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Inflation Reduction Act Analysis

By: Hung-Yeh Lee



The Inflation Reduction Act passed by Congress in August 2022 has brought lights towards the climate saving goal that the Biden administration set out to achieve during his campaign. The package will allocate $369 billion dollars in climate and energy related funding, much of it aimed at incentivising households and businesses to modify their energy source to a more sustainable form.

For households, the act makes the installation of energy-efficient products such as solar panels, electric vehicles and other appliances more affordable. Consumers may qualify for up to $10,000 in tax breaks and rebates for those purchases.

The act also helps with the current high inflation rate related to electricity and energy bills by diversifying the energy mix. Households and businesses who decide to make energy efficiency-focused upgrades would likely save about $170-$220 a year in electricity costs based on estimates by Resources for the Future. One of the reasons for this reduction in electricity price is due to the fact that diversifying the energy mix can increase consumers’ resistance over the volatile oil and gas market caused by shocks such as the Russian-Ukraine war.

The legislation would also be a step towards achieving the Biden administration’s goal in cutting U.S greenhouse emission. It is estimated that the Inflation Reduction Act would help cut greenhouse gas emissions by 42% below 2005 levels. Such a cut would close a huge portion of the gap between current policy and U.S’ 2030 climate goal.

Beyond new and improved investments towards climate saving technologies and products, the act also introduced a nature based climate change solution that had been urged by many environmental protectionists. The act includes about $20 billion for agricultural conservation and $5 billion to forest protection around the country, according to the Congressional Research Service. Such solutions focused on conserving nature and environment are often ignored by mainstream climate change advocates and climate talks and it cannot become a substitute for decarbonizing solutions, but it is a fundamental way to solve climate change in the long term.

A healthy environment can aid our campaign in combating climate change. Forests and other natural landscapes can help absorb large amounts of carbon dioxide in the air each year. But these precious natural environments require special attention and careful maintenance, otherwise natural disasters such as wildfires would setback our climate goal.

Although the Inflation and Reduction Act has clear benefits for combating climate change, it is still not certain whether current legislation would allocate these fundings in the most effective and most efficient way. Nor does it introduce any penalty to individuals and businesses who continue to emit traditional greenhouse gasses.

Despite these shortcomings, the act is a major step towards the U.S' long-waited climate saving plan. The fact that this bill can beat the grid lock and passed by both the House and the Senate shows there are advocates that are working tirelessly and effectively to bring the issue of climate change to the forefront of U.S politics. The work is not done, and so we will continue to see it done.



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