August 7, 2022, will go down in history as the day that the Senate passed an unprecedented climate bill which is part of a sweeping set of measure called the Inflation Reduction Act.
Next week, if passed by Congress, the bill will officially become law and will set in motion a massive $369 billion investment in Energy Security and Climate Change programs over the course of the next decade.
But what exactly will this come to mean for the different sectors of the economy and for ordinary people and businesses at large? Here is our breakdown of the Inflation Reduction Act and its main takeaways when it comes to climate action.
What does the climate bill do?
If the bill passes the House vote as expected, it will facilitate investments worth $369 billion in multiple energy-related fields. These include renewable energy sources, such as nuclear power, wind and solar, as well as emerging sectors, such as ‘green’ and ‘blue’ hydrogen and sustainable aviation fuel.
The bill provides both incentives and penalties for companies involved in energy production on a corporate level, while focusing on credits for individuals to increase adoption of green power sources.
Its ultimate goal is to reduce greenhouse gas emissions by 40% by 2030, while simultaneously increasing energy security for the country.
What is in the climate bill?
The climate bill has three main components – clean energy tax credits, electric vehicle tax credits and a methane fee.
- Clean Energy Credits
These will be focused on energy production that has no carbon emissions – nuclear, green hydrogen, solar and wind.
Two of the technologies that Carbon Herald is focused on are also included in the clean energy lists and will also be incentivized – carbon capture and storage projects (those that capture harmful greenhouse gas emissions at the source), as well as carbon removal technologies.
- Electric vehicle (EV) credits
credits are aimed at increasing the adoption of vehicles with reduced emissions, as transportation is the single largest contributor to US emissions.
The bill will provide a clean vehicle tax credit up to $7,500 for EVs buillt in the US and Canada. This credit can be used as a rebate when purchasing the vehicle itself and will be available to mass market buyers, rather than those with higher incomes.
- Methane fee
The final, but crucial, component of the climate bill is a “methane fee” that will create additional costs for energy producers who emit the gas which is said to be responsible for at least 25% of today’s global warming according to the EDF.
Fees for methane production will start at $900 per metric ton above respective federal limits starting from 2024. It will increase to $1,500 by 2026.
How much is the Inflation Reduction Act?
The total revenue raised by the Inflation Reduction Act is estimated to be $739 billion. These will be raised through several new measures
- A 15% corporate minimum tax
- Prescription drug pricing reform
- IRS tax enforcement
- Carried interest loophole
The planned investments will go in two directions – climate action and healthcare. $369 billion will be specifically allocated for climate action with the remaining $64 billion intended for extending the affordable care act.
Who voted for the climate bill?
The Senate vote strictly followed party lines. 50 Democrats voted in favor of the bill, while 50 Republicans were opposed. Vice President Kamala Harris’ vote broke the tie.
The bill seemed destined to fail a week before the vote, but Senate majority leader Chuck Schumer managed to reach a compromise with both Joe Manchin (making concessions for fossil fuel infrastructure projects) and Kyrsten Sinema (dropping a provision to narrow tax breaks for carried interest).
Which sectors and stocks will benefit from the climate bill?
Electric vehicle (EV) automakers are expected to be among the big winners from the climate bill. With Tesla reshaping the landscape, this could mean that companies like Ford and GM are set for a boost, as they have started shifting to production of more battery-powered models. But there is one issue.
Critics have quickly pointed out that a small portion of EVs will be eligible for the tax credit, as the majority of cars being sold in the US have components produced overseas. At the moment it’s not clear if any of the battery plants in the U.S. are above the necessary thresholds.
Utilities are also set to benefit from the bill with approximatly one third of the potential tax breaks are aimed at supporting the construction of renewable energy plants.
What are climate regulations?
Climate laws and regulations are predominantly focused on reducing planet-warming greenhouse gas (GHG) emissions, such as CO2 and methane. Different regions and countries have determined emissions reduction targets for themselves, with the new climate bill, for instance, aiming to cut CO2 emissions in the US by 40% by 2030 compared to 2005 levels.
Which countries have a climate law?
Slowly but surely, the world is gearing up to pass legally binding acts that will curb emissions and essentially help forge a more sustainable future for generations to come. New Zealand recently joined the list of nations to include climate action into its legislation, following the example of the UK and the European Union.
But even so, there appears to be a need for stricter oversight of legislations and policies, as just last month, the UK government’s net-zero strategy was officially slammed by the nation’s High Court and will require revisions to ensure that it is indeed legally binding and will facilitate meaningful actions.