I understand why the Biden-Harris administration has taken to celebrating the Inflation Reduction Act (IRA) on national and international stages. The bill appropriates an unprecedented $369 billion dollars toward decarbonizing our energy supply, making our modes of energy consumption more efficient, and, to a lesser extent, sucking planet-warming gases out of our atmosphere. The bill provides an overwhelming temptation to consider the climate crisis averted.
But we mustn’t give in to that temptation. Put simply, the approximately 40 percent reduction in annual emissions the act is expected to drive by 2030 is neither perfectly aligned with the White House’s official target, nor is it guaranteed. Ensuring the IRA helps substantially reverse climate change, then, means policymakers must see the IRA as a first step, not a final one.
It is not time for a climate “mission accomplished” moment.
Even with the IRA’s incentives, inflation, a sinking stock market and tightening monetary policy could discourage private sector investment in technologies that will help us decarbonize. The IRA is unlikely to remove legacy market failures, like bureaucratic bottlenecks and consumer behavior, as quickly as needed to reach aggressive emissions reduction targets.
If the IRA is to succeed, policymakers at the federal and state levels will need to build off of it. They will need to advance interoperable legislative and regulatory solutions that not only enable the harvest of the IRA’s taxpayer-funded “carrots,” but push companies and individuals to action. Ideally, governments and private industry will create a “flywheel” effect, where efficiency and sustainability drive investment, which in turn drives greater efficiency and stability.
A good place to start is with policies that enable stakeholders to leverage the IRA’s provisions for the decarbonization of the U.S. electric power sector. This is not only the country’s second-most polluting sector, but the centerpiece of net zero pathways for transportation, buildings and other energy-intensive sectors — including the course pursued by the Biden-Harris administration.
For instance, while the IRA makes available tens of billions of dollars in incentives for companies to increase renewable electricity production, it does far less to help companies get their renewable power to customers. One perennial obstacle is the insufficient supply of long-distance electricity transmission infrastructure, a deficiency owing largely to the sluggish and costly permitting process for power lines. Left unabated, this will not only jeopardize the bankability of renewable power generation projects but will also limit the power sector decarbonization potential of the IRA.
Federal regulators, with the statutory blessing of Congress, will need to streamline this process for getting clean power providers the supporting infrastructure they need to take full advantage of the IRA’s incentives. And to ensure these and other necessary ‘enabling’ policies aren’t implemented in vain, policymakers will need to deploy solutions that activate these stakeholders’ actions. One such policy would be the Clean Electricity Performance Program (CEPP), a policy that was eliminated from the 2021 reconciliation bill which would have rewarded clean energy tax credit-eligible electric utilities for meeting renewable power targets and penalized them for not.
But to achieve net zero and, ultimately, zero-emissions economy-wide, policymakers can neither rely solely on the build-out of overcapacity of renewable energy nor can they forgo the “active and willing participation” of citizens and private sector organizations. Policies that follow the IRA will need to be designed with the objective of driving immediate, dramatic advancements in the innovation, development, maturation, commercialization and deployment of zero emissions-enabling technologies — across all sectors.
Commendably, the IRA covers these bases. The bill enshrines an “all of the above” approach to the emissions-reducing mechanisms and actions it seeks to incentivize — both at the micro and macro scales. And the market has taken note. But with the IRA lacking a comprehensive slate of mandatory emissions reductions, policymakers at the federal and state levels will need to be strategic to ensure the bill’s incentives are fully leveraged
What would these policies look like? One example is the White House’s ongoing efforts to integrate climate considerations into federal procurement criteria. In effect, the Biden-Harris administration is conditioning companies’ access to the federal marketplace upon the carbon intensity of their goods and services — which the IRA’s provisions will help to reduce. Over time, these sustainable procurement policies, ideally replicated by lower governments nationwide, can be made gradually more selective, thus making the investment signal progressively louder.
But ensuring that private finance is committed toward IRA-incentivized decarbonization over the long haul will require a more expansive and durable intervention. And while a national carbon price or government-regulated emissions trading system may be politically infeasible, Washington can nevertheless enable the private sector to set up a marketplace for decarbonization on their own.
This, at least, is the implied objective of the U.S. Securities and Exchange Commission, which will likely soon require big companies to report their emissions. Should this come to pass, these companies will be incentivized to either adopt or invest in technologies, processes and engagements that help them decarbonize, so that they might burnish their climate credentials among investors. The funds made available by the IRA, including those allocated to support the EPA’s “enforcement” of corporate emissions disclosures, will grease the skids.
Come what may, it is vital that policymakers see the IRA for what it is — a catalyst for the government-led and enabled climate actions we still need. Moving forward, the key is the optimization of public policy, private finance and technology. And with the IRA as their cornerstone, policymakers will need to lead the construction of a sustainable, future-proofed energy system.
It’s not only the right thing to do — it’s the most politically expedient, economically sustainable and otherwise necessary course of action.
Mahesh Ramanujam is the co-founder, president and CEO of the Global Network for Zero.