A year in, landmark U.S. climate policy drives energy transition but hurdles remain

Rachel Waldholz

August 16, 2023 / 4:48 pm

caption: President Joe Biden (C) signs The Inflation Reduction Act with (L-R) Sen. Joe Manchin (D-WV), Senate Majority Leader Charles Schumer (D-NY), House Majority Whip James Clyburn (D-SC), Rep. Frank Pallone (D-NJ) and Rep. Kathy Catsor (D-FL) in the State Dining Room of the White House August 16, 2022 in Washington, DC.

A year ago, Sonia Aggarwal watched from home as the votes came in on the U.S. Senate floor. Aggarwal was working as a White House aide, advising the Biden administration on climate policy. She'd been up all night, listening as senators debated legislation she and many others had spent more than a year trying to pass.

When Vice President Kamala Harris finally cast the tie-breaking vote – 51 to 50 – on August 7, 2022, Aggarwal was in tears.

With that vote, the country's most significant climate legislation made it through the U.S. Senate, a body that had stymied previous efforts for decades. The bill went on to clear the U.S. House, and made its way to President Joe Biden for his signature on August 16, 2022.

"The Inflation Reduction Act is the most significant step forward on climate in American history," Aggarwal said. "Full stop."

The Inflation Reduction Act (IRA) may have a bureaucratic name, but it sets expansive goals. The policy aims to dramatically decrease the U.S. contribution to climate change, slashing greenhouse gas emissions by shifting the economy away from fossil fuels.

The law directs at least $369 billion – and potentially much more – toward incentives for nearly every sector of the economy to adopt renewable energy and other low-carbon technologies.

The goal is to make alternatives cheaper – and more attractive – than fossil fuels, said Jesse Jenkins, a professor at Princeton University who advised on the law.

"What the Inflation Reduction Act effectively does, is it aligns the full financial might of the federal government behind the push towards cleaner energy resources," Jenkins said. "In essence, it puts clean energy on sale for households and businesses and industries all over the country."

The law faces opposition among Republican lawmakers. It passed along party lines, with only Democrats voting in favor. Since Republicans gained control of the U.S. House this year, many have called for repealing its incentives, arguing the price tag is too high, and transitioning away from fossil fuels shouldn't be a priority.

Here are three takeaways as the first major U.S. climate policy turns one.

"Rocket fuel" for renewable energy, but hurdles remain

Nearly $200 billion in tax credits at the center of the IRA aim to clean up the two biggest sources of U.S. greenhouse gas emissions: transportation and power plants.

The incentives are meant to help speed the transition to electric vehicles and boost the deployment of low-carbon energy like wind and solar power, while also encouraging companies to build those vehicles, solar panels and wind turbines in the U.S.

One year in, that's starting to happen, say analysts and industry representatives.

"The IRA really has acted like rocket fuel across every segment and corner of our industry," Heather O'Neill, head of the trade group Advanced Energy United, told reporters Monday.

Projects like wind and solar farms take years of planning, so it's too soon to see the law driving new power onto the grid, said Chris Seiple at the energy consulting firm Wood Mackenzie. But Wood Mackenzie estimates the amount of renewable power added to the grid each year will roughly triple by 2030 as a result of the IRA, he said.

"This is legislation that is going to result in a radical transformation of the electric supply in the United States," Seiple said.

Meanwhile, companies have issued a steady stream of announcements for new factories in the U.S., especially for electric vehicles, batteries, and solar panel components. The vast majority of solar and battery manufacturing currently takes place outside the U.S., much of it in China.

But both automakers and renewable energy developers face major challenges.

Auto workers are worried they'll be left behind in the transition to electric vehicles. Wind and solar developers say their projects face increasing opposition from local communities, some of it fueled by misinformation. The electric grid is also struggling to accommodate new projects, with many already waiting years for permission to connect.

Gregory Wetstone, president and chief executive officer of the American Council on Renewable Energy, an industry trade group, said on some level he welcomes the current challenges. They're a result, he said, of "trying to get so much done really rapidly, which is the pace we need to go to address the climate crisis."

There's money to "electrify everything" – but it may roll out slowly

Another focus of the law? You. Or at least your car, your gas stove and your furnace.

The Inflation Reduction Act makes billions of dollars available to help households switch to electric vehicles, replace fossil fuel-powered heating and cooling systems with more efficient electric heat pumps, install solar panels and insulate homes.

The law makes the electrification of American households the "hinge point" of U.S. climate policy, said Ari Matusiak, the chief executive officer of Rewiring America, a nonprofit campaigning to cut household emissions, which offers an online guide to the subsidies.

Some of the money is available now, as credits when you file your tax return. For instance, the law offers a tax credit of up to $7,500 for the purchase of certain electric vehicles and up to $4,000 for used EVs.

Credits, however, often cover only a fraction of the cost of major retrofits, like installing a heat pump.

Some benefits for low- and moderate-income households may not become available for months or years. The law creates a rebate program to reduce the up-front cost of electric appliances and home retrofits for households making up to a certain amount. Those programs will be administered by states, which have indicated it will take some time to staff up. Virginia's state department of energy has said it could take one or two years before the program is up and running.

Yes, the law reduces U.S. climate impact. But it's not enough.

Studies indicate the IRA will help significantly reduce U.S. greenhouse gas emissions. The think tank Rhodium Group found the IRA could cut emissions up to 48% from their peak by 2035.

The act still falls short of the U.S. commitment under the international Paris Agreement, to cut emissions in half from their 2005 peak by 2030. The U.S. has committed to reaching net-zero emissions by 2050, which means contributing no new greenhouse gasses to the atmosphere.

Scientists say those targets are necessary to limit warming to 2.7 degrees Fahrenheit (1.5 degrees Celsius) above pre-industrial levels, and avoid the most catastrophic impacts of climate change.

The Biden administration is rolling out other efforts to close the gap. The Environmental Protection Agency has proposed new rules to cut emissions from coal and gas-fired power plants, and to restrict emissions of methane, which is a powerful greenhouse gas.

Sonia Aggarwal is now the chief executive officer of the California-based environmental policy firm Energy Innovation. She says two things are true: the U.S. is moving faster than seemed possible just a few years ago. And it's still not fast enough.

But she sees the IRA ushering in a new phase.

"We have completely changed direction on our energy policy such that we will actually have a chance to meet our climate goals, which certainly was not the case even just a couple of years ago," Aggarwal said.