is a green bank called the Greenhouse Gas Reduction Fund, intended to capitalize smaller regional green banks. The Act established it by amending the Clean Air Act. The Fund will award $14 billion to a select few green banks nationwide for a broad variety of decarbonization investments, $6 billion to green banks in low-income and historically disadvantaged communities for similar investments, and $7 billion to state and local energy funds for decentralized solar power in communities with no financing alternatives. The EPA set the deadline to apply for the first two award initiatives for October 12, 2023 and the Solar for All initiative for September 26, 2023. The grant package also includes a program to reduce methane emissions from production and transportation of natural gas. The Act also provides for a focus on communities and environmental justice by providing several grants targeting historically marginalized and disadvantaged communities that have been disproportionally impacted by environmental pollution and climate change.
The Act also allocates funds for rural communities, racial and economic justice in farming, marine ecosystems and forestland, including $19.5 billion to invest in climate-smart agriculture (split into $8.45 billion for the Environmental Quality Incentives Program, $4.95 billion for the Regional Conservation Partnership Program, $3.25 billion for the Conservation Stewardship Program, and $1.40 billion for the Agricultural Conservation Easement Program, $1 billion for conservation technical assistance, $300 million for a carbon sequestration and emission inventory program, and $100 million in administrative expenses), $5 billion to invest in forest conservation and urban tree planting (split into $2.15 billion for the National Forest System and $2.75 billion for other forests including in urban areas), $3.1 billion to help farmers with high-risk operations caused by USDA-backed loans, $2.6 billion to protect and restore coastal habitats, and $2.2 billion to redress proven claims from socially disadvantaged farmers and ranchers of discrimination by the USDA's lending programs, as well as "$125 million for technical assistance, outreach, and mediation; $250 million for land loss assistance, such as heirs' property and fractionated land; $250 million for agricultural education emphasizing scholarships and career development at historically Black, tribal, and Hispanic colleges; and $10 million for equity commissions at USDA".
The Act should cut the global greenhouse gas emissions by a level similar to "eliminating the annual planet-warming pollution of France and Germany combined" and may help to limit the warming of the planet to 1.5 degrees Celsius - the target of the Paris Agreement. With the Act and additional federal and state measures, the USA can fulfill its pledge in the Paris Agreement: 50% greenhouse gas emissions reductions by the year 2030.
An assessment by the Rhodium Group, an independent research firm, estimated it would reduce national greenhouse gas emissions 32–42% below 2005 levels by 2030, compared to 24–35% under current policy while reducing household energy costs and improving energy security. Furthermore, Rhodium Group projects that the nuclear provisions in the Act are likely to "keep much, if not all" of the nation's nuclear reactors that are at risk of retiring, estimated to be 22–38% of the fleet, online through the 2030s.
A preliminary analysis by the REPEAT Project of Princeton University estimated that the investments made by the law would reduce net emissions 42% below 2005 levels, compared to 27% under current policies (including the Infrastructure Investment and Jobs Act).
The Energy Innovation group estimated the reduction of greenhouse gas emissions at 37–41% below 2005 levels in 2030, compared to 24% without the Act. This estimate of the greenhouse gas emission reduction lines up with the figure provided by the Act's authors which is a 40% reduction in carbon emissions relative to 2005 levels.
Modeling from the nonpartisan research institution Resources for the Future indicates the Act would decrease retail power costs by 5.2–6.7% over a ten-year period, resulting in savings of $170–220 per year for the average U.S. household. The modeling also predicts that the Act would tend to stabilize electricity prices. The Act would help foster a tripling in the size of the American solar power industry and provide unprecedented investment security, according to a September 2022 report by the trade group Solar Energy Industries Association.
In reaction to the Supreme Court case West Virginia v. EPA, which limited the EPA's authority to institute a program such as the Obama-era Clean Power Plan, Title VI of the IRA amended the Clean Air Act to explicitly designate carbon dioxide, hydrofluorocarbons, methane, nitrous oxide, perfluorocarbons, and sulfur hexafluoride as air pollutants to unambiguously provide the EPA congressional authorization to regulate carbon dioxide and other greenhouse gases, as well as to promote renewable energy.
Drug prices
The Congressional Budget Office projects the Medicare drug price negotiations will save the government $98.5 billion over the next decade. The savings will be used to increase Medicare Part D benefits. Together, these drugs amounted to more than $45 billion in Medicare Part D spending from June 2022 to May 2023.
Taxes and distributional impact
Excerpts from the nonpartisan JCT indicated that the legislation might lead to increased payments on personal taxes for Americans of all incomes (an increase in $16.7billion for taxpayers earning less than $200,000 a year, $14.1billion for taxpayers earning between $200,000 and $500,000, and $23.5billion for taxpayers earning over $500,000). This calculation was based on the assumption that companies would indirectly pass on parts of the minimum corporate tax to employees, an assumption that was criticized by Steven M. Rosenthal, a senior fellow at the nonpartisan Tax Policy Center (TPC). Economist William G. Gale, who is also co-director of the TPC, comments that it is important to consider that the calculations by the JCT did not take into account the provisions in the Act that would extend premium tax credits for health plans for low- and middle-income taxpayers, provide households with tax credits for making their property more energy-efficient, and lower the price of prescription drugs.
The Tax Policy Center estimated that the bottom 80% tax filers by income would receive a net benefit, if ACA premium tax credits (subsidies) are included. The 80th-99th percentile would incur a small cost (0-0.1% increase in average federal tax rate) while the top 1% would incur a 0.2% increase. The costs mainly are imposed indirectly as corporations facing higher taxes may reduce the wage increases or levels for workers; individual tax rates were not changed.
Implementation and results
Economy
Research from climate policy analyst Jack Conness has revealed that $99 billion worth of 130 climate-friendly tech manufacturing investments within the United States, have been announced by companies since the passage of the Inflation Reduction Act, creating 80,200 projected jobs ; when considered together with CHIPS Act investments, the total comes out to 154 projects worth $240 billion creating 97,500 jobs.
Citing Conness' research up to her reporting date, Nichola Groom of Reuters noted on March 7, 2023 that $43.5 billion of these investments will be in right-to-work law states that allow laborers to not join a labor union in a represented workplace, in contravention of Biden's policy theme of supporting the labor movement. Conness found that due to the Act's incentives, Oklahoma and South Carolina would receive the individual projects creating the most jobs (4,000 each), Georgia would host the most projects (19), the most new jobs overall (12,119), and the largest dollar amount in overall investments ($15.2 billion, followed by North Carolina's $13.3 billion), and Arizona would receive the largest individual investment ($5.5 billion in an LG Energy Solution battery plant, followed by Georgia's $5 billion investment from Hyundai and SK Innovation). More of the Act's investments in dollars went to counties with majorities that voted for Donald Trump in 2020 ($69,502,750,000), than to counties that voted for Biden ($27,585,650,000). 71 percent of the Act's investments were in batteries, while electric vehicle investments made up 12 percent and solar investments made up 11 percent.
In a November 2023 report the interest group Environmental Entrepreneurs and the research firm BW found 210 announced projects directly linked to the Inflation Reduction Act, in the first year since its signing. They stated that the projects would create nearly 403,000 jobs, more than 100,000 of which would be permanent. According to editor in chief Jeff St. John of Canary Media, "During the projects’ construction phases, assumed to last five years from project announcement to completion, the report estimates the creation of 142,300 direct jobs, 55,900 indirect jobs and 105,300 jobs induced by the direct and indirect workers spending their wages." More than 185,000 of these jobs would be in electric vehicles, 48,795 would be in battery storage, 42,100 would be in solar and wind power, 21,322 would be in clean fuels, and nearly 5,600 would be in electric power transmission and distribution. The authors project that the Act would bring about "$156 billion added to U.S. GDP, $111 billion in new wages for workers, and more than $32 billion generated in tax revenue for federal, state, and local governments."
Wellesley College professor of environmental studies Jay Turner said that the Act fostered $58.4 billion in 67 new investments in the electric vehicle supply chain, creating a projected 42,195 new jobs across the United States, Canada and Mexico.
The League of Conservation Voters-, Center for American Progress-, and Sierra Club-affiliated research firm Climate Power estimated that the Act spurred $89.5 billion of investments in over 90 new projects creating 101,036 predicted clean energy-related jobs in 31 states, between August 16, 2022 and January 31, 2023, and that while Georgia, Michigan, and Texas saw eight new IRA-linked projects each, the most of any states, Georgia, Idaho and Tennessee would see the largest overall investments by dollar amount (ranging from $10.4 billion to $15.3 billion), and Kansas, Georgia and Tennessee would see the most jobs created.
In August 2023, the Solar Energy Industries Association reported that the Act had created more than 20,000 jobs and incentivized $20 billion in new solar power tech manufacturing and 155 gigawatts of generating capacity in the law's first year, and projected it would incentivize $144 billion more in such investments by 2033 than under a no-Act scenario.
The trade group American Clean Power's January 2023 assessment of business announcements of IRA-linked investments in renewables and battery plants, during the period between the Act's signing and November 30, 2022, yielded a figure of over $40 billion creating 6,850 jobs. 80 percent of these investments are in Republican-held districts, mostly in the Great Plains or South. Its August 2023 update recorded a total of 97 manufacturing investments worth $270 billion spurred by the Act between the August 16 enactment date and July 31, 2023, 83 with defined locations, with the majority of these being solar power tech plants. American Clean Power estimates these investments are worth more than all those made in the previous eight years combined, and will create 29,780 new jobs and $4.5 billion in customer savings.
According to the New Democrat-linked think tank Center for American Progress, the Act, the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act have together catalyzed over 35,000 public and private investments. The Biden administration itself claimed that , the three acts together catalyzed over $516 billion in private investment and over $302.4 billion in public infrastructure spending.
Environment
According to Rhodium Group and the World Economic Forum, in the first year of implementation, the Act had a significant impact on the environment. The Rhodium Group's expectations for GHG emissions reductions by the year 2030, relative to the level of 2005, moved from 17%-30% to 29%-42%, and to a 32%-51% decline by the year 2035. More than 170,000 green jobs were created. The sales of heat pumps exceeded the sales of gas boilers for the first time in history. 15% of households now use a heat pump as a primary source of heating. The United States Environmental Protection Agency used dozens of millions of dollars to improve air quality and hundreds of millions for environmental justice and local climate plans. The National Oceanic and Atmospheric Administration spent hundreds of millions for protecting coastal communities and ecosystems from the impact of climate change. More than $1 billion is allocated to equitable access to urban trees.
The governors of four states, Florida, South Dakota, Iowa, and Kentucky, refused to accept decarbonization grants from the Act. The Act allows the forfeited money, $3 million per state, to go to the three largest metropolitan areas in each state instead, though cities such as Davenport, Iowa and Sioux Falls, South Dakota have still refused the money.
Energy efficiency
Significant improvements were achieved in the domain of green building through the installation of efficient heating, ventilation, and air conditioning systems, and more.
For the first $8.5 billion in home rebate programs, the Department of Energy released its first draft guidance for states on July 27, 2023. The guidance entails the DOE distributing $4.3 billion to states to work with the DOE to create rebate programs for whole-home upgrades and $4.28 billion to states for appliance replacement rebates, with the suggestion that half the money go to households below 80 percent of area median income.
Ecosystems
In 2023 an agreement between seven states (Arizona, California, Colorado, Nevada, New Mexico, Utah, and Wyoming) was achieved, aiming to preserve the Colorado River water system from collapse due to poor management and climate change. The United States is heavily dependent on the river for power generation, drinking water, agriculture, wildlands restoration, and native cultural practices. Some states will reduce water use, receiving $1.2 billion in compensation for it from the federal government. Many other projects for preserving the river such as water recycling and rainwater harvesting are being advanced. The funding comes from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.
According to an official statement of the USA government, in the first year of implementation, around $2 billion was allocated to protect and restore land and marine ecosystems, including National Parks and National Wildlife Refuge System. $150 million was given to small and underserved forest owners, and intended to link them to climate markets, providing incentives to conserve the forests.
Sustainable agriculture
From October 2022 to September 2023 more than $850 million dollars was given by the Natural Resources Conservation Service to its Environmental Quality Incentives Program, Conservation Stewardship Program, Regional Conservation Partnership Program and Agricultural Conservation Easement Program to advance sustainable agriculture.
Environmental juctice
In October 2023 the United States Environmental Protection Agency allocated 128 million dollars to 186 projects linked to environmental justice. 104 million of them are coming from the Inflation Reduction Act. The projects are designed to solve different problems of underserved communities like pollution, climate disasters. The projects include creating parks for addressing floods, protecting Duck Valley Indian Reservation natural and cultural resources, teaching children about repairing and more. Full list of projects with a short description of each also has been published.
Drug prices
The Biden administration announced the first ten drugs to have their prices negotiated in 2026 by Medicare on August 29, 2023. They are Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, and Fiasp and NovoLog. The list selection, made by the Centers for Medicare & Medicaid Services, was based on whether these drugs lacked competition, how much they cost Medicare, and how long they have been on the market. The manufacturers, Bristol Myers Squibb, Boehringer Ingelheim, Janssen Pharmaceuticals, Merck, AstraZeneca, Novartis, Immunex, Pharmacyclics, and Novo Nordisk, had until October 1, 2023 to declare their intent to participate, upon penalty of a large excise tax, or they would withdraw their drugs from Medicaid and Medicare. The Biden administration announced two days later that all companies had agreed to the negotiations.
The Medicare drug price negotiation provisions are facing eight protest lawsuits filed by drug manufacturers and the U.S. Chamber of Commerce, variously claiming that the federal government is violating the First, Fifth, and Eighth Amendments to the Constitution, which deal with freedom of speech, just compensation for takings, and excessive fines. Larry Gostin, a public health and legal scholar, told The New York Times that he does not expect the provisions to be upheld by the Supreme Court. While the healthcare investors' consulting firm Avalere claimed in July 2022 that $455 billion in revenue would be lost by drug manufacturers and the trade group Vital Transformation claimed 139 fewer new drugs would be approved over the next decade due to the Act, the Congressional Budget Office projects only one fewer drug will be approved than without the Act over the next decade, five fewer over the succeeding decade, and seven fewer over the decade after that.
Taxation
Treasury Secretary Janet Yellen directed IRS Commissioner Charles Rettig to not use the new funding allocated in the Act to increase the rate of audits of those making less than $400,000 a year above historical levels, but to instead focus on "high-end noncompliance". A Treasury report indicated that half of the funding would be allocated to preventing tax evasion from large corporations and wealthy individuals.
The Treasury and Internal Revenue Service published guidance on eligibility for electric vehicle owners to claim tax credits worth between $3,500 and $7,500, including outlining a requirement for the vehicle to have a final assembly in North America. The Department of Energy and the Department of Transportation also published resources identifying vehicles that will likely meet all requirements for tax credit. The Department of Energy indicated that their list of eligible vehicles is not a guarantee for credit, and states that the Vehicle Identification Number (VIN) will give full manufacturing details and locations. Those qualified will receive the tax credits, known as the Clean Vehicle Credit, previously called the Qualified Plug-In Electric Drive Motor Vehicle Credit. The US Treasury Department has also stated that owners who purchase eligible vehicles previous to August 16, 2022, but did not possess the vehicle until after that date, also qualify for the Clean Vehicle Credit. However, because of the requirement that qualified EVs must have half or more of its battery materials built in the US and "at least 40 percent of materials sourced from North America or a US trading partner by 2024" (with this minimum percentage meant to increase each year) and the batteries cannot contain minerals that "were extracted, processed, or recycled by a foreign entity of concern", most currently available EVs on the market will not qualify for the tax credits. The Treasury released its next draft guidance for EV buyers on March 31, 2023, effective immediately, with finalization expected in June; the allowed materials source list includes the 20 United States free-trade agreements partners and Japan.
Additional tax credits were presented in the Act for energy efficiency in buildings, expanding current incentives in a tier-based system beginning in 2023. The Act specifies that commercial buildings must update efficiency by 25%, compared to a reference building, to qualify for $0.50 per square foot of tax credit for the first tier, increasing to a maximum of $5.00 per square foot for the final tier. The tax credits also extends to single and multi-family housing, requiring 50% less annual energy consumption compared to similar units. Vincent Barnes, a senior vice president from Alliance to Save Energy in Washington, D.C, stated that these policies were meant to reduce energy costs and demand on the power grid.
The Treasury Department also clarified on May 12, 2023, that in order to be eligible for select tax credits, solar panel manufacturers and installers need to source at least 40 percent of their components in total from within the U.S., regardless of solar cell origin, thereby creating a compromise between solar panel installers who favored keeping Chinese imports cheap and domestic solar cell manufacturers who want to build more factories in America.
Per state
Florida
The state received $3.75 million for urban forests and nature conservation, $209,000 for fighting pollution, and $78.7 million to protect the state from climate change impacts (the third amount is from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act combined).
However, the governor, Ron DeSantis, refused to accept $346 million for rebates to homeowners who will want to retrofit their houses for energy efficiency, $3 million to fight pollution, a program for helping low income people buy solar panels as well as $24 million from the Infrastructure Investment and Jobs Act for improving sewage systems in rural areas.
The money can go to local cities and authorities. Three cities in Florida accepted some amounts. Other states want to take the money forfeited by Florida for themselves, namely Rhode Island and Kentucky.
The funds for the rebates were requested by the Florida state energy office and the legislature, but DeSantis vetoed them. He is the only governor who did so. The program was intended to help people to lower their energy bills and create jobs. Half of the money would have gone to low-income households. Making a house more energy efficient can cut utility bills by 25% for an average family in Florida. Part of the money would have gone to weatherization of houses.
Texas
Some aspects of the law are the same as in other states, while some are specific to Texas. Considerable tax credits and tax rebates are afforded. House weatherization, solar energy, electric vehicles, are advanced. House weatherization can save around $283 per year for an average family in Texas, while raising the value of the property and reducing air pollution in the same time. Some improvements can be made for free to low income households. The cost of an energy audit is reduced by 30% and some can even get it for free.
A third of Texas households can get a 100% rebate for installing a heat pump (generally costing US$8,000). Forest protection is advanced, and farms that adopt climate-friendly practices get economic incentives.
Reactions
Senator Joe Manchin (D-WV) issued a statement for his support of the bill. President Joe Biden also stated his support for the proposed bill. On August 4, Senator Kyrsten Sinema (D-AZ) issued a statement indicating that she would support the bill after striking a deal with fellow Democrats to change several tax provisions.
Congressional Republicans have voiced unanimous opposition to the bill, claiming the legislation would do little to combat inflation, or would exacerbate it. Senate Minority Leader Mitch McConnell (R-KY) denounced the legislation as "reckless spending" and Ranking Member of the Senate Budget Committee Lindsey Graham (R-SC) called it "insanity".
In a letter sent to congressional leadership and touted by Senate Democrats, 126 economists including Robert Rubin, Jack Lew, Jason Furman, Lawrence Summers, Mark Zandi, and Joseph Stiglitz, wrote that the bill is more than fully paid for, lowers prices for consumers and will lower inflation.
In a letter sent to congressional leadership, 230 economists including Vernon Smith, Robert Heller, Kevin Hassett, Jim Miller, and Larry Kudlow, wrote that the bill will increase prices for consumers and will increase inflation.
Tom Philpott, an agriculture journalist writing in Wired, praised the bill's investments in climate-smart agriculture and remedies for USDA loan discrimination, but heavily criticized Sinema's deletion of the carried interest loophole modification and the lack of provisions to expand funding for the National School Lunch Act and improvements to child nutrition (as expressed in the original Build Back Better Act) and for soil erosion prevention programs (which enhance small-scale carbon farming and encourage a shift away from monoculture-dependent farming for ethanol fuel in the United States).
Anna McGinn of the think tank Environmental and Energy Study Institute praised the Act for helping the U.S. meet its commitments to the Paris Agreement, but criticized the Act for lacking commitments to loss and damage and other forms of climate-related foreign aid as well as to creating a cohesive national climate strategy. The International Monetary Fund, in its analysis of the Act, cautioned that it could expose the U.S. to the beginnings of trade war, but if implemented deftly, the Act could strengthen diplomacy with Europe and help create special rules to advance the trade of clean energy. Commentators at the Center for Strategic International Studies and in The Diplomat, along with United States Trade Representative Katherine Tai, have acknowledged increased economic competition with China as one of many motivators behind the Act.
Climate activists Miriam Nielsen, Raya Salter and Heather Tanana examined the Act's effects eight months after passage, and raised questions on whether the Act would provide tax credits and grants equitably, mentioning the home energy upgrade grants and the Biden administration's Justice40 Initiative for racial justice, whether the Act would disproportionately help larger environmental groups with more resources rather than smaller ones, and how it would implement $4 billion in Western drought resilience grants and make accessing them easier.
Public organizations
Darren Woods, the CEO of oil and gas energy giant ExxonMobil, called the bill "a step in the right direction" and endorsed its provisions related to oil and gas. Multiple coal industry groups, including the West Virginia Coal Association, criticized the bill for "[obviating] any need to innovate coal assets" and doing "nothing for coal or coal generation".
Many mainstream environmental organizations supported the bill, such as the Nature Conservancy, the National Wildlife Federation, and American Forests. The director of North America policy for the Nature Conservancy, Tom Cors, called the legislation "historic", while Aviva Glaser of the NWF called the infusion of spending "transformative." The Natural Resources Defense Council argued that despite continued acceptance of fossil fuels in the IRA, its climate mitigation policies would outweigh their impact ten times over. Health and environmental justice organizations like Earthjustice have welcomed the law.
However, not all environmental groups expressed unqualified support. Some environmentalists noted that the bill contained more "carrots", or incentives for positive behavior, than "sticks", or new regulations. Several groups argued that as the legislation did not seek to eliminate fossil fuels entirely, it was inadequate to meet the threat of climate change. Jean Su, the energy justice program director at the Center for Biological Diversity, called the legislation "a backdoor take-it-or-leave-it deal between a coal baron and Democratic leaders in which any opposition from lawmakers or frontline communities was quashed." The Climate Justice Alliance criticized the IRA, saying that "the strengths of the IRA are outweighed by the bill's weaknesses and threats posed by the expansion of fossil fuels and unproven technologies such as carbon capture and hydrogen generation."
The heads of the National Cooperative Business Association, National Rural Electric Cooperative Association, National Farmers Union, and National Council of Farming Cooperatives praised the IRA for its provisions assisting cooperatives in energy and agriculture, particularly direct grants and debt forgiveness. Cornelius Blanding, head of the U.S. Federation of Southern Cooperatives, also praised the IRA, but expressed concern that its revisions of the American Rescue Plan's debt relief programs for minority farmers would worsen racial discrimination in agriculture.
Cycling organizations criticized the IRA for removing the incentives for electric bicycles in the original Build Back Better Act, having a better energy-per-incentive ratio and reaching a wider demographic, than for electric cars remaining in the IRA. Sean Jeans-Gail, Vice President of Government Affairs and Policy at the Rail Passengers Association, criticized the IRA saying, "It's a bitter pill in terms of rail and transit, which is the one clearly established, low-carbon emission transportation systems we have going". He also criticized the bill for being car centric.
27 European Union finance ministers have expressed "serious concerns" about the financial incentives of the Inflation Reduction Act, and are considering challenging it. They have listed at least nine points in the legislation, which they say could be in breach of World Trade Organization rules. They were opposed to the subsidies for consumers to buy North American-assembled electric cars, as EU officials believe the subsidies discriminate against European carmakers. One EU official told CNBC that, "there is a political consensus (among the 27 ministers) that this plan threatens the European industry" and its supply of raw materials. In February 2023, the European Commission announced it would propose the "Net Zero Industrial Act", similar to the IRA, in turn putting pressure on the United Kingdom and South Korea.
On March 10, 2023, President Biden and President of the European Commission Ursula von der Leyen announced they would be initiating top-level talks to mitigate issues of subsidy competition.
Representatives from South Korea have also voiced similar concerns to Europe, given that the legislation can also restrict Hyundai's and other South Korean carmakers' business in the American market.
Some members of the trade union United Auto Workers, including former vice president Cindy Estrada, have obliquely commented to The American Prospect that the Inflation Reduction Act's implementation regarding prevailing wage requirements and collective bargaining rights (particularly at electric vehicle factories owned by startup companies) may be weakened, and if not properly implemented, the Act could be linked to poor hiring practices and working conditions. Other labor union representatives, from the AFL–CIO, Southwest Laborers District Council, Ironworkers Local 848 and United Steelworkers, told Reuters in March 2023 that investments announced due to the Act have not improved labor unions' ability to organize particularly in right-to-work law states, but that they were hopeful in pushing ahead.
The Prospects editor, Robert Kuttner, commented in January 2023 that the Treasury Department's interpretation of the Act regarding electric vehicle leasing could also potentially undermine the Act's U.S. domestic supply provisions in favor of European or Chinese suppliers. Manchin expressed disappointment with the Treasury's new guidance and its more lenient provisions for foreign trading partners upon its release on March 31.
See also
List of acts of the 117th United States Congress
Energy in the United States
Energy policy of the United States, including the Infrastructure Investment and Jobs Act and CHIPS and Science Act
List of tie-breaking votes cast by the vice president of the United States
2021–2023 inflation surge
Notes
References
External links
Inflation Reduction Act of 2022 as enacted (PDF/details) in the US Statutes at Large
H.R.5376 - Inflation Reduction Act of 2022 bill information on Congress.gov
Climate change law
Climate change policy in the United States
Presidency of Joe Biden
United States federal legislation
Acts of the 117th United States Congress
United States federal energy legislation
United States federal health legislation
United States federal reconciliation legislation
Environmental policies approved in 2022