The Inflation Reduction Act (IRA) puts America back on the world stage in the fight to achieve Paris Climate Goals, reduce emissions and boost renewable energy deployment. It signals to the world that it is a willing partner and participant in global efforts to actively fight climate change.
To unpack this legislation, what it provides to the US clean energy market and what it doesn’t, as well as what it signals to the rest of the world, Pamela Largue was joined by John Engel, Content Director for Renewable Energy World and Areti Ntaradimou, Editor of Smart Energy International and Content Director for Enlit Europe.
The significance of the IRA
Engel explained that the IRA is significant for the energy, climate change, and health sectors. It totals more than $700 billion which will ultimately bring down the price of goods in many sectors.
The Act had its origins in President Biden’s Build Back Better Act. It passed by the US House but ran into headwinds in the Senate, said Engel. “The bill went through many iterations – about a month ago, the negotiations were dead”.
Then in a big turnaround, the 700-page legislation came to light, including extensions to tax credits and providing greater certainty for the industry.
Said Engel, “It is not short of historic for this country to pass a bill this significant in these political times with such tight political margins. So the victory lap that is taking place in advocacy circles and clean energy development groups is well earned… this was certainly dead a month ago”.
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Based on projections and models released, the IRA can bring the US to within its target of 40% emissions reduction from 2005 levels, a significant step forward for climate action.
Furthermore, the Act will provide a boost to domestic manufacturing. Engel cited solar as an example. “This Act provides incentives across all stages of the solar manufacturing supply chain to encourage US local content and products”.
From a European perspective, Areti Ntaradimou highlighted the potential for a sound partnership between the US and European Union, especially as Europe struggles to maintain energy independence.
Said Ntaradimou: “Just as the European Union is starting to take a couple of steps backward, going back a bit to fossil fuels…we see America stepping forward and taking the lead, which is what good partnerships are about.”
Specifics of the Act
Engel elaborated on some of the key elements of the Act, which focused on retrofitting homes for weatherisation, allowing low to middle-income households to take advantage of emissions reduction technologies and to promote a cleaner generation mix.
Some key highlights:
- Tax breaks for electric vehicles are a big portion of the bill with $7,500 in tax credits available to those who purchase a new EV and $4,000 toward the purchase of a used EV. Credits would be good until 2032.
- The Act will drive substantial additional investments by households and businesses on the demand side of the energy system, including purchases of more efficient equipment.
- Rebates will be provided for“a high-efficiency electric home in the amount of $1,750 for a heat pump water heater, $8,000 for a heat pump space heating and cooling and $840 for electric stoves and cooktops.
- The bill also will appropriate $9.7 billion for rural electric co-ops for the long-term resiliency, reliability, and affordability of their systems.
What about transmission?
Engel highlighted that the Act is not without its pitfalls. He explained that the US is in dire need of more transmission infrastructure, something the Act did not emphasise enough.
The middle of the US generates a lot of wind energy, said Engel, but this energy can’t get that to the rest of the country as needed.
“It requires significant investment in infrastructure, this bill does not provide for that. It did devote $1 billion for loan guarantees to support transmission companies to take on infrastructure projects, but not enough to move the needle in a meaningful way”.
This leads to significant struggles with renewable curtailment and energy losses.
According to Ntaradimou, Europe is facing the same issue. She explained that the different countries within the European Union are progressing with their energy transition and infrastructure development at different levels. This leads to infrastructure gaps, so power can’t move from areas of high generation to areas with high demand.
Engel compared the situation in the US, referencing the different States and the three main portions into which the US grid is divided. Even though most of these regions are interconnected, said Engel, Texas is not. This means a lot of power can’t be sent over the border to other states in need.
US and Europe on the same page
Besides the strong focus on grid flexibility and interconnection between states and countries, Europe and the US share a number of similar policy objectives.
Ntaradimou drew comparisons between the IRA and the European Green Deal, highlighting the massive investment amounts and opportunities, plans for renewables development and the increased focus on environmental justice.
This Act shows that the US has followed the lead of Europe and signifies that Europe is not alone in its fight against climate change.
Engel and Ntaradimou agreed that the symbolic value of this legislation is almost as great as its dollar value.
