Analysis: HAPPY B-DAY, IRA! Where are we now and what happens next?
One year ago last week, President Biden signed the Inflation Reduction Act into law.
The sweeping legislation allows for the deployment of $369 billion in strategic investments to accelerate the energy transition in the United States and continue to reduce the country’s carbon footprint going forward. If comparisons of the IRA to the New Deal, Franklin D. Roosevelt’s singular legislative achievement, are both fraught and perhaps inevitable, they are nonetheless accurate in terms of scale. The IRA is the indisputably the largest public investment of its kind in American energy infrastructure in nearly a century.
While both some economists. and climate activists. argue that it’s more industrial policy than meaningful climate policy per se, nearly everyone agrees that it’s already created measurable forward motion. in terms of spurring hiring and investment, reshaping trade relationships, and even moving markets.
As with all sweeping American legislative endeavors that are at least partly marked by partisanship, an anxiety lurking behind all of the IRA dollars currently flowing toward a dizzying array of climate investments is that much or even all of it could potentially be hobbled or even undone by a future administration. A close look, however, indicates that the legislation, while certainly not impervious, has largely been purpose built to resist or even withstand. such meddling.
So assuming that the IRA is here to stay, what happens next?
Martin Wolf, a storied British journalist who focuses on economics, argues that, while the investment-fueled headiness of the present moment is undeniable, the effects won’t necessarily create whole industries that can survive in the absence of ongoing subsidies. In a recent interview on The Ezra Klein Show, he says further,
“In particular, I think they won’t end up by generating anything like the scale of permanent employment they hope for. They will not, I think, generate genuinely globally competitive industries to the extent that they want from this. A lot of them will need subsidies indefinitely, and most importantly, the amount of resources, money that is going into this is just not big enough fundamentally to reshape the economy.”
Ask any renewables developer who has built a project in the United States and they tell you that federal subsidies – usually in the form of tax credits – have been and continue to be intrinsic to the financing of all renewable energy projects, regardless of technology. And while the IRA inarguably represents a behemoth of such subsidies, it is far too early to assess the depth of the IRA’s impact on the fundamental structure of the American economy as whole.
That said, if the end goal of the IRA is not principally about restructuring the economy for its own sake, but rather to fundamentally and permanently reshape how consumer and commercial energy is both generated and consumed in the United States, then at least for the moment all signs point to continuing investment and job creation across the renewable energy sector.
Making predictions about the interplay of climate and the economy is a notoriously risky business. But regardless of whether the IRA alone ultimately gets us to a better climate destination, clearly it has begun moving us in that direction already.
Sources:
https://www.nrdc.org/bio/andrew-wetzler/inflation-reduction-act-whats-now-possible
https://www.nytimes.com/2023/08/01/opinion/ezra-klein-podcast-martin-wolf.html
https://www.csis.org/analysis/experts-react-ira-one-year
https://legal-planet.org/2023/04/17/why-the-inflation-reduction-act-cant-be-repealed/
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