Billions flow into the renewables market as the US passes landmark act on Climate Change & Social Justice

On Sunday, Aug 7, 2022, the US senate passed the Inflation Reduction Act- which is deemed to be one of the most significant pieces of legislation that will help push the country forward in achieving greenhouse gas emissions-reduction by about an estimated 40% in the next decade.

The bill earmarks spending $370 billion on energy security and climate change, while increasing tax revenues by increased IRS spending, culminating in a deficit reduction of $300 billion. Note that the tax increases wouldn’t affect families that earn less than $400,000 a year.

First, a word of thanks to-

The activists who raised the alarms on climate change for decades. The voters who chose representatives that were willing to take some hard decisions. The silent lawmakers who dug through mountains of paperwork, and accepted compromise in favor of moving forward.?

What are the upsides to the act?

There are provisions for tax credits for wind, solar and other renewable power sources. Single tax filers who earn less than $150,000 a year, or couples jointly earning less than $300,000 a year will also get $7,500 of incentive for buying new-EVs. Incentives also exist for buyers of pre-owned EVs.????

Methane emissions from drilling oil and natural gas may be charged a fee @ $900/tonne. By some estimates, that amounts to $60/tonne of carbon dioxide equivalent. So, that’s an introduction to carbon pricing of some sorts.?????

Although not a lot, the act provisions $60 billion for environmental justice actions.????

And the downsides?

In order for the EV makers to be eligible for aforementioned tax credits, they should not source their minerals and battery components from foreign entities of concern, and rather from the US itself or its free trade partners. According to the Alliance for Automotive Innovation, in 2023, 70% of those vehicles would no longer be eligible for the tax credit because of such requirements, and that none of them will qualify once the sourcing rules become more stringent. That signals more disruption in the supply chain for EVs. Hoping it doesn’t greatly defeat the purpose of encouraging faster EV adoption in the US.

Another downside is the lack of carbon tax, which would be a big stick, in the carrot and stick framework.

There is also some support to the Oil & Gas industry, as part of a compromise to garner necessary support from some democratic lawmakers.

So, how does affect the rest of the world?

This is but a stepping stone in the world’s path to achieving the net-zero goal. It shows that the US is serious about doing its part to fight climate change. It will help the US nudge other countries to be more ambitious in their climate commitments.

Looking forward to seeing how this plays out at the U.N. Climate Change Conference, in Egypt, scheduled for November 2022.