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Analysis of the Inflation Reduction Act AKA The Most Impactful Climate Bill in the US EVER

Analysis by Dana Nuccitelli, Research Coordinator for Citizens' Climate Lobby. To watch the entire webinar, click here.

The Inflation Reduction Act (IRA) looked like it had no chance just a few weeks ago and climate concerned people across the globe despaired. But NY Senator Chuck Schumer continued negotiations with those holding up the bill and found enough agreement to move forward. With both Chambers of Congress approving the bill, the most significant climate legislation ever written in the US now heads to President Biden for his signature.

So what's in the bill for climate and does it really reduce inflation? This article has content taken from a Citizens' Climate University webinar from August 4, 2022 by Dana Nuccitelli:

  • Does it actually reduce inflation?

  • What's in there for climate?

  • How much will it cut emissions?

  • Other benefits: household expenses, jobs, health

  • What about the oil and gas leases?

  • How do American's feel about the IRA?

  • What doesn't the IRA accomplish?

The article wraps up with commentary by Katie Rygg and a call to action to contact our elected officials and thank them for voting yes to this historic bill.

Does it Actually Reduce Inflation?

Moody's Analytics says the IRA will "nudge the economy and inflation in the right direction, while meaningfully addressing climate change and reducing the government's budget deficits."

  • In the short term, by raising some corporate taxes and closing some loopholes, the government will be raising more money than it spends, cooling the economy a bit.

  • In the longer term, by investing in clean electricity to power our economy, we reduce the impact that fossil fuel price fluctuations will have on inflation. This graph shows that over the last twenty years, electricity prices have remained relatively stable compared to gas and gasoline.


What's In There For Climate?

By far the largest-ever federal climate package by more than 3x!

$15 billion in EV tax credits: $7,500 for new, $4,000 for used

  • Max individual income: $150k for new, $75k for used

  • Max EV price: $80k for new SUVs/pickups/vans, $55k for new cars, $25k for used

  • 50–100% of battery components & minerals must be from US or free trade partner (ie. not China or Russia)

*For a detailed look at the EV-related portions of the bill, read this post on Color Penfield Green's website

~$150 billion in clean electricity production & investment tax credits over the next 10 years

  • Very important! Renewable energy deployment had been stalling a bit (supply chain, uncertainty with tax credits)

A Fee on Methane Pollution

  • The first ever federal fee (charge) on climate pollution

    • 2024: $900/ton ($36/ton CO2 equivalent)

    • 2025: $1200/ton ($48/ton CO2e)

    • 2026 and thereafter: $1500/ton ($60/ton CO2e)

  • Research suggests that companies will fix 50% of methane leaks with a fee of $20/ton and 95% for $40/ton CO2e. At $60/ton CO2e, we can anticipate companies working very hard to repair all leaks.

  • Projected to raise $8 billion in revenue, boost the economy, create jobs

  • Provides $1.5 billion in grants for methane reductions, monitoring, and reporting (here are the carrots)

  • Facilities are exempt if in compliance with EPA methane regulations. The EPA is in the process of strengthening this right now.

Natural Climate Solutions: $5B for forestry programs

  • $2 billion for wildfire prevention

  • $1.5 billion for urban and community forestry grants

  • $1 billion for forest conservation

  • $450 million for climate-smart private forest management incentives

  • $100 million for wood innovation grants (storing carbon in wood products)

  • $21 billion for climate-smart agriculture and conservation including agroforestry, silvopasture (plant trees on pasture land), cover cropping

Electrification, Green Bank, Environmental Justice

  • $10 billion in consumer home energy rebate programs, including rebates & tax incentives for heat pump water and space heaters, clothes dryers, electric stoves, insulation, windows, wiring upgrades

  • $200 million to train contractors in electrification & efficiency

  • $3 billion for the Post Office to buy more EVs

  • $27 billion for a green tech accelerator (national green bank)

  • $60 billion in EJ priorities to invest in disadvantaged communities

Domestic Manufacturing, Innovation

~$60 billion for domestic clean energy manufacturing

  • $40 billion tax credits for US solar, wind, batteries, EVs, and critical minerals

  • Up to $20 billion in loans to build EV manufacturing facilities

  • $2 billion to retool car plants to make EVs

  • $2 billion to National Labs to accelerate breakthrough energy research

  • $500 million for the Defense Production Act

  • $250 billion in loan authority to the Department of Energy for lending to new green companies/technologies. Tesla got started with this program.

And Lot's More

  • 45Q tax credit for carbon sequestration ($3B)

    • $85/ton for stored CO2, $60/ton for use in enhanced oil recovery

  • Production tax credit for nuclear power ($30B)

  • Extended tax credits for biodiesel fuel ($5.6B)

  • Tax credit for aviation biofuel reducing emissions by at least 50% ($50M)

  • New tax credit for clean (low-CO2) hydrogen ($13B)

  • Permanent coal tax extension to fund Black Lung Disability Trust Fund (+$1B)

  • Requires 2 million onshore & 60 million offshore acres offered for lease to oil and gas extraction per year as a prerequisite for similar solar & wind leases (see more details below).

How Much Will It Cut Emissions?

Where we started: 6.6 gigatons (Gt) of CO2 emissions in 2005

Where we’re heading ideally: 3.3 Gt emissions target in 2030 (50% cut)

Where we’re at now: 5.6 Gt in 2021 (17% below 2005). Decreases are mostly due to replacing coal with clean energy.

  • 1 Gt down, 2.3 Gt to go … with 8 years left

Based on current policies: headed for ~27% cuts by 2030

  • That’s about 4.9 Gt CO2 in 2030; almost halfway short of our Paris target!

  • Wide range of uncertainty: 22–35% below 2005 by 2030 (Covid, supply chain, Russia)

  • With IRA: We'd get down to ~4.0 Gt which is a 40% cut. Much better, but still short of the Paris agreement.

Sources: EPA GHG emissions inventory, Rhodium, Energy Innovation, and Princeton REPEAT analyses. Chart by Dana Nuccitelli

900 million fewer tons of CO2-equivalent per year in 2030 (Princeton REPEAT Analysis):

  • ~300 Mt (33%) cut from clean energy tax credits (deployment of wind and solar)

  • ~220 Mt (25%) from electric vehicle tax credits & incentives

  • ~140 Mt (15%) cut from methane regulations and fee

  • ~100 Mt (11%) from industrial carbon capture

  • ~100 Mt (11%) cut from natural climate solutions

  • ~40 Mt (5%) cut from building electrification & efficiency

Other Benefits: Household Expenses, Jobs, Health

Health Benefits 2023–2030 (Based on research led by Drew Shindell, Duke University)

  • ~180,000 premature deaths from air pollution avoided

  • 10 million fewer lost workdays due to air pollution worth $2 billion

  • 60,000 fewer incidences of dementia (linked to air pollution exposure)

  • As we shift to renewables, fossil fuel power plants will be shut down, which are often located in disadvantaged communities.

Agricultural Benefits

  • Increase wheat production by 75 million bushels worth $440 million

  • Increase corn production by 250 million bushels worth $1 billion

  • Increase soybean production by 250 million bushels worth $2.7 billion


What About the Oil and Gas Leases?

Numerical analyses of the oil & gas lease impacts:

  • NRDC: “the emissions cuts from the legislation would be as much as 10 times greater than the effects from the support it extends to fossil fuels.”

  • Energy Innovation: “for every ton of emissions increases generated by IRA oil and gas provisions, at least 24 tons of emissions are avoided by the other provisions.” Less than 50 Mt of CO2 added by leases. This is compared to 900 Mt reduced by the good stuff in the bill.

Princeton REPEAT: Less than 50 Mt of CO2 “which would be within rounding error”

Just offering the leases does not mean that the oil and gas industry will actually drill there. The bill reduces demand so hopefully, many of these leases will go unused and unsold.

How Do American's Feel About the IRA?

What Doesn't the IRA Accomplish?
  • Leaves us ~10% (~700 Mt CO2) shy of our 2030 Paris commitment

    • We still have time to make up that gap with additional policies

  • A methane fee, but no carbon fee

  • A long way to go to reach net zero emissions by 2050

  • No resolution on carbon border adjustments. The European Union and other countries will be applying a carbon border adjustment in the coming year or two. This is a tax at the border on any goods that come in from a country without a comparable carbon fee. American made goods will be at a disadvantage without a carbon fee in the near future.


(Commentary by Katie Rygg)

While the Inflation Reduction Act is far from everything we need (for example, there is nothing that directly prevents fossil fuel companies from continuing to pollute in disadvantaged communities), this is still bigger than anything the US has ever done before.

This is a moment to celebrate and to offer thanks to our elected officials: Senator Schumer, who negotiated in good faith and got the job done; and Senator Gillibrand and Representative Morelle who voted yes.

Then, we roll up our sleeves and get back to work!

Do you have a few minutes for climate?

Call our representatives to thank them for passing the Inflation Reduction Act.

Senator Chuck Schumer: (585) 263-5866

Senator Kirsten Gillibrand: (585) 263-6250

Representative Joe Morelle: (585) 232-4850

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