After all the false starts and lost hopes of the past two years, I’m reluctant to count my chickens before they’re actually signed into the Oval Office. Still, it seems Democrats have finally agreed on another important piece of legislation, the Inflation Reduction Act. And if it becomes law, it will be a very big problem.
First, would the law actually reduce inflation? Yes, probably – or at least it would reduce inflationary pressures. That’s because the higher spending of legislation, mainly on clean energy but also on health care, would be more than offset by the tax provisions; it would therefore be an act to reduce the deficit, while all things being equal it would be disinflationary.
But you want to think of the Inflation Reduction Act as the National Interstate and Defense Highways Act of 1956, which probably strengthened national defense a bit, but mostly benefited America by investing in the country’s future. This bill would do the same, and maybe even more.
To understand why this bill inspires so much hope, it’s helpful to understand what has changed since Democrats’ last major effort to tackle climate change, the Waxman-Markey Act of 2009, passed by the House. but died in the Senate.
At the heart of Waxman-Markey was a “cap and trade” system that in practice would have acted a lot like a carbon tax. There were and are good arguments for such a system, which would give companies and individuals an incentive to reduce emissions in several ways. But politically it was easy to portray it as a plan to eat your spinach, a plan that demands sacrifices from ordinary workers.
With the failure of Waxman-Markey, the Obama administration was reduced to a much narrower agenda, one based on carrots rather than chopsticks—clean energy tax breaks, loan guarantees for companies investing in renewables. I think it’s fair to say that most economists didn’t expect these measures to yield much.
But something funny happened on the way to the climate apocalypse: There was revolutionary advances in renewable energy technology, probably jump-started, at least in part, by those Obama-era policies. In 2009, electricity generated by wind energy was still more expensive than electricity generated by burning coal, and solar energy was even more expensive. But over the next decade, the cost of wind energy fell by 70 percent, solar energy by 89 percent.
Add to that falling battery prices and it has become possible to see the contours of an economy that achieves drastic reductions in CO2 emissions with little or no sacrifice, using electricity generated by renewable energy – as opposed to burning fossil fuels. fossil fuels – to heat and cool our buildings, run our factories, power our cars and more.
The climate portion of the Inflation Reduction Act is, for the most part, an attempt to accelerate that energy transition, primarily by offering tax credits for the adoption of low-emission technologies, including electric vehicles, but also by providing incentives to use less energy in general. in particular by making buildings more energy efficient.
There is every reason to believe that these measures will have major effects. Unlike fossil fuels, which have been around for a long time, renewable energy is still a “child industry” with a steep learning curve: the more we use these technologies, the better we get at it. So providing incentives for clean energy now will make that energy a lot cheaper in the future.
The climate and the world are changing. What challenges will the future bring and how should we respond to them?
And support for electric vehicles also helps solve a chicken-and-egg problem, where drivers are reluctant to go electric because they’re not sure they’ll find charging stations, and companies don’t offer many charging stations because there aren’t yet. not so many electric cars.
The point is that while the climate and energy supplies in the Inflation Reduction Act — about $370 billion over the next decade — would only be about 0.1 percent of projected gross domestic product over the same period, they would have a catalytic effect. can affect the energy transition.
And they could also transform the political economy of climate policy.
For years, environmentalists have argued that the clean energy transition should be seen as an opportunity rather than a burden — that the transition would not only save the planet, but also create many jobs and new business opportunities. But that’s a hard point to get across without widespread concrete examples of success. As long as serious climate policy was a proposition, not a reality, it was vulnerable to attacks from right-wing people who portrayed it as a nefarious plan to undermine the American way of life.
But those attacks will become less effective once people start to see the real effects of climate action (which is why the right is so hectic to try to block this legislation). If the Democrats can pass this bill, the chance of additional measures in the future will increase, perhaps significantly.
So let’s hope there aren’t any last minute snags. The Inflation Reduction Act won’t deliver everything climate activists want. But if it does, it will be a big step toward saving the planet.