When, or if, the Earth stops heating up and the planet is saved, historians will probably look back to August 16, 2022 as the landmark date. For that was the day when the US President Joe Biden administration’s anti-climate change package, the Inflation Reduction Act (IRA), became law. The biggest and most far-reaching legislation of its kind by far, the IRA throws a guaranteed $479bn at all forms of energy that will reduce noxious emissions while experts predict that it will also trigger trillions of dollars of similar investments in the US and beyond.
“Legislation of this magnitude and duration lasting through the 2030s and beyond is likely to have profound and lasting impacts across US and global climate and energy systems, supply chains, industries,” summarises the Boston Consulting Group (BCG) in a detailed analysis of the impact of the IRA that echoes the views of other think tanks. “Trade and US legislation on climate and energy also have the potential to trigger policy actions from other nations, both large energy producers that compete across these value chains, and large energy consumers.”
The IRA is a cleverly designed package that wields both a carrot and a stick. Although US Congress pledged to spend this unprecedented sum between now and 2030, amounting to over $68bn a year, there will be a cascading effect through tax credits and incentive funding. As the BCG notes, these credits and incentives are intended to create investment multiplier effects that are certain to catalyse an avalanche of similar actions beyond America.
How will this happen? According to BCG, there will be a multi-pronged effect. First, the adoption of electric vehicles will accelerate, lowering the price of entry for passenger and heavy-duty vehicles. Further, incentive-style funding will materially reduce the costs of renewable and other carbon-free forms of energy, with up to 80 percent of electricity being carbon-free as early as 2030. Simultaneously, manufacturing, which is a hard-to-abate sector, will be encouraged to use manufacturing tax credits to embrace cleantech.
Nor, having set a new direction, is the Biden administration stopping with the IRA. In a surprise decision, given the Republicans’ blind eye to climate change during Trump’s fossil fuel-friendly term in office, the US senate has ratified the so-called Kigali amendment to the Montreal Protocol that aims to protect the much-damaged ozone layer through a rapid phase-down of climate-deadly hydrofluorocarbons (HFCs). According to scientists, HFCs are hundreds to thousands of times more powerful than CO2 in accelerating climate change.
And although the Biden White House is not hostile to Big Oil and has, in fact, passed measures that encourage the production of shale gas and drilling, government agencies have recently moved to keep the industry honest. Three separate hearings are under way into how Big Oil used deceptive advertising campaigns to purportedly mislead the public about the risks of climate change.
Also, the Environmental Protection Agency, which Trump tried to hamstring, is considering tougher rules for heavy trucks so more zero-emission haulers are put on the road. Almost every week, the White House and government agencies launch initiatives aimed squarely at climate change. Buildings, another hard-to-abate sector that covers everything from homes to schools and offices, will get more than $50bn to slash pollution. A $1.5bn programme will speed up electric vehicle-charging infrastructure over 75,000 miles of highways that will, promises Secretary of Energy Jennifer Granholm, “lessen our oversized reliance on fossil fuels.”
Nearly $50m will be poured into deep-water floating wind turbines. The energy efficiency of semiconductors – vital components in everything from air conditioners to smartphones – will be increased by a factor of 1,000 times within two decades. The Department of Energy (DoE), another agency targeted by Trump, has unveiled $7bn in funds to create clean hydrogen hubs, one of the biggest investments in the agency’s history. And looking further ahead, the DoE released a road map that has the US aviation industry running exclusively on sustainable fuel by 2050.
And now for the stick. Industry will have to foot some of the bills for cleaning up the climate, for instance in the form of a 15 percent tax on companies with profits over $1bn. And from 2024, oil and gas companies will pay a penalty of $900 a tonne for methane emissions, rising to $1,500 by 2026. Some exemptions will apply, notably for small producers, but otherwise the writing is on the wall.
President Biden’s ambitions are nothing if not big. This avalanche of funds is intended to slash economy-wide greenhouse gas emission in the US by 40 percent as soon as 2030 compared with the levels pertaining in 2005 (see Fig 1). The power companies that make up the grid are expected to do even better by cutting emissions by around two thirds. Further out, the Holy Grail of a net-zero carbon economy is set for 2050. Biden’s attack on fossil fuel-induced pollution has come in the nick of time. “Climate change is accelerating rapidly, with a narrow possibility to escape its worst environmental and socioeconomic consequences,” warns the International Monetary Fund in a sobering recent analysis. “The global average surface temperature has already increased by about 1.1°C compared with the pre-industrial average during 1850–1900, amplifying the frequency and severity of climate shocks across the world.”
The numbers are turning against humanity. So far, 2022 is already the sixth hottest year ever on the planet, according to data from the US National Oceanic and Atmospheric Administration. All of the 10 warmest years recorded in the last 140 years have occurred in the past 17 years.
The IMF’s latest alarming assessment predicts that if greenhouse gas emissions continue growing at their current rate, global warming is projected to reach 4–6°C by 2100. That would trigger “an unprecedented shift with greater probability of larger and irreversible environmental changes unseen in millions of years that threaten devastation in swathes of the natural world and render many areas unliveable.”
Until the Inflation Reduction Act saw the light of day, much of the action was little more than rhetoric in many – or perhaps most – of the 189 countries that pledged to slash CO2 emission by 30 percent by 2030. In fact, global CO2 emissions have risen steadily since the 2015 Climate Accord. In the latest figures, in 2021 they had jumped by 2.3 percent to 36.3 billion metric tons, the highest level in history.
The long-term consequences are all too obvious, as the IMF study explains. Current projections assume sea levels will surge by two or three metres over the next 300 years and by five to seven metres if the warming of the planet isn’t slowed. At those levels entire countries in the South Pacific will find themselves below the oceans.
And that’s just water. Extreme heat waves, like the deadly ones that fried North America in the summer of 2021, are considered five times more likely to occur at the current rate of warming, which is about 1.3 percent. But at a rate of two percent, heat waves are 14 times more likely to occur. Similarly, severe droughts will happen two or three times more often in what climatologists call ‘weather whiplash’ – wild swings between dry and wet extremes.
Unless other countries follow Biden’s path, there’s worse to come in the long term. “The risk of extreme weather events, such as heat waves, wildfires, droughts, flooding, and severe storms, is projected to increase over the next century, as the global mean temperature continues to rise,” warns the IMF.
As the World Bank points out in a recent paper, the consequences of climate change aren’t always as dramatic as hurricanes and heat waves, but they are just as pernicious. Nigeria, for example, faces a collapse of about 30 percent in its GDP by 2050 because of “severe water stress” caused by climate change-induced droughts, the organisation warns. Although this is small change compared with the Inflation Reduction Act, the World Bank will pump $700m into projects in Nigeria that will at least slow down the effects of droughts by creating sustainable oases and wetlands. Highly active in climate-change initiatives, the World Bank will pump a record $31.7bn into projects in the 2022 fiscal year that mitigate the damage resulting from climate change.
The IRA arrives on the wider front of the war in Ukraine that has highlighted the critical importance of a fossil-free environment where nations’ energy security does not depend on oil and gas pipelines. As numerous studies point out, sanctions against Russia as well as the latter’s response by pumping dramatically smaller oil and gas volumes into Europe has unsettled global energy markets.
The price of crude oil has nearly doubled from an average of $68 per barrel in 2021 to $124 in 2022. Much worse, the price of natural gas in Europe jumped to a record high of €345 per megawatt-hour, a stratospheric increase that is the oil equivalent of $600 a barrel.
Other nations are watching closely the effects of the IRA and hoping for rapid results. According to the Democrats’ majority leader in the senate, Charles Schumer, the package adds up to the “strongest one-two punch against climate change that any Congress has ever taken.” But will other countries follow suit?