A technician working on a solar energy farm in Albuquerque, New Mexico. (Photo By Getty Images)
Democrats are itching to get the Inflation Reduction Act through the U.S. Senate. With a vote expected in the coming days, the country could be a step closer to clean energy initiatives and protection against climate change, all of which are also aimed at lowering the nation’s inflation costs.
Although Democratic leaders aren’t sure what may come up in the battle to get the bill passed, Sen. Martin Heinrich (D-N.M.) said he doesn’t expect any major modifications whenever it gets a final vote in the Senate.
“We have moved mountains in the last year and we are on the verge of getting something very deeply meaningful to the president’s desk,” Heinrich said.
Tax and prescription revenue
The $739 billion in potential revenue over the next 10 years from tax and drug cost provisions include:
- $313 billion from a 15% corporate minimum tax;
- $288 from drug price reform;
- $124 billion from increased tax enforcement and compliance;
- $14 billion from a carried interest loophole.
The bill is designed not to increase taxes for households that earn less than $400,000 per year.
This budget reconciliation deal, made to fast-track through the Senate, would allow for a total investment of $433 billion in clean energy and affordable prescription prices as well as over $300 billion for deficit reduction over the next decade. It’s projected to raise $739 billion in revenue through taxes and drug pricing in that time.
The proposal invests $369 billion in clean energy. If approved, this would be the single largest investment addressing climate change that the U.S. has ever made, according to Rewiring America, an electrification nonprofit advocating for the bill.
The energy investments could lower the costs of goods and services in America due to a boost in domestic energy production and manufacturing, according to the bill summary released by Senate Democrats.
The consumer price index, an average measurement of the changed cost of goods and services over time, has continuously been climbing during the pandemic and has risen by 9.1% in the last year, according to the U.S. Bureau of Labor Statistics.
That’s the largest increase since the 1980s.
Lowered prescription costs
$64 billion would be allocated for the Affordable Care Act Extension through 2025.
This would allow Medicare to negotiate prescription drug prices, capping out-of-pocket costs at $2,000, as well as increase the eligibility for ACA tax credits.
Sen. Tina Smith (D-Minn.) and Heinrich had a hand in introducing and sponsoring some of the legislation.
Both are founders and co-chairs of the Bicameral Electrification Caucus, a group of senators and representatives dedicated to transitioning the country to electric energy usage. They explained the climate provisions in the Inflation Reduction Act at a conference hosted by Rewiring America on Wednesday.
The timeline for the bill’s passage through the Senate depends on how extended the effort is on the part of the Republicans to hold up the legislation, Smith said. “We’re not going home until it’s done,” she said.
Affording the electric transition
It’s expensive for individuals and families to replace water pumps or ovens with electric devices. Upfront costs of electric items compared to those that use fossil fuel are historically higher. And families still have to pay out of pocket and then wait to receive money from credits or tax rebates.
That’s why there’s $27 billion in the bill dedicated to increasing production of tech that uses clean energy. Rewiring America CEO Ari Matusiak said investment by the U.S. government to subsidize production would lead to more manageable costs.
This is a major point where Heinrich stepped in, amending the legislation to provide $4.5 billion in rebates through 2031 for low and moderate income families. He said households could get a maximum of $14,000 in rebates.
What can I buy? How much do rebates cover?
A list of items and services covered by the rebates:
- $1,750 for a heat pump water heater
- $8,000 for a heat pump for space heating or cooling
- $840 for an electric stove, cooktop, range or oven or an electric heat pump clothes dryer
- $4,000 for an electric load service center or breaker box upgrade
- $1,600 for installation
- $2,500 for wiring
On top of increased production of clean energy items, Matusiak said loans are also part of the proposal. Both of these things “are effectively buying down the cost of financing,” so households that can access the money would have fewer credit loans and lower monthly payments.
And even as costs go down, rebates and tax credits would remain, Matusiak said, making this a long-term initiative.
Tax deductions in the bill include one which would knock up to 30% of costs and installation off taxes. All credits would be capped annually at $600 per item and $1,200 per household, except on costs related to heat pump water heater or heat pump for heating and cooling, which would be maxed at $2,000.
The proposal includes more tax credits that would be available for buying electric vehicles — $7,500 for new ones and $4,000 for used.
To boost production, a $2 billion investment would go toward converting facilities so they can manufacture electric vehicles and up to $20 billion in loans would be available for auto companies to actually make the vehicles.
Groups, individuals point out downsides of the legislation
New Energy Economy, a N.M. nonprofit working to reduce fossil fuel and nuclear energy use, pointed out three environmental issues with the bill they want amended:
- The Interior Department would be allowed to lease at least two million acres of public land and 60 million acres of offshore waters for oil and gas annually for 10 years before solar or wind energy projects start;
- There are tax credits for hydrogen production;
- Permitting reforms would make it easier to approve and build major energy projects, including those using fossil fuels. While these reforms would come with an independent bill to analyze fossil fuel infrastructure, New Energy Economy doesn’t think that bill will pass.
Some economists also don’t fully agree that this bill will actually reduce inflation, CNN reported. But over 120 reputable economists sent a letter to Congressional leaders on Tuesday, urging them to pass the bill for its investments that would lead to reducing inflation across the country.
The bill isn’t perfect and not everything they want is in there because the bill must appease Republicans in order to get to the president’s desk, Rewiring America analyst Leah Stokes said.
“This is a really exciting bill,” Stokes said, “and it’s a total game-changer.”
Why does this matter?
Rewiring America found that Americans can save $1,800 in utility bills each year if they stop using fossil fuel-dependent appliances and go electric instead.
The climate investments would also reduce 42% of carbon emissions by 2030, Matusiak said.
And if the economy switches to dependence on electricity rather than fossil fuels, he said, the demand for electricity would triple and the amount of energy the economy needs to run would be cut in half.
Fossil fuels actually waste energy, Stokes said, because half the energy is lost when it burns. “Efficiency is electrification,” she said.
Stokes estimates this bill could possibly solve 75% of current climate pollution and achieve President Joe Biden’s goal of clean power by 2035.
Now it’s up to the Senate to choose if this is the path going forward.
“I have always believed that this clean energy transition is going to happen,” Sen. Smith said. “The question has been whether the United States leads that transition, or if we follow.”
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