President Biden signed the Inflation Reduction Act on August 16, codifying a package of health, tax and climate reforms into law.

“This bill is the biggest step forward on climate ever,” Biden said during the signing, “it’s going to allow us to boldly take additional steps towards meeting all of my climate goals – the ones we set out when we ran”.

The act includes a monumental allocation of $369 billion towards climate-focused initiatives, making it the US’ largest investment in tackling the climate crisis to date.

So, what is the $369 billion investment being spent on?

Incentivising clean energy

One of the main goals of the Inflation Reduction Act is to drive as much adoption of clean energy as possible. The legislation includes a host of rebates, tax breaks and credits (for both businesses and individuals) intended to make renewable energy more affordable and accessible.

There is a range of initiatives that support investment in rooftop solar, insulation, heat pumps, electric HVAC and water heaters, including:

  • $9.7 billion in funding to assist rural electric cooperatives with improving the long-term resiliency, reliability and affordability of their systems.  
  • $4.3 billion in funding directed to the Home Owner Managing Energy Savings (HOMES) program, which gives state rebates to people who take out comprehensive retrofits or building improvements that save energy.
  • $4.3 billion towards the High Efficiency Electric Home Rebate Act (HEEHRA), which provides rebates for low and moderate-income households. This initiative brings down the cost of both clean energy products and the electrical upgrades needed to support them.  According to electrification non-profit, Rewiring America, low-income households will be eligible for rebates up to:
    • $8000 to cover the full cost of a heat pump and installation.
    • $4000 for an upgraded breaker box.
    • $2500 for upgrades to electrical wiring.
    • $1600 for insulation, ventilation and sealing.
    • $1750 for a heat-pump water heater.
    • $840 for electric stoves and heat-pump clothes dryers.
  • The Energy-Efficient Home Improvement credit and The Residential Clean Energy credit, which allows households to deduct up to 30% of the cost of energy-saving upgrades and home-electrification projects.
  • The Clean Vehicle credit gives Americans $7500 credit for new electric vehicles and $4000 for used electric vehicles.

Energy security through domestic manufacturing

Much like the European Commission’s REPowerEU plan proposed earlier this year, the Inflation Reduction Act heavily invests in establishing energy self-sufficiency. Recent geopolitical tensions and supply chain bottlenecks have resulted in multiple countries opting for on-shore clean energy manufacturing.

The Inflation Reduction Act directs $60 billion towards boosting the domestic manufacturing of clean energy. Approximately half of this will be used to increase American manufacturing of solar panels, wind turbines, batteries and critical minerals processing, with an additional $10 billion allocated to building clean technology manufacturing facilities.

Other notable initiatives include:

  • Up to $20 billion in loans to build new electric vehicle manufacturing facilities.
  • $2 billion in grants to upgrade existing vehicle manufacturing facilities with the tools to build clean vehicles.
  • $2 billion in funding for National Labs to scale up energy research.

Environmental justice

The Inflation Reduction Act is the first time the Biden administration has included provisions for its Environmental Justice (EJ) agenda in legislation.

$60 billion will be used to remediate the harmful effects of pollution and climate change that disproportionately affect marginalised and low-income communities. The funding is spread out across a range of EJ initiatives that are designed to reduce emissions and pollution, improve air quality and increase access to affordable clean energy and transportation.

Key EJ initiatives that support disadvantaged, underserved and marginalised communities include:

  • 55% of the Greenhouse Gas Reduction Fund, with $8 billion intended for projects that reduce emissions and $7 billion allocated towards zero-emission technologies such as rooftop solar.
  • $11 billion, projected to be raised from reinstating the oil and petroleum superfund tax, to be used for cleaning up polluted sites that harbour toxic chemicals that are harmful to human life.
  • $3 billion funding towards Environmental and Climate Justice Block Grants to be used by communities for pollution reduction and monitoring technology, climate resiliency measures and community solar.
  • $3 billion funding towards Neighborhood Access and Equity Grants to remediate the harm caused by divisive or dangerous infrastructure and improve “walkability, safety and affordable transportation access”.
  • $3 billion funding to reduce air pollution at ports through purchasing zero-emission equipment and technology.
  • $1 billion to fund the Clean Heavy-Duty Vehicles program which enables local governments to replace garbage trucks and public buses with zero-emission vehicles.
  • $1 billion to make affordable housing more climate resilient and energy and water efficient.

Who’s paying for this?

The cost of implementing the climate investments set out in the act will be covered through a series of tax and healthcare reforms.

The Inflation Reduction Act introduces a 15% minimum tax on corporations making over $1 billion in profit, a move expected to generate hundreds of billions of dollars in revenue.

The new legislation allows Medicare to negotiate the price of high-cost drugs with pharmaceutical companies and penalises those that raise drug prices faster than the rate of inflation. Beginning in October, drug companies will have to rebate Medicare the amount that exceeds inflation. These Medicare reforms are expected to generate over $200 billion.

Topline estimates of the Inflation Reduction Act
Sourced from: Summary: The Inflation Reduction Act of 2022 – US Senate Democrats

While the impact of the new legislation remains to be seen, preliminary modelling conducted by Princeton University, Energy Innovation and Rhodium Group estimates the Inflation Reduction Act will set America on the path to achieve a 40% reduction in emissions by 2030.

If your business is looking to integrate ESG into its core strategy, Blockhead Technologies offers a range of solutions to effectively set, track, measure and achieve ESG goals. Contact our team to book a free demo.