Ron Adar/SOPA Images/Sipa USA via AP Images
New York Gov. Kathy Hochul, center, with officials including Energy Secretary Jennifer Granholm and White House Senior Adviser John Podesta, attends a clean-energy affordability announcement in Queens, New York. New York state became the first to offer the first phase of the Inflation Reduction Act Home Electrification and Appliance Rebate (HEAR) Program funding to consumers.
Two years ago today, President Joe Biden signed the Inflation Reduction Act, the biggest climate bill in American history. It has proceeded with the tiniest amount of fanfare and voter indifference, largely because the administration had a strategy to minimize communicating with the public about its record. The other, more structural reason for the muted response is that the bill’s time horizon is necessarily long-term. The nation’s energy mix won’t transition overnight, factories for all the equipment needed for that transition won’t be built overnight, consumer choices to upgrade to green technologies won’t be made overnight, and so the bill’s programs were designed to take effect over at least a decade.
But despite this lead time, progress is visible, in ways that may protect the IRA even if Donald Trump and the Republicans sweep the elections. The past two years have been a period of entrenchment for the law, although the public hasn’t made all the connections between positive change and government policy. Yet challenges remain to make sure the funding isn’t being skimmed by middlemen, that it provides better jobs and stronger communities, and that the goals of mitigating the climate crisis are met.
The structure of the IRA itself hampered any tangible show of progress. Yesterday, Biden and Vice President Kamala Harris announced the results of the historic first round of prescription drug price negotiations, with ten drugs dropping in cost between 38 and 79 percent. That would be a great gift for people to feel prior to the election, with a savings of $1.5 billion in year one in co-payments (along with $6 billion in government savings). But alas, the new prices won’t take effect until 2026, a function of pro-pharma legislators intentionally delaying the reckoning. That makes it difficult to yield near-term public support.
Other health care–related parts of the IRA have taken effect, like the increase in premium support for insurance coverage (which expires at the end of 2025), the $35-a-month cap on insulin for Medicare patients, and the cap on out-of-pocket spending for Medicare patients for prescription drugs, which is at $3,000 this year and goes to $2,000 next year.
Because that out-of-pocket cap puts additional spending on the private insurance companies that administer Medicare Part D drug plans, they are raising premiums as a result, and in response the Biden administration is subsidizing those insurers as a demonstration project to keep premium spikes low. If those Part D plans were folded into traditional Medicare, the government could spread out those new costs and minimize the impact. It’s a good example of how policy actions have reactions and implications, but also that the government needs to be nimble in addressing those reactions.
Continued infrastructure build-out is key to realizing the twin goals of emissions reductions and job creation.
There were also tax reforms in the IRA. The small 1 percent tax on stock buybacks is now projected to raise much more money than expected, which is actually bad news because it means the tax did not deter distortionary buybacks as much as was hoped. The 15 percent minimum tax on large corporations only started this tax year, so we don’t have much to report. But we do know that increasing the base budget of the IRS by roughly 50 percent has been massively successful in improving customer service, increasing enforcement on wealthy tax cheats, and initiating a public direct tax filing system that is being made available to all states next year. There were over $1 billion in collections from millionaires in year one, with many billions more in the pipeline, and IRS service call waiting times dropped dramatically. That’s why it’s so disappointing that $20 billion of the $80 billion investment was rescinded in the debt limit deal.
But the main event for the IRA is the various climate and energy measures. It’s hard to fully encapsulate them because there are so many moving parts: The IRA is an industrial manufacturing law, and an electrification law, and a home energy retrofit law, and a new energy technology law, just to name a few things. It uses tax credits to move all of this forward, while providing incentive tax credits to encourage good jobs and workforce apprenticeships.
Some of these elements, like the home energy rebates, haven’t even begun to roll out in most states. But even there you can tell a story about what the IRA’s climate measures are doing for America; over 3.4 million families took back $8.4 billion in rebates from energy efficiency and solar installations.
Despite the popular belief that consumers are turning away from electric vehicles, they are now quite a bit more affordable, especially once the point-of-sale rebates for up to $7,500 ($4,000 for used vehicles) kicked in this year. About $1.5 billion in rebates have been distributed this year, and sales picked up in the second quarter.
Continued infrastructure build-out, both with public charging stations and factories for vehicles and batteries, is key to realizing the twin goals of emissions reductions and job creation. The UAW’s successful unionization of the Volkswagen ID.4 EV facility in Chattanooga, Tennessee, was a good early sign that the EV transformation will not leave industrial unions behind.
All in all, according to a report from the Climate Jobs National Resource Center, there are 6,285 clean-energy projects eligible for IRA tax incentives that are at some phase of development (planning, construction, or completion). When they are all complete, they expect them to support nearly four million jobs and over $2 trillion in investment. Even looking only at jobs created right now gets you to 334,565 jobs in 47 states and Puerto Rico, according to a report from Climate Power.
The Financial Times tried to throw some cold water on this by citing delays or pauses in 40 percent of Biden’s industrial manufacturing projects. (The analysis included the CHIPS and Science Act along with the IRA.) But as Jonas Nahm pointed out, when creating new industries from scratch some failures must be expected, very few projects have been outright canceled or paused, and delays are routine when there is so much activity in the pipeline at once. The actual spending on actual manufacturing construction is undeniable. And eventually, when the factories are complete, that converts into production jobs.
The fact that the main rebuttal to the IRA has been that more tax credits are being used than previously estimated suggests that the law is quite popular and accelerating clean-energy transitions faster than expected.
That’s not to say that all hurdles have been overcome. When the shift from construction to production happens, the challenge will be maintaining the labor gains. The IRA contains major incentives for project labor agreements for the construction phase, but less certain encouragements for permanent cleantech workers. Reporting from Heatmap does suggest that unions are having a better time getting their foot in the door with companies, and the government can leverage grant programs to ensure well-paying union jobs. A sectoral-bargaining experiment for formerly itinerant solar workers is a good example of the potential promise here. In general, much of the carping that you can’t create homegrown industries and good jobs simultaneously has been proven wrong.
High interest rates for capital expenditures established by the Federal Reserve have stunted the growth of the IRA; it’s remarkable that manufacturing construction held up so well in the face of it, but industrial production has been effectively flat since February. Fortunately, Fed governors are starting to realize how high rates are squeezing employment, and rate cuts are expected soon, which could make more projects pencil out and juice IRA spending even further.
The grip that China has on clean-energy manufacturing and components is obviously a major hurdle to the logic of the IRA, which is based on this triple bargain of reindustrialization, job creation, and emission reduction. The Biden administration is using tariff policy to build a bridge to allow that bargain to take place and allow the significant investment already made to pay off.
Despite the surge, projections on clean energy are coming in below the needs to meet Paris climate goals. Many have laid the blame on permitting obstacles, particularly for electricity transmission. There’s a bipartisan deal that isn’t going to get any attention until next year, and regulators have made progress on the margins. There’s another, less-discussed problem involving the gatekeepers to the energy transition: monopoly utilities that resist capital upgrades on their transmission lines. This issue of middlemen either disrupting progress or rerouting the money to themselves is a hazard seen throughout the IRA and the related industrial-policy and infrastructure bills. Rebalancing power so those who want to move forward with the transition have the clout to force it through is urgently needed.
On permitting, environmental advocates fear that locking in fossil fuel infrastructure in a compromise to free up renewable energy and transmission development will make it difficult to dislodge oil and gas in the ensuing decades. The makeup of the government next year will likely determine the structure of the compromise.
To that point, there’s the threat that a Republican takeover of Washington would wash all this progress away. But that’s become a bit more remote. The geographic spread of these projects reaches into battleground and many red-state areas. Georgia, Texas, and Michigan are the biggest states for investment and jobs, with Arizona and Ohio not far behind. The Prospect has visited projects in Georgia and Colorado in the districts of far-right Reps. Marjorie Taylor Greene (R-GA) and Lauren Boebert (R-CO). Counties that were left behind for decades, including the Trump years, are staging a comeback. And that has led to Republican reluctance to reverse course.
A remarkable letter signed by 18 House Republicans earlier this month asked House Speaker Mike Johnson (R-LA) to “prioritize business and market certainty” and retain the IRA’s tax credits instead of “prematurely repealing” them. The Republicans recognize that repeal would strand investments that have already been made, even acknowledge that the IRA has “spurred innovation, incentivized investment, and created good jobs in many parts of the country—including many districts represented by members of our conference.” This suggests that the big bet made by the Biden administration to lock all areas of the country into transforming the energy future is actually working.
Biden’s policies set up his successor well to reap benefits that were tantalizingly out of his reach. Donald Trump would likely Hulk-smash at least some of those benefits because they weren’t his idea; Kamala Harris is likely committed to seeing them flourish. Either way, Biden will languish without much of the credit. He will retain the legacy, however. And if it works, he’ll have shown that win-win industrial policy is possible.
