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What's in the historic Inflation Reduction Act

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US President Joe Biden holds out his pen to US Senator Joe Manchin (D-WV), while Senate Majority Leader Chuck Schumer (D-NY) and US House Majority Leader James Clyburn (D-SC), look after Biden signed the “Reducing Inflation Act of 2022” into law during a ceremony in the State Dining Room of the White House in Washington, August 16, 2022.

Leah Millis | Reuters

The Biden administration this year signed a landmark climate and tax deal that will funnel billions of dollars into programs aimed at accelerating the country’s clean energy transition and combating climate change.

As the US struggled this year with weather-related disasters, from Hurricane Ian in Florida to the mosquito fire in California, the Reduction Inflation Act passed in August was a monumental development in mitigating the effects of climate change across the country. .

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The bill is the most aggressive climate investment ever made by Congress and is expected to reduce the country’s carbon emissions by about 40% this decade and move the country to a net-zero economy by 2050.

The IRA provisions have big implications for clean energy and manufacturing companies, climate startups and consumers for years to come. As 2022 draws to a close, here’s a look back at the key elements of legislation that climate and clean energy advocates will be monitoring in 2023.

Incentives for electric vehicles

The deal offers a federal tax credit of up to $7,500 for households purchasing new electric vehicles, as well as a used EV credit of up to $4,000 for vehicles that are at least two years old. As of January 1, people earning $150,000 a year or less, or $300,000 for joint filers, are eligible for the new car credit, while people making $75,000 or less, or $150,000 for joint filers, are eligible. eligible for used car credit.

Despite an increase in EV sales in recent years, the transportation sector is still the country’s biggest source of greenhouse gas emissions, with the lack of convenient charging stations being one of the barriers to expansion. The Biden administration has set a target of 50% electric vehicle sales by 2030.

The IRA limits EV tax credits to vehicles assembled in North America and aims to cut the U.S. of battery materials from China, which accounts for 70% of the global supply of battery cells for vehicles. An additional $1 billion in the deal will provide funding for zero-emission school buses, heavy-duty trucks and public transport buses.

US President Joe Biden gestures after driving a Hummer EV during a tour of General Motors’ ‘Factory ZERO’ electric vehicle assembly plant in Detroit, Michigan, on November 17, 2021.

Jonathan Ernst | Reuters

Stephanie Searle, program director for the nonprofit International Council on Clean Transportation, said the combination of IRA tax credits and state policies will boost electric vehicle sales. The agency projects that around 50% or more of passenger cars, SUVs and pickup trucks sold in 2030 will be electric. For electric trucks and buses, the number will be 40% or more, the group said.

Next year, Searle said the agency is monitoring the Environmental Protection Agency’s plans to propose new greenhouse gas emissions standards for heavy-duty vehicles starting in the 2027 model year.

“With the IRA already promoting electric vehicles, the EPA can and should be bold in setting ambitious standards for cars and trucks,” said Searle. “This is one of the Biden administration’s last chances for strong climate action this term and they should make good use of it.”

Targeting methane gas emissions

Some jackjacks operate while others idle at the Belridge oil field near McKittrick, California. Oil prices rose early in Asian trade on the prospect that a stalled Iran nuclear deal and Moscow’s new mobilization campaign would constrain global supply.

Mario Tama | Getty Images

The package imposes a tax on energy producers that exceed a certain level of methane gas emissions. Polluters pay a fine of $900 per metric ton of methane emissions emitted in 2024 that exceed federal limits, rising to $1,500 per metric ton in 2026.

It is the first time that the federal government has imposed a tax on the emission of any greenhouse gas. Global methane emissions are the second largest contributor to climate change after carbon dioxide and come primarily from oil and gas extraction, landfill and wastewater, and livestock.

Methane is a key component of natural gas and is 84 times more potent than carbon dioxide, but it doesn’t last as long in the atmosphere. Scientists have argued that limiting methane is necessary to avoid the worst consequences of climate change.

The Harris Cattle Ranch feedlot, located along Interstate 5, is California’s largest beef producer and can produce 150 million pounds of beef per year, as seen on May 31, 2021, near Harris Ranch, California .

Jorge Rosa | Getty Images

Robert Kleinberg, a researcher at Columbia University’s Center for Global Energy Policy, said the methane emitted by the oil and gas industry each year would be worth about $2 billion if used to generate electricity or heat homes.

“Reducing methane emissions is the fastest way to moderate climate change. Congress recognized this by passing the IRA,” Kleinberg said. “The methane levy is a draconian tax on methane issued by the oil and gas industry in 2024 and beyond.”

In addition to the IRA’s methane provision, Biden’s Department of the Interior this year proposed rules to stem methane leaks from drilling, which he says will generate $39.8 million a year in royalties for the US and prevent billions from cubic feet of gas are wasted through venting, flaring and leaks.

Boosting clean energy production

The bill provides $60 billion for clean energy manufacturing, including $30 billion for production tax credits to accelerate domestic manufacturing of solar panels, wind turbines, batteries and critical mineral processing, and a tax credit of $10 billion investment for factories building EVs and clean energy technology.

There’s also $27 billion going to a green bank called the Greenhouse Gas Reduction Fund, which will provide funding to roll out clean energy across the country, but mostly in overstretched communities. And the bill has a hydrogen production tax credit, which provides hydrogen producers with a credit based on the climate attributes of their production methods.

Solar panels are installed at the University of California, Merced solar farm in Merced, Calif., on August 17, 2022.

Nathan Francisco | Reuters

Emily Kent, director of zero-carbon fuels at the Clean Air Task Force, a non-profit global climate organization, said the bill’s support for low-emission hydrogen is particularly notable as it could address sectors such as heavy transport and heavy industry. , which are difficult to decarbonize.

“US climate policy took a big step towards zero-carbon fuels in the US and the world this year,” said Kent. “We look forward to seeing the impacts of these policies realized as the hydrogen tax credit, along with the hydrogen center program, accelerate progress toward creating a global market for zero-carbon fuels.”

The clean energy manufacturing provisions in the IRA will also have big implications for startups in the climate space and the big venture capital firms that back them. Carmichael Roberts, head of investment at Breakthrough Energy Ventures, said climate initiatives under the IRA will give private investors more confidence in the climate space and could even lead to the creation of up to 1,000 companies.

“Everybody wants to be a part of it,” Roberts told CNBC after the bill passed in August. Even before the measure was passed, “there was already a big wave around climate,” he said.

Invest in communities affected by pollution

The legislation invests more than $60 billion to address the inequitable effects of pollution and climate change on low-income and black communities. Funding includes donations for technology and zero-emission vehicles and will help clean up Superfund sites, improve air quality monitoring capabilities, and provide money for community-led initiatives through Environmental and Climate Justice block grants.

Smoke hangs over the Oakland-San Francisco Bay Bridge in San Francisco, California, USA, on Wednesday, September 9, 2020. Strong, dry winds sweep across Northern California for a third day, increasing the risk of wildfires in a region this was hit by heat waves, lightning storms and dangerously poor air quality due to the blazes.

Bloomberg | Bloomberg | Getty Images

Research published in the journal Environmental Science and Technology Letters found that communities of color are consistently exposed to higher levels of air pollution than white communities due to redlining, a federal practice of housing discrimination. Black Americans are also 75% more likely than white Americans to live near hazardous waste facilities and three times more likely to die from exposure to pollutants, according to the Clean Air Task Force.

Biden signed an executive order after taking office aimed at prioritizing environmental justice and helping to mitigate pollution in marginalized communities. The administration established the Justice40 Initiative to deliver 40% of the benefits of federal investments in climate change and clean energy to communities in need.

More recently, the EPA in September launched an office focused on supporting and distributing IRA money to these communities.

Cutting pesticide emissions

The deal includes $20 billion for programs to cut emissions from the agricultural sector, which accounts for more than 10% of US emissions, according to EPA estimates.

The president has pledged to halve emissions from the agricultural industry by 2030. The IRA funds grants for agricultural conservation practices that directly improve soil carbon, as well as projects that help protect forests prone to wildfires.

Farmer Roger Hadley harvests corn from his fields in his John Deere combine in this aerial photograph taken in Woodburn, Indiana.

Bing Guan | Reuters

The Reducing Inflation Act could push workers into the climate industry