Inflation Reduction Act: Senate Bill Takes the Fight to Climate Change

Inflation Reduction Act: Senate Bill Takes the Fight to Climate Change

As the largest legislative step forward in U.S. history in terms of climate action, this bill's impact on lowering emissions, promoting innovation, and providing funding cannot be overstated.


In late July, Sens. Schumer (D-NY) and Manchin (D-WV) finally reached an agreement on addressing climate change, prescription drug costs, and taxes on the wealthy in the aptly-named Inflation Reduction Act of 2022. The bill is now headed to the House of Representatives and, if passed, will be sent to President Joe Biden’s desk shortly. With its passage into law seemingly imminent, many Americans are wondering: what effect will this bill have on fighting climate change?

On Taxes


The first significant part of the bill is introducing a 15 percent tax on large corporations. What is unique about this tax is that it’s applied to a company’s financial statement on earnings rather than income circulation. Another interesting piece is that it leaves untouched the 21 percent corporate tax rate set by the 2017 law passed during the Trump administration. These taxes will provide almost $370 billion to climate programs over the next decade.

Fighting Climate Change

The bill is multifaceted when it comes to fighting climate change. The first thing it does is give an investment tax credit to companies to manufacture clean energy products, including electric vehicles, wind turbines, and solar panels. Additionally, the bill provides a $30 billion tax credit to companies that make these products in the United States.

Another major component of this bill is cutting emissions. The bill funds clean energy technology research and development acceleration. These technologies must be used to support cutting carbon dioxide emissions. Experts have said that this bill will help the United States reduce its emissions by 40 percent below 2005 levels by 2030. This puts the United States well on the way toward Biden’s stated goal of cutting emissions by around 50 percent (relative to 2005 levels) by 2050 and moves the United States towards the goal pledged in the Paris Climate Agreement of 2015.

The bill also provides funding for protecting natural resources. This includes $5 billion for safeguarding forests and $2.6 billion for restoring and protecting coastal habitats. This is extremely important in the fight against climate change, as trees help soak up carbon dioxide. Forests are also major buffers against floods and storms in populated areas. They provide drinking water and are instrumental in preserving biodiversity. Similarly, coastal habitats provide food to nearby communities and protect them from adverse effects of storms, ensure biodiversity, and store carbon.

Additionally, the bill provides $60 billion in funding to address how pollution and climate change have unequal effects across socio-economic and racial lines. This is primarily due to zoning laws. This is important because these communities will suffer more as climate change worsens. These communities will often be affected by heat, extreme weather, poor air quality, and pollution, which will then cause community members to have health problems. It’s part of the larger fight for greater equity in this country.

Furthermore, the bill provides funding to states and utility companies to transition toward clean energy. The total for these programs amounts to $30 billion and are meant to be used for transitioning towards cleaner electricity. Utility companies and states will be paid to transition from using fossil fuels to power electricity plants and use renewable energy sources such as solar or wind. The purpose here is to lower carbon dioxide emissions.

The last part of this bill is a tax credit for people to buy new or used electric vehicles. People who purchase a new electric car will receive $7,500, and those who buy used will receive $4,000. It also removes the previous tax credit’s cap of 200,000 cars sold per manufacturer, which many companies had already exceeded. The bill further includes price caps on how much new and used electric vehicles cost. There are also rules for percentages of battery production completed in North America. This portion of the bill has been the source of much concern. Sen. Debbie Stabenow (D-MI) has expressed concern that the tax credit won’t be usable for several years. Similarly, automakers have lobbied against the bill’s battery production requirements.

The Bill’s Negatives 

As positive as this bill may sound, there are some fairly significant negatives. There are carve-outs for continued offshore drilling for oil and gas for the next decade. If drilling takes place onshore land, it will be on public land. The bill also advances a natural gas pipeline in West Virginia. This is a profound negative, as offshore drilling has been shown to result in oil spills, and increase toxic pollution to both environment and wildlife. However, there is still cause for optimism. Despite these harmful drilling provisions, the bill is still projected to significantly reduce carbon dioxide emissions—by as much as 31 to 44 percent (according to 2005 levels)—by 2030. 

Another issue with this bill relates to the changes Sen. Kyrsten Sinema (D-AZ) demanded. Previously, the bill narrowed a loophole regarding carried interest rates for wealthy Americans, but it now no longer does that. Similarly, manufacturing companies will be exempt from the 15 percent corporate tax rate.

What Now?

As the largest legislative step forward in U.S. history in terms of climate action, this bill's impact on lowering emissions, promoting innovation, and providing funding cannot be overstated. However, its negatives also cannot be ignored. It is imperative that the Inflation Reduction Act is only the first step the United States takes in leading the world toward a future that is safer and habitable for generations to come.

Ellie Shackleton is the Program Assistant at the Center for the National Interest. She has contributed to two policy reports on climate change: Beyond UN-75 and Building Back Together and Greener. You can find her on LinkedIn.

Image: Reuters.