The Inflation Reduction Act represents long overdue climate action by the world’s biggest historical emitter of greenhouse gases
The United States passed a major domestic bill this week, bringing the focus back to the country’s relationship with fossil fuels even when it is taking green initiatives.
The world’s largest ‘historical emitter’ of planet-warming greenhouse gases (GHG) has brought in a decade-long, $369 billion package of climate and energy proposals.
The Inflation Reduction Act (IRA) can allegedly reduce carbon emissions by roughly 40 per cent by 2030. It includes tax credits to incentivise clean electricity, renewable energy, energy efficiency and electric vehicles (EV).
It has provisions for $60 billion in incentives for domestic manufacturing of solar, batteries, and heat pumps, an extension of a 30 per cent rooftop solar credit and $20 billion to cut agricultural emissions. For electric vehicles, it eliminates a cap on how many cars from each manufacturer are eligible for a $7,500 tax credit that taxpayers get for buying electric vehicles.
A significant provision is a methane fee imposed on oil and gas operations — a sector in the US notorious for GHG emissions. The bill would charge companies for methane they leak or vent into the atmosphere, with the fee starting at $900 per ton (equivalent to 0.9 tonne) in 2024 and increasing to $1,500 per ton by 2026, reported news outlet Inside Climate News.
On the other hand, it has some serious concessions for the fossil fuel industry — a compromise made to get the more conservative senators to pass the bill.
The bill said:
The Department of Interior would be required over the next decade to offer oil and gas drilling leases on at least two million acres of public land and 60 million acres offshore in any year the department seeks approval of new renewables projects on federal land or waters.
This shocking feature esssentially holds renewables hostage to fossil fuel extraction.
“For some perspective, 600 million acres of offshore leasing amounts to four times the size of the Gulf of Mexico’s outer continental shelf. And the fossil fuel industry has been leased 1 million acres of land on average since 2009. This doubles that! This is fossil fuel expansion,” said NASA climate scientist and activist Peter Kalmus on Twitter.
Within its ‘clean energy’ provisions, the IRA includes subsidies for carbon capture and hydrogen — a move welcomed by fossil majors since technologies like carbon capture can essentially extend the life of their operations. Carbon capture and storage is the process of capturing and storing carbon dioxide before it is released into the atmosphere.
“We’re pleased with the broader recognition that a more comprehensive set of solutions are going to be needed to address the challenges of an energy transition”, said Darren Woods, chief executive of Exxon Mobil.
The subsidies would not bar the use of enhanced oil recovery — the process of capturing carbon and other gases in order to reinject it to extract more oil — as pointed out in analysis by the Climate and Community Project (CCP). The Project is a network of academics and policy experts working for climate justice policy.
“Carbon dioxide removal and hydrogen buildout have both been technologies used by the fossil fuel industry to extend its lifetime and keep drilling, fracking, and exploiting communities,” said the CCP.
For every ton of emissions increases generated by IRA oil and gas provisions, at least 24 tons of emissions are avoided by the other provisions, said the think tank Energy Innovation. It added this could cut GHG emissions 37-41 per cent below 2005 levels by 2030.
The pledge made by the US to the Paris Agreement calls for 50-52 per cent reduction. Thus, this bill could “close 50-66 per cent of the emissions gap between business-as-usual (BAU) and the Nationally Determined Contribution (NDC) in 2030,” they add.
2050 emissions will be 30 per cent lower compared to a business-as-usual scenario, estimated Moody’s Analytics. The IRA will reduce net GHG emissions by 31 per cent to 44 per cent below 2005 levels in 2030, according to research provider Rhodium Group.
The IRA is termed by US senate majority leader Chuck Schumer as “the boldest climate package in US history”. He was largely responsible for brokering the deal with Senator Joe Manchin of West Virginia on July 27.
For all of the US’ posturing at global climate summits, its domestic climate politics are kind of a mess. The Supreme Court has a Republican majority that recently flexed its regulation-averse position to gut the country’s Environmental Protection Agency (EPA) plan to regulate emissions from power plants.
The US senate is split 50-50 between Democrats and Republicans, making every Democratic vote crucial for bills to pass. And the Democratic party’s most progressive proposals are quickly crushed by Manchin and Kyrsten Sinema, the Democratic senator from Arizona.
Both Sinema and Manchin are top receivers of lobbyist funds and politically to the right of the party’s most left-leaning wing. Manchin took more campaign donations from the oil and gas industry than any other senator and owed his fortune to dealing in the coal business, wrote economic historian Adam Tooze.
The senator killed an earlier iteration of Biden’s climate proposal — the $1.7 trillion Build Back Better plan of 2021. Tooze attributes Manchin’s current reversal of stance to the realisation that voters may actually want climate legislation.
“At some point, he may have come to the realisation that climate measures are actually good politics, even in West Virginia. It is commonly said that American voters do not support climate action, especially with stagflation looming. But that is a claim not strongly supported by evidence,” Tooze wrote.
Awkwardly, the actual inflation impact of the bill is small — the consumer price inflation index will be 0.33 per cent lower by 2031 because of the legislation, according to Moody’s. But framing the package as a means to reduce budget deficit and tackle inflation is perhaps a piece of smart politicking by the climate-friendly wing of the Democratic party — an attempt to assuage the jitters that US conservatives get when you say things like “government spending” or “climate action”.
It’s important to understand why it matters what the US does for climate action. The US has been responsible for 25 per cent of carbon dioxide (CO2) emissions released into the atmosphere since 1870. Its annual CO2 emissions have dropped by 14 per cent since 2005, but even today, its per capita emissions are among the highest in the world.
At 16.1 tonnes per capita in 2019, US’ carbon footprint is eight times that of India and over 100 times that of Ethiopia. The world needs the US to cut its huge domestic emissions urgently.
It is unhelpful that the US also continues to be a major blocker in ambitious multilateral climate cooperation facilitated by the United Nations Framework Convention on Climate Change — a UN agency. US climate negotiators at COP summits are still pulling the brakes on proposals ranging from a funding facility for loss and damage, to placing meaningful restrictions on fossil fuels.
Meanwhile, US Climate Envoy John Kerry pursued a diplomatic tour to Asia last year to, among other things, pressure India and China to increase their climate ambition and wean off coal. The US has doggedly pursued the narrative that China must step up as the world’s largest current emitter, pushing the term “major emitters” at the recent UN climate conference in Bonn (as opposed to “historical emitters”).
However, the paradox of China is that it may be the world’s largest coal consumer, but it also far outpaced the US in energy transition investments in 2021 — to the tune of $266 billion vs the US’ $114 billion, according to strategic research provider BloombergNEF.
The US still remains a deeply fossil-addicted economy. In 2021, about 61 per cent of its electricity came from fossil fuels. On the supply side, its shale gas revolution has turned it into a major oil and gas producer. The country is currently vying with Qatar for the role of the world’s largest exporter of liquefied natural gas this year, in a gleeful response to the vacuum created by sanctions on Russian gas supplies to the European Union.
The announcement of the IRA makes one consider many questions. According to the Rhodium group, if Congress passes this package, additional action from executive agencies and subnational actors can put the US’ target under the Paris Agreement of cutting emissions in half by 2030 within reach.
Does this then truly represent a new era of US climate leadership after 30 years of failure? Will the emissions reductions of the IRA hold up against pressures to promote ‘energy security’ amidst the ongoing Russian war, and the US’ own gas exporting ambitions?
“Even though the bill invests billions of dollars in clean energy, it does not inherently displace the US fossil fuel expansion project and instead continues the era of the fossil fuel industry”, said the CCP.
US investment in clean technology research and deployment will no doubt benefit the rest of the world, provide the right market signals, and drive faster adoption. In what specific ways can these benefit countries like India that are in desperate need of technology and financial support for decarbonisation?
Moreover, the IRA does not specify climate finance as a domestic spending bill. Biden had pledged to provide $11.4 billion a year by 2024, but Congress had approved only $1 billion for 2022. So, while it cleans up its act domestically, the US cannot be allowed to forget its climate obligations overseas.
With this framing, we in the global south must be spectators to US domestic climate politics to assess how its choices at home will affect us many kilometres away. Ultimately, the stock of GHG emissions in the atmosphere does not know borders.
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