US Inflation Reduction Act (IRA) 2022

In News

• Recently, the U.S. Senate approved a Bill titled the Inflation Reduction Act (IRA) 2022. 

Key Highlights

• About: 
  • IRA has a special focus on climate, healthcare, and tax provisions to address inflation.
• Aim: 
  • The Bill marks the largest American investment aimed toward making the U.S. a leader in clean energy. 
  • To bolster the domestic production of heat pumps and critical minerals.
  • More investments in fossil fuels.

Climate change provisions

• It includes packages worth $369 billion for the clean energy transition.
• It provides a tax deduction to low and middle-income households to go electric and seeks to lower the energy bills of American households. 
• For disadvantaged low-income communities and tribal communities, the Bill provides funding to benefit from zero-emission technologies which reduce greenhouse gas emissions, enhance climate resilience, and mitigate risks from extreme heat.
• Significant investment in renewable energy through heavy tax credits for wind and solar energy projects and electric vehicles. 
• The Bill imposes a tax on the largest and most profitable companies in order that they pay their fair share, without levying any taxes on households with income less than $40,000 per annum. 
• It also imposes a fee on methane leaks from oil and gas drilling.
• It seeks to expand oil and gas drilling, with the federal government offering land for onshore and offshore drilling as a prerequisite for developing renewable energy. Thus, it handcuffs the expansion of oil and gas with renewable energy development.

Reason for US to invest in addressing climate change

• The U.S is currently facing extreme climate threats. 
• This includes heatwaves, wildfires, cyclones, floods, and hurricanes that have become frequent and intense in the past few years. 
  • The ongoing floods in Kentucky triggered by heavy rainfall and the wildfires in California induced by dry lightning have become a major concern for the country. 
• There is a link between extreme weather events and climate change.
• President Joe Biden has also undertaken certain climate commitments. 
  • In 2021, he committed to the new ambitious target of cutting emissions by 50-52% below 2005 levels by 2030 and signed a new methane deal to curb methane emissions from the oil and gas industry. 
  • The previously proposed Build Back Better plan was a multi-trillion deal with key provisions for climate change.
  • In May 2022, the Biden administration revoked the Alaska oil and gas drilling lease sales in the backdrop of soaring fuel prices, a move that is consistent with its climate commitment.
• The U.S. aims to achieve its climate targets through the Bill:
  • It will help the nation get closer to its climate target of reducing 50-52% emissions below 2005 levels by 2030.
  • The investments in the Bill could reduce greenhouse gas emissions by 31 to 44% by 2030.
  • The Bill can help the U.S. compete with China in terms of renewable production as China is a leading producer of solar energy. 
  • It can also facilitate the creation of domestic jobs.
• Issues in the Bill:
  • It does not address any issues of global climate finance which is a major impediment to global climate action. 
  • It is a mere step toward achieving the climate target agreed upon in the Paris Agreement, where Article 2 states global temperature should be limited below 2°C.

Similar Climate Package by other Countries

• In May 2022, Japan announced its ‘Invest in Kisida’ plan which aims for a $1.1 trillion investment to bolster the Japanese economy. 
  • As part of the plan, the country aims to transition to clean energy and achieve 46% reduction in greenhouse gas emissions by 2030. 
• In June 2021, the European Union (EU) proposed a similar ‘Fit for 55’ plan to reduce emissions by 55% by 2030. 
  • The plan is expected to become law soon. Being the largest emitters, both the U.S. and the EU can play a significant role in taking responsibility for historical emissions.

Way Ahead

• The Bill can prove to be a turning point for global climate action as the U.S. is one of the largest emitters of greenhouse gases globally. 
• Even though the Bill is not enough to address the climate crisis, such historic initiatives by global leaders in greenhouse gas emissions can be a benchmark for other large emitters to push their climate action programmes.

Source: TH