The Inflation Reduction Act (IRA) of 2022 passed the Senate on August 9, 2022. Next, the bill will be taken up by the House of Representatives, where it is expected to pass before going to President Biden for his signature as soon as August 12. The legislation is designed to tackle climate change, lower healthcare costs for older people after 2026 and reduce the federal deficit.
Most of the provisions in the bill target climate change, designating nearly $400 billion over 10 years in clean energy and climate change mitigation investments, the largest federal investment to slow global warming and to reduce demand for fossil fuels in U.S. history.
The climate spending is split into three categories:  subsidies and tax credits for individuals and households for electric vehicles and home energy improvements;  loans and guarantees to attract private investment in green technologies, and  grants and tax credits for domestic manufacturing of clean energy technologies such as solar panels, wind turbines, batteries and strategic minerals.
There are also funds earmarked to help communities that are disproportionately affected by climate change, including what would be the first national “green bank” to help drive investments in clean energy projects for disadvantaged areas.
The legislation also includes a few concessions to the fossil fuel industry, including new oil drilling leases and expanded tax credits for carbon capture technology that enables legacy power plants to keep operating with lower emissions.
Energy experts project these actions could reduce greenhouse gas (GHG) emissions by 40 percent below 2005 levels by 2029 — a big contribution against the 50% target the Biden administration has set for the end of this decade. The investment is more modest compared to the climate proposals the Biden administration put forth in the Build Back Better legislation, which failed to get enough support among Senate Democrats to be enacted. However, Democrats see the IRA as an important first step after decades of inaction on climate change and a pivotal move to reestablish U.S. climate leadership in the world.
In a letter to Congress, more than 40 business leaders threw their support behind the IRA, saying that “while these investments must be paid for, the economic benefits outweigh the costs.”
Leading environmental groups have made the case for why the IRA is good for business, especially for corporations that set ambitious science-based targets to reduce their own emissions. The IRA legislation will help decarbonize the power grid and grow renewable infrastructure, which will help support the decarbonization of supply chains. Further, the tax credit in the bill provides incentives to accelerate the adoption of renewable energy.
Yet the business community has a mixed response to the legislation. Much of the IRA will be funded by a 15 percent minimum tax on corporate profits for companies that make over $1 billion in profit annually and a one percent tax on all corporate share buybacks. The corporate income tax provision is intended to address a longstanding problem of large corporations paying little to no taxes. Leading financial analysists predict these measures will have minimal impact on corporate profits and gross domestic product (GDP) over the next few years.
The Business Roundtable, however, disagrees. In a statement, the BRT clarified that while it supports the climate policies in the bill, the minimum corporate tax would “suppress domestic investment when increased investment is needed to spur a strong recovery” and “undermine the competitiveness of America’s exporters.”
In a counter argument, environmental groups cite the huge costs of extreme weather and climate-related disasters on business, including impacts on workers, facilities and supply chains. In a letter to Congress organized by sustainability nonprofit Ceres, more than 40 business leaders threw their support behind the IRA, saying that “while these investments must be paid for, the economic benefits outweigh the costs.” Businesses in support of the IRA cite the opportunity for innovation and job creation in the green economy as a key benefit of the legislation, not to mention the positive environmental impact.