Taking Back Climate Leadership

The act crystallizes a vision of how clean energy can reduce other global problems, such as inflation and the geopolitical implications linked to dependence on fossil fuels.

The Inflation Reduction Act, passed yesterday, is the most far-reaching piece of legislation in the fight against climate change. The result of a surprise consensus of the 50 Democratic senators, the bill was supported by Sen.Joe Manchin III (West Virginia), after getting Senate Majority Leader Chuck Schumer (New York) to promise the construction of pipelines in West Virginia and new oil and gas exploration permits in the Gulf of Mexico and Alaska.

Despite these concessions, which have been criticized by environmentalists, several analyses indicate that the act will lead to a 40% reduction in U.S. carbon emissions by 2030, a decisive advance on the 50% target promised by President Joe Biden and a restoration of the country’s credibility in the eyes of a world that demands urgent action to mitigate the worrying impacts of climate change. Including an investment of $260 billion over the next decade, the legislation sends a clear signal to the private sector to invest long-term, innovating technologies that the energy transition demands.

Incentives include the extension or creation of tax credits that will accelerate the production of electricity from clean energy, the purchase of electric vehicles and energy efficiency improvements in buildings, as well as the development of carbon capture and storage technologies and green hydrogen.

The act crystallizes a vision of how clean energy can reduce other global problems, such as inflation and the geopolitical implications linked to dependence on fossil fuels. High oil, gas and petroleum prices and bipartisan interests in reducing inflation provided a context for the successful negotiation of the legislative package. These incentives will contribute to reducing the price of clean energy, promoting its use, advancing technology and generating more employment. In doing so, the long-standing criticism from conservative sectors against climate change action, due to its alleged negative effects on the economy, will lose credibility. In addition, as a result of concern over the effects of global warming, the preferences of the U.S. electorate now favor climate action. Perhaps this also explains why Republicans have been less vocal in their historic opposition to the Democrats’ climate proposals.

In summary, the act brings forth a new political climate economy in which, despite the predominance of fossil fuels which will continue to exist for decades to come, government and market tendencies can create a virtuous cycle which will favor clean energy.