U.S. Senate Passes $369 Billion Climate Bill
(Photo by Harold Mendoza for Unsplash)
The United States is steps away from committing $369 billion to fight climate change after the Senate passed the “Inflation Reduction Act” on August 7.
The vote was split down the middle of the evenly divided Senate, with Vice President Kamala Harris serving as the tie-breaker. The bill will now go to the House of Representatives for a vote, and if it passes there then it will land on the desk of President Joe Biden.
While the bill contains provisions that cap out-of-pocket drug costs for Medicare recipients, a new minimum tax of 15% on corporations with $1 billion in profits or more and a 1% tax on corporate stock buybacks, it’s largely about fighting climate change.
Senate Majority Leader Chuck Schumer called the bill “the boldest climate legislation package in U.S. history” per reporting from Politico.
“It will kick start the era of affordable clean energy in America. It’s a game changer, it’s a turning point, and it’s been a long time coming,” he said.
Politicians often speak in hyperbole, but there appears to be data to backup up Sen. Schumer’s claims.
Rhodium Group, a research and analytics firm focused on geopolitics, advanced economies and climate and energy issues, estimated the bill would cut U.S. greenhouse gas emissions by 31 to 44 percent by 2030 as compared against emissions from 2005. That’s a substantial increase from the country’s current trajectory, which would have reduced emissions from 24 to 35 percent compared to 2005 levels.
The American Clean Power Association estimates that the bill would add an additional 550 gigawatts of clean energy to the grid, enough to power 110 million American homes, Politico wrote.
(Photo via the American Public Power Association for Unsplash)
What $369 Billion Buys
According to Politico, The Inflation Reduction Act contains billions of dollars worth of grants, loans and subsidies for green energy, electric vehicle purchases and emission-reduction technology.
For starters, the bill extends the lifespan of existing tax credits for wind and solar farms along with residential solar systems and batteries for storing excess solar power. An August 5 Bloomberg story noted that the credit for residential solar systems and battery storage systems is 30% of their cost under the new bill, an increase from 26% under existing legislation.
In terms of exact dollars, the bill includes $60 billion in tax credits for companies involved in clean energy manufacturing. This includes companies that manufacture solar panels, wind turbines and batteries to store green power, with the idea being that these credits will act as a subsidy that enables companies to lower their prices, thus making clean energy projects cheaper.
A further $27 billion is being put toward a “green bank,” which Vox in a July 2021 article said works a lot like a traditional bank except for focusing on green energy projects and mixing public and private funds.
“This is going to be more massive than people realize,” Rep. Ro Khanna (D-Calif.) told Politico in an interview. “If the government invests $300 billion in solar, wind, batteries and heat pumps, that has the potential to unlock trillions of dollars in private sector investment in climate.”
The Washington Post further reported that billions have been earmarked for electric vehicle (EV) tax credits, with the existing $7,500 purchase credit extended through 2032. The Inflation Reduction Act also removes a previous government cap that stopped automakers from being able to offer the credit to customers after they sold more than 200,000 EVs or plug-in hybrids. Toyota, Tesla and GM were among the automakers unable to offer the credit to their customers.
(Photo by Zbynek Burival for Unsplash)
The Trade-offs
Chuck Schumer said the Inflation Reduction act was “a long time coming,” and that’s thanks to one of its architects, Senator Joe Manchin of West Virginia. Manchin was a roadblock to last year’s “Build Back Better Act,” a $1.75 trillion spending bill that included $555 billion to fight climate change according to Time Magazine.
That bill passed the House in November of 2021 but was declared dead in the Senate after Sen. Manchin appeared on Fox News on December 19 and said he would vote “no” on the legislation because of fears around the national debt and increased inflation. Manchin’s vote was critical in the evenly divided Senate.
Inflation has increased regardless, so what changed Manchin’s mind?
According to Politico, “leading economists,” including former Treasury Secretary Lawrence Summers, helped put Manchin at ease, telling the senator that the bill would not worsen the financial pain many Americans are currently feeling. Time reports that the Congressional Budget Office found that the Inflation Reduction Act would lower the national deficit by $102 billion over the next nine years while having a “negligible effect on inflation.”
However, Politico notes that Manchin also fought for and won concessions for the oil and gas industry, including tying offshore wind farm developments to oil and gas drilling.
Politico said that the new bill includes a 10-year provision that states a lease for an offshore wind farm cannot be approved unless an oil and gas lease sale was held in the year prior, one that is not less than 60 million acres. That’s about the size of Michigan, which measures 61 million acres.
Further wins for oil and gas companies include two more required lease sales, one in the Gulf of Mexico and one in the Cook Inlet in Alaska that the Biden administration nixed in May. An 80-million acre lease sale in the Gulf of Mexico that was completed in 2021 but blocked by a federal judge due to an insufficient environmental review was also reinstated.
The industry also earned a win with regard to carbon capture and storage technology, with the bill providing $85 for each ton of carbon captured and stored underground, $180 per ton of carbon captured directly from the air and $60 per ton of carbon captured and used for fracking. Oil and gas companies are some of the biggest proponents of carbon capture, which critics say is a greenwashing tactic that allows them to claim environmental friendliness by reducing production-related emissions even though the product they create, fossil fuels, is directly responsible for emissions.
That said, it wasn’t all wins for oil and gas companies. The bill also includes a methane tax, which oil and gas companies that emit more than 25,000 metric tons of CO2 per year are subject to. The tax sets a cap of how many tons of methane a company’s operations can leak into the atmosphere, and once that cap is exceeded the penalty is $900 per ton initially and up to $1,500 per ton by 2027.
Oil and gas companies won’t be alone in fighting methane leakage, however, with Politico writing that the EPA will have $1.5 billion in funding to assist companies in reducing methane leaks.