The Inflation Reduction Act creates a robust array of energy- and emissions-related benefits which will positively impact the U.S. economy, drive down greenhouse gas (GHG) emissions, and broaden the GHG mitigation tools available to corporate sustainability directors.
Climate impacts of the Inflation Reduction Act
The Inflation Reduction Act brings the United States closer toward its goal to achieve a 50% reduction in GHG emissions from 2005 levels by 2030. President Biden set the target in early 2021 in accordance with the Paris Agreement. Current trends, such as the Bipartisan Infrastructure Law, will reduce GHG emissions by 27% from 2005 levels. The Act will reduce emissions by an additional 15%, closing about two-thirds of the remaining emissions gap between current policy and the nation’s target. The United States is now projected to reduce GHG emissions by roughly 42% below 2005 levels by 2030.
The Inflation Reduction Act will decrease GHG emissions through a multifront approach. The Act offers consumers home energy rebate programs, tax credits, and a grant program to incentivize electrification, energy-efficient retrofits, and clean transportation. The Act will also reduce emissions in every sector of the economy through tax credits, grants, and funding towards clean electricity, technology, fuels, and commercial vehicles.
The U.S. government has drawn out some of the programs it will implement to guarantee the Inflation Reduction Act’s success. For example, the Advanced Industrial Facilities Deployment Program will reduce emissions from the largest industrial sources like chemical, steel, and cement plants; the Methane Emissions Reduction Program will minimize leaks from the production and distribution of natural gas.
Climate change is a complex issue that impacts Earth in more ways than one. Beyond raising atmospheric temperatures, climate change affects Earth’s biodiversity, forestry, and water resources. To address more of climate change’s impacts, the Inflation Reduction Act will promote fire-resilient forests, forest conservation, urban tree planting, coastal restoration, and coastal conservation. The Act will also incentivize efficient land use through support for climate-smart agriculture practices.
Scientists say the world needs to attain net-zero emissions by 2050 to limit global warming to no more than 1.5 °C above pre-industrial levels to avert some of the worst impacts of climate change. Per the 2022 State of Green Business Report, 21% of S&P Global 1200 companies track emissions in alignment with the 1.5 °C pathway, and 38% are committed to setting a science-based climate target (SBT). The Inflation Reduction Act could potentially help these companies to achieve their SBTs more quickly, to varying degrees depending on the industry. Below, we list sectors identified within the report and how each may benefit from the Act.
Benefits of the Inflation Reduction Act on Global Sectors
S&P Global Sector
Benefit(s) from the Inflation Reduction Act
Accelerate clean electricity and U.S. manufacturing of solar panels, wind turbines, and batteries
Build clean technology manufacturing facilities
Advance breakthrough energy research
Global Metals and Mining
Support critical minerals processing
U.S./ European Oil, Gas
Promote clean fuels and commercial vehicles
Reduce methane leaks
The Inflation Reduction Act is a major step in the fight against climate change but does not address the issue on a global level. The United States is only responsible for 15% of the world’s CO2 emissions, and the Act does not include provisions to help other countries procure clean energy. However, the Act may inspire global leaders to enact similar legislation; if the United States can improve its emissions trajectory by 15% or more in one bill, it is possible other nations can do the same. Over the next five or ten years, we might see the U.S. introduce more robust legislation with an international scope.
Economic wins from the Inflation Reduction Act
On the economic side, the Inflation Reduction Act helps to mitigate uncertainty for a variety of stakeholders, via programs such as $250 billion in loan guarantees for energy infrastructure, $5.8 billion in net-zero process improvement for heavy industrials, and the Advanced Manufacturing Production Credit (AMPC), which supports American-made clean energy components. Groups that stand to benefit include the following:
Who Stands to Benefit from the Inflation Reduction Act
Certainty gained from the Inflation Reduction Act
Renewable energy manufacturers
More controlled, consistent pace of installation, ultimately increasing renewables; more solar panel factories and battery factories located in the US
Steady work, as opposed to volatility from tariffs and supply chain issues
Rapidly maturing energy market, increasing the quantity and quality of clean energy options (e.g., RECs, PPAs, Community Solar)
Progress towards establishing a National Green Bank, which would support emissions reduction in low-income/disadvantaged areas
As the Act helps to spread awareness and adoption of renewables, their popularity will snowball, gradually gaining momentum among more traditional segments of the population because the technologies will be widely tested and observed. This pattern of adoption is typical of the spread of innovations through society and will ultimately enable renewable energy to become a more stable, mature industry.
Similarly, we anticipate that clean technologies such as heat pumps and electric vehicles will continue to become more mainstream as prices come down, quality goes up, and uptake spreads. Additionally, the Act expands the capacity for energy storage, as it invests in standalone battery storage that, unlike previous investments, does not have to be tied to solar.
Despite all of these insights, some outcomes of the Act remain difficult to predict. For example, as the grid becomes greener, what will be the net effect on corporate emissions? We will be keeping a close eye on the ongoing ripple effects of the legislation.
How your organization can benefit from the Inflation Reduction Act
Many low-carbon implementation tools for companies get a big boost from the new Inflation Reduction Act. Your opportunities will depend upon your sector, position in the clean energy value chain, and existing maturity on climate and sustainable development goals. Third Partners can help your organization measure your carbon footprint and plan forward-looking strategies that include an array of smart, targeted impact projects.