After all the false starts and dashed hopes of the past two years, I’m reluctant to count my chickens before they’ve actually been signed in the Oval Office. Still, it appears that Democrats have finally agreed on another major piece of legislation, the Inflation Reduction Act. And if it becomes law it will be a big deal.
First, will the law, in fact, reduce inflation? Yes, probably — or at least it will ease inflationary pressures. That’s because the law will have increased spending, primarily on clean energy, but also on health care. over offset through its tax provisions; So it would be a deficit reduction act, which, other things being equal, would make it deflationary.
But you want to think of the Inflation Reduction Act as National Interstate and Defense Highways Act of 1956, which perhaps strengthened national defense a little but mainly benefited the US by investing in the nation’s future. This bill will do just that, and maybe even more.
To understand why this bill inspires so much hope, it’s helpful to understand what has changed since 2009, the Democrats’ last major effort to tackle climate change. Waxman-Markey BillWho passed the House but died in the Senate.
Waxman-Markey’s core was a “cap and trade” system that, in practice, operated much like a carbon tax. There were and are good arguments for a system that would encourage companies and individuals to cut emissions in a number of ways. But politically, it was easy to portray this as a plan to eat his spinach, which demanded sacrifice from ordinary workers.
With the Waxman-Markey failure, the Obama administration was reduced to a much more limited agenda, relying on carrots rather than sticks – tax breaks for clean energy, loan guarantees for companies investing in renewable energy. I think it would be fair to say that most economists did not expect much to be gained from these measures.
But a funny thing happened on the way to the climate apocalypse: there was revolutionary progress The jump-start in renewable energy technology probably got its start, at least in part, from Obama-era policies. In 2009, electricity generated from wind power was still more expensive than electricity generated by burning coal, and solar power was still more expensive. But over the next decade wind power costs fell 70 percent, solar costs 89 percent.
add falling battery prices And it is possible to see the outline of an economy that achieves a drastic reduction in carbon emissions by using electricity generated from renewable energy – as opposed to burning fossil fuels – to heat and cool our buildings, our factories. To drive, 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 To adopt low-emission technologies, including electric vehicles, but by offering incentives to use less energy in general, especially by making buildings more energy efficient.
There is every reason to believe that these measures will have major implications. Unlike fossil fuels, which have been around for a long time, renewable energy is still a “baby industry” with a steep learning curve: the more we use these technologies, the better we get at them. So providing incentives for clean energy now will make that energy much cheaper in the future.
The climate and the world are changing. What challenges will lie ahead, and how should we respond to them?
And support for electric vehicles also helps solve the chicken-and-egg problem, in which drivers are reluctant to go electric because they’re not sure they’ll find charging stations, and businesses don’t provide many charging stations because there There aren’t that many electric cars yet.
The point is that while the climate and energy provisions in the Inflation Reduction Act – about $370 billion In the next decade — only 0.1 percent. will be about Estimated Gross Domestic Product In the same period, they can have a catalytic effect on the energy transition.
And they can also change the political economy of climate policy.
For years, environmentalists have been arguing that the transition to clean energy should be considered an opportunity rather than a burden – that in addition to saving the planet, the transition will create many jobs and new business opportunities. But without broad concrete examples of success it is a difficult point to get across. As long as serious climate policy was a proposition, not a reality, it was vulnerable to attacks from the right wing, which portrayed it as a nefarious plan to undermine the American way of life.
But once people start seeing the real-world effects of climate action those attacks will become less effective (which is why the authority is so frantic about trying to block this law). If Democrats can pass this bill, additional action will likely increase in the future, perhaps even faster.
So let’s hope there are no last-minute interruptions. The Inflation Reduction Act won’t give everything climate activists want. But if it does, it will be a huge step towards saving the planet.