Ever since Donald Trump ascended to the heights of the US presidency I have maintained a morbid fascination with the seemingly never-ending train wreck that is the country’s political landscape. Now, for the first time since 2016, I must tip my cap to the US after President Joe Biden signed the Inflation Reduction Act into effect last week.
It is a major feather in the cap of the beleaguered US president, who came into office on promises of climate action but whose approval ratings have steadily decreased since. The document itself is a mind-numbing 730 pages, and its prescripts are lofty, indeed. Clearly, the primary aim is to deal with the Covid-19 stimulus-induced runaway inflation besetting the country, but it aims to do this through three main domains of engagement: clean energy provision, affordable health care and effective corporate taxation, all aimed at inflation targeting through national deficit reduction.
Of particular interest are the climate and energy security provisions of the act, which represent the first meaningful steps in concrete US climate action in as long as I can remember, and is now the single-largest investment in climate action in US history. Historically the US has been the largest contributor to global greenhouse gas emissions and climate change, accounting for more than 22% of net emissions. Yet its historical record includes such low points as failing to ratify the Kyoto protocol in 2001, failing to pass the American Clean Energy Security Act in 2009, and withdrawing from the Paris accord in 2017.
Now, through the act the US is set to chart a new course for energy security and climate action through the deployment of $369bn in investment and tax incentives in clean energy and climate change mitigation initiatives. These initiatives focus heavily on the biggest utility and industrial emitters, but SA just transition pundits will do well to keep an eye on the array of household-level tax credits and rebates for clean energy, energy efficiency and electric vehicle investments.
SA just transition pundits will do well to keep an eye on the array of household-level tax credits and rebates for clean energy, energy efficiency and electric vehicle investments.
Indeed, climate justice imperatives are an important component of the act, with more than 40% of the $27bn Greenhouse Gas Reduction Fund being earmarked for low-income and disadvantaged communities. An additional $3bn has been set aside for other climate justice grants on community-led air monitoring, mitigating climate risks from heat islands and wood heater emissions, reducing indoor air pollution, promoting climate resilience and facilitating engagement with disadvantaged communities.
At an industrial and utility level the act again does something deeply unfamiliar in SA by extending policy certainty on existing investment and production tax credits from an almost year-to basis to a full 10 years for low carbon energy services. The act encourages technological developments in energy innovation in hard-to-abate sectors through the inclusion of a $5.8bn programme aimed at reducing emissions from energy-intensive industries such as iron, steel, cement and chemical production.
There are also impressive targeted incentives aimed at green hydrogen, biofuels as well as carbon capture and storage that are set to become game-changers for those industries. Taxpayers qualify for bonus credits of up to five times the value of a base credit when they comply with local production, wage and apprenticeship requirements.
The upshot of all these interventions is that the US has shifted its greenhouse gas emissions pathway from a 26% reduction by 2030 compared with 2005 levels to a 42% reduction, according to Princeton University’s Zero Lab, which re-establishes the US as a key driver in global climate ambition. Overall, the act is projected to deliver significant environmental benefits, shores up US energy security and reduces inflation and the budget deficit, all while paying for itself through effective corporate taxation and savings on health-care expenses.
Certainly, many questions remain, but this is a victory for the environment that should be celebrated, and SA policymakers should stay abreast of the effects of this landmark policy.
• Maguire is carbon project manager at Climate Neutral Group SA. He writes in his personal capacity.
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