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.