Legislation

Biden signs a historic climate bill. So what will it actually do?

On Tuesday, President Joe Biden signed into law the Inflation Reduction Act, among the most significant legislative achievements of his presidency. It represents a historic investment in measures aimed at combating climate change, lowering the cost of some prescription drugs, and raising enough revenues to cut the deficit rather than adding to it.

According to a summary by Senate Democrats, the bill will invest $437 billion over the next decade, nearly 85% of which go to climate and energy security provisions. To pay for them, it will raise an estimated $737 billion in revenues through a new corporate minimum tax, prescription drug pricing reform, stepped-up IRS enforcement of tax rules, and an excise tax on stock buybacks. The surplus $300 billion would then be put toward cutting the deficit. That represents about 1% of the national debt, which has topped $30 trillion for the first time.

Democrats’ revenue estimates may be overly optimistic; the nonpartisan Congressional Budget Office estimates that the bill will not meaningfully cut inflation and will only reduce the deficit by $100 billion. But others, such as former Clinton Treasury Secretary Lawrence Summers, believe the bill’s IRS reform provisions will generate far more revenue than the CBO estimates.  

Why We Wrote This

The Inflation Reduction Act will allocate billions to combat climate change, while lowering the cost of some prescription drugs and cutting the deficit, although some analysts say it will not meaningfully impact inflation.

Washington

On Tuesday afternoon, President Joe Biden signed into law the Inflation Reduction Act, among the most significant legislative achievements of his presidency. It represents a historic investment in measures aimed at combating climate change, lowering the cost of some prescription drugs, and raising enough revenues to cut the deficit rather than adding to it. The bill is a slimmed-down version of last year’s failed $3.5 trillion Build Back Better bill, which would have significantly expanded the social safety net and made even bigger investments in climate and clean energy initiatives. 

According to a summary by Senate Democrats, the bill will invest $437 billion over the next decade, nearly 85% of which go to climate and energy security provisions. To pay for them, it will raise an estimated $737 billion in revenues through a new corporate minimum tax, prescription drug pricing reform, stepped-up IRS enforcement of tax rules, and an excise tax on stock buybacks. The surplus $300 billion would then be put toward cutting the deficit. That represents about 1% of the national debt, which has topped $30 trillion for the first time.

Democrats’ revenue estimates may be overly optimistic; the nonpartisan Congressional Budget Office estimates that the bill will not meaningfully cut inflation and will only reduce the deficit by $100 billion. But others, such as former Clinton Treasury Secretary Lawrence Summers, who sounded early warnings last year on inflation, believe the bill’s IRS reform provisions will generate far more revenue than the CBO estimates.  

Why We Wrote This

The Inflation Reduction Act will allocate billions to combat climate change, while lowering the cost of some prescription drugs and cutting the deficit, although some analysts say it will not meaningfully impact inflation.

So, what will it do?

Despite the downsizing of the bill, it still represents the largest-ever investment in initiatives meant to mitigate climate change, estimated at $369 billion. That includes $60 billion in environmental justice priorities, ranging from community-led pollution monitoring to mitigating the climate and health risks of urban heat islands.  

Ken Cedeno/Reuters

Vice President Kamala Harris speaks to members of the media after voting on the Senate floor to break the 50-50 tie to proceed on the Inflation Reduction Act on Capitol Hill in Washington, Aug. 6, 2022.

Among the largest line items are $27 billion for projects that reduce greenhouse gas emissions, more than half of which is allocated for low-income and disadvantaged communities; $10 billion for the long-term resiliency, reliability, and affordability of rural electric systems; and $3 billion for the U.S. Postal Service to buy zero-emission vehicles. There is also $4.3 billion for home energy-efficiency rebates of up to $4,000, or $8,000 for low- or moderate-income households. The agricultural sector is included as well, with programs focused on helping farmers, ranchers, and forest landowners monitor and address climate issues, including greenhouse gas emissions. Democrats say the bill will cut carbon emissions to 40% of 2005 levels by 2030.  

Some of the investments in clean energy, such as offshore wind development, are tied to requirements for government lease sales to oil and gas companies, which have been largely frozen under the Biden administration. However, the bill increases the cost per acre of such fossil fuel extraction tenfold, from $1.50 per acre to a minimum of $15 over the decade. It also incentivizes carbon capture technology and facilities, which oil-rich states North Dakota and Wyoming have been pioneering to produce lower-carbon energy.   


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