Inflation Reduction Act’s National Green Bank and tax breaks are an economic lifeline

Article by Jacob Bourne | Aug 26, 2022

The news: A provision of the Inflation Reduction Act (IRA) is slated to stimulate private sector investment in cleantech.

Of the legislation’s $369 billion, $27 billion will go toward a Greenhouse Gas Reduction Fund to launch a National Green Bank, per Fortune.
The bank will partner with the private sector and lenders to invest in cleantech and energy efficiency.
It’s part of the government’s record spending to address climate change, including tax breaks for consumers that could total up to $10,000, per CNBC.
Qualifying purchases include home energy upgrades like solar panels, heat pumps, water heaters, biomass stoves, and EVs.
The legislation is expected to save consumers between $170 to $220 annually in electricity costs if they apply for and receive tax credits.

In the nick of time: With soaring electricity prices taking a toll on US households, the funding could help slow the financial bleeding that’s hurting our overall economy.

20 million US households are falling behind on their electric bills, creating the worst crisis the National Energy Assistance Directors Association has ever seen, per Insider.
Nearly one-third of US households reduced spending on medicine and food to pay their energy bills.
This indicates a potential further blow to consumer spending, especially on discretionary goods, which could mean more economic contraction is ahead for tech and other industries.

A remedy for ‘heatflation’: Despite accusations that the Biden administration is using climate legislation masquerading as inflation reduction to score political points, the IRA will likely curb inflation, just not quickly.

As climate change is itself a driver of inflation in a concept called heatflation, tackling climate change could bring prices down over the long haul.
Greater energy efficiency should soften natural gas demand, driving down electricity prices.

Zooming out: The IRA’s climate spending is a drop in the bucket compared with the estimated $131 trillion needed by 2050 to just reduce, not eliminate, global warming, according to the International Renewable Energy Agency. For comparison, the global economic output in 2021 was $94 trillion, per Visual Capitalist.

The IRA has potential to represent the beginning of similar, more robust legislation.
High-emission countries like the US and China bear more climate responsibility than others, but for legislation to have teeth, such spending needs to be mirrored globally.

Zooming in: Emissions reductions are at the heart of the IRA’s spending, but it’s light on funding for climate adaptation.

In 2021 the US saw a record 20 weather or climate disasters, each causing at least $1 billion in damages, per NOAA, underscoring the need for relief and adaptation measures.
Investing in carbon capture technology innovation is essential to curbing damage caused by the already-elevated levels of carbon in the atmosphere.
Nations that prioritize adaptation measures like flood control, urban cooling strategies, and wildfire hardening will have a better economic footing in years to come.