PSR’s Analysis of the Inflation Reduction Act August 16, 2022

In passing the Inflation Reduction Act, Congress and President Biden have made the largest investment this nation has ever seen to address the climate crisis. The $369 billion in climate action will reduce climate pollution, accelerate the deployment of renewable energy, incentivize building electrification, and safeguard public health, while creating 9 million jobs over the next decade.

In short, there is a lot to like, and Americans should see this law as an encouraging step. But in addition to its positives, the law has some clear downsides. To get the Inflation Reduction Act through Congress, compromises were made that prop up carbon capture technology, hydrogen and nuclear energy, and open federal lands and waters to fossil fuel extraction. These provisions threaten to undercut the positive investments that seek to create a safe and healthy climate. 

More on those later. First, to the positives:

Reducing climate pollution and incentivizing electrification

The new law contributes to two efforts that are central to PSR’s work: reducing methane emissions and promoting building electrification. The Inflation Reduction Act will reduce U.S. greenhouse gas emissions by an estimated 40 percent by 2030, helping keep a +1.5 degrees Celsius world within reach. The path to emission reductions includes a fee on emissions of the climate super-pollutant methane, imposing a cost of up to $1,500 per ton in 2026 on emitters—mainly the natural gas industry.

Roughly 25 percent of the world’s warming is tied to methane pollution. American natural gas infrastructure is responsible for an estimated 13 million metric tons annually, the equivalent of over 70 million passenger vehicles. 

The law will also reduce greenhouse gas emissions by increasing the share of renewable energy on the grid and helping families electrify their homes. The High Efficiency Electric Home Rebate Act (HEEHRA) provides $4.5 billion in reimbursements for low- and moderate-income households that install new, efficient electric appliances. These funds will help an estimated one million low- and moderate-income households buy heat pumps to replace gas-burning furnaces and electric induction cooktops to replace gas stoves. In-home gas appliances can have lasting and damaging effects on the human body. Children, low-income households, and Black and Latino communities are among the most vulnerable. 

This legislation also includes a suite of policies targeting the electrification of the transportation sector. The expansion of public transportation, conversion of 60,000 diesel school buses to electric, and proliferation of electric vehicle charging stations will improve air quality and save lives. 

Support for renewable energy

To ensure the energy supplying these electric appliances is renewably sourced, the Inflation Reduction Act extends the investment and production tax credits for the manufacturing and deployment of solar and wind energy. It also includes the Low-Income Solar and Wind Investment Tax Credit, covering between 40 and 50 percent of the cost of these projects built in low-income and indigenous communities. Additionally, residential solar panels will be, on average, $7,000 cheaper to install, broadening the scope of families able to participate.

Still supporting fossil fuels

Despite these encouraging investments in clean energy, the wins for the fossil fuel industry are notable and concerning. The law requires at least two million acres of public lands and 60 million acres of offshore waters be offered for oil and gas leasing annually over a decade as a condition for installing any new solar or wind energy. Additional drilling would protect the fossil fuel economy, accelerate climate change, and threaten public health, disproportionately harming low-income neighborhoods and communities of color. 

But the handouts do not stop there. The Inflation Reduction Act also encourages the use of carbon capture technology on point source polluters, such as power plants and heavy industry. Carbon capture is a false solution to carbon pollution. It is energy-intensive and expensive, does not ameliorate the upstream environmental justice issues associated with extraction and transportation, and the risks of carbon sequestration include carbon leakage and increased occurrence of earthquakes.

Furthermore, the law opens the production credit for clean hydrogen to blue hydrogen, which is made from natural gas. Making blue hydrogen cost-competitive through tax subsidies has the potential of expanding its use in our homes and buildings, exacerbating health and safety risks and increasing methane pollution. 

Nuclear energy would also receive support through a production credit for nuclear energy. Although nuclear plants are billed as zero-carbon, they are energy-intensive to build and their highly carcinogenic waste has no long-term solution. Rather than supporting these harmful forms of energy generation, the energy transition should focus exclusively on deploying and accelerating renewable energy resources.

The Inflation Reduction Act is a positive step and will play a pivotal role in protecting our present and future from climate change. Congress and President Biden should be thanked for the work it took to make this law. But they must build on this partial victory by continuing to invest in climate justice, accelerating renewable energy deployment, retiring fossil fuels, and protecting our public health. The future lies in clean, renewable energy.