Last August, as Californians faced a deepening drought, Pakistan battled devastating floods, and the FBI captivated the world with its dramatic raid of Mar-a-Lago, a landmark piece of legislation snuck its way into federal law.
Heralded by the Environmental Protection Agency as “the most significant climate legislation in U.S. history,” the Inflation Reduction Act of 2022 (IRA), sponsored by Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV), marks a historic financial investment—roughly $391 billion in tax credits and direct expenditures—in confronting the climate crisis, primarily through expanding green infrastructure and jobs.
“It’s a lot of money,” said Catherine Wolfram, a professor of business administration at Haas. “It’s more money than the country has ever spent before on the climate crisis.”
Wolfram, who served under the Biden administration as deputy assistant secretary for climate and energy economics in the U.S. Department of the Treasury from March 2021 to October 2022, called the IRA “historic.” Models predict that, by 2030, the bill will help reduce the nation’s greenhouse emissions by roughly 40 percent from 2005 levels. “The president’s goal was to get to 50 percent, so it puts us well on our way towards that goal.”
Wolfram said the bill is also notable for its scope and longevity. “Companies will be given tax credits to invest in clean energy—things like wind or solar—and those tax credits will be available for at least 10 years,” she said.
While tax credits themselves are not a new way of incentivizing greener alternatives, she said these credits are “a little bit bigger, a little bit more expansive.” Previously, for example, car manufacturers could max out on credits after selling a certain number of electric vehicles; under the IRA, that cap has been lifted.
Additionally, Wolfram noted, the bill expands tax credits into new areas of green tech, including direct air capture (pulling CO2 from the atmosphere) and clean hydrogen. Consumers will also be eligible for tax credits for everything from rooftop solar to high-efficiency electric heating to electric vehicles, which the government estimates will translate to an average of $500 in savings on annual energy costs per household.
Others have touted the IRA’s investment in building out climate-smart agriculture, drastically expanding the country’s electric vehicle charging infrastructure, and establishing a clean energy lending program through a national “green bank” network.
As for potential shortcomings, critics have argued that the IRA will extend the fossil fuel era by giving handouts to oil and gas corporations. Others say the bill puts the onus on private companies and individual citizens to build out greener infrastructure. Wolfram also described “unease” from Europe and other U.S. trading partners, who are concerned about the IRA’s emphasis on domestic manufacturing and its positive reinforcement model. “The U.S. is subsidizing clean energy. A lot of other countries are doing that,” she said. “But [other countries] are also taxing dirty energy. And the U.S. is not.”
Not surprisingly, the IRA is politically divisive: Both bodies of Congress voted strictly along party lines, and the bill only narrowly passed the Senate as a budget reconciliation bill, with Vice President Kamala Harris delivering the tie-breaking vote.
Asked why such a big legislative step was possible now, Wolfram said, “Climate change is touching more and more people’s lives, and I think that’s made it more important to the voting public that we do something to address [it]. My prediction is that, if anything, that [pressure is] just going to increase over time.”