The Inflation Reduction Act: A breakthrough for lower energy costs and climate progress

The Inflation Reduction Act will improve Americans’ lives by fighting inflation, lowering health care costs and making significant down payments on energy security and climate progress.

It’s the largest investment in combating climate change ever passed by Congress — putting the country on track to drive down carbon pollution 40% below 2005 levels by 2030 if states maximize these investments, and returning the U.S. to a leadership role in the global fight against climate change.

Fiscally responsible investments will create good-paying clean energy and manufacturing jobs and boost U.S. energy security — all while saving families and businesses money. The legislation also makes a historic down payment on environmental justice.

While the law does contain some trade-offs, the Inflation Reduction Act will greatly benefit our economy and our climate fight — now and for generations to come. 

Here are key investments you should know about and why they matter.

Clean energy

The law includes a game-changing package of incentives, totaling nearly $200 billion, that will ramp up solar, wind, energy storage and energy efficiency on the grid. Building a clean power sector drives down climate pollution, while helping consumers reduce energy use and save money, and hedging against volatile natural gas prices. 

There are also significant investments in new climate solutions such as green hydrogen, low-emissions aviation fuels, direct air capture and carbon storage — though it will be critical to monitor these investments to maximize climate benefits and protect local communities and ecosystems.

Other notable clean energy investments:

• $9 billion for consumer home rebate programs that will reduce energy costs, particularly for low-income households.
• $18 billion in Department of Energy loan authority to support economic opportunities to tribes through energy projects.
• $40 billion in loan authority to help technologies like energy storage, battery and building efficiency technologies reach commercial deployment.
• $250 billion to reduce consumer electricity costs by retooling, repurposing or replacing retired energy infrastructure like power plants.
• Bonus tax incentives to develop clean energy resources in low-income communities and areas experiencing a transition away from fossil fuels.
• More than $10 billion to support renewable buildout in rural areas through loans and assistance for electric cooperatives.

Clean transportation

The Inflation Reduction Act takes aim at the largest source of climate pollution in the U.S.: transportation. Along with the infrastructure package Congress passed last year, this law has the potential to jumpstart adoption of electric vehicles.

The legislation features a consumer tax credit of up to $4,000 for used clean light-duty vehicles and $7,500 for new purchases — though uptake levels may depend on our success in building out domestic supply chains.

In addition, there is substantial funding for zero-emission trucks and buses — some of the biggest polluters on our roads.

Other notable clean transportation investments:

• A tax credit of up to $40,000 tax credit for commercial zero-emission vehicles.
• $1 billion in grants for heavy-duty vehicles like school and transit buses and garbage trucks.
• $3 billion for the U.S. Postal Service to purchase zero-emission vehicles and related infrastructure.
• $3 billion in grants to reduce air pollution at ports.
• $60 million to reduce diesel emissions resulting from goods movement in low-income and disadvantaged communities.

Domestic manufacturing and decarbonizing industry

The law will create good-paying clean energy and manufacturing jobs throughout the U.S. — positioning our country to take hold of the $23 trillion global clean energy market expected by the end of the decade.

Sixty billion dollars in investments for clean energy technology manufacturing will help maximize American jobs building electric vehicles, solar, wind and more, while minimizing supply chain disruptions.

The legislation also includes nearly $6 billion in grants to help energy-intensive industrial facilities reduce emissions.

Other notable manufacturing and industrial investments:

• $500 million for use of the Defense Production Act to accelerate domestic clean energy manufacturing for technologies like solar and critical electric grid components.
• $2 billion for grants to retool existing auto manufacturing facilities to manufacture clean vehicles.
• Up to $20 billion in loans to build clean vehicle manufacturing facilities across the country.
• $4 billion for the General Services Administration and Federal Highway Administration to acquire and install low-carbon construction materials.
• $250 million to enable carbon-intensity reporting for construction materials and products.

Environmental justice

The law invests $60 billion in environmental justice, an important step toward addressing legacies of disinvestment and pollution burden in mostly Black, Latino, Indigenous and low-income communities — and ensuring these communities benefit from a clean energy future.

This includes $3 billion in block grants and additional funding to address air pollution with better health data, using innovative technology to identify pollution hotspots and blind spots.

Continued leadership from environmental justice communities on how and where investments are made is imperative.

We must prioritize environmental justice concerns as emerging technologies are developed and deployed; ensure strong community consultation processes are built into any new siting and permitting discussions; and define health thresholds that ensure no additional harms will be experienced by communities.

Nearly 150 million Americans live in areas with unhealthy levels of air pollution. Health harms fall most heavily on Black, Latino, Indigenous and low-income communities because coal-fired power plants, oil refineries, petrochemical plants, ports, highways and other sources of air pollution are more likely to be located near them.

While the legislation ushers unprecedented resources toward environmental justice, much more is needed.

Other notable environmental justice investments:

• $3 billion for block grants to reduce air pollution, mitigate climate and health risks, increase climate adaptation, and facilitate community engagement in public processes.
• $3 billion in grants to reconnect communities disconnected by transportation developments through community-led projects that address neighborhood equity, safety and affordable transportation.
• $1 billion grant program to make affordable housing more energy efficient.
• $388 million for air quality monitoring, data and enforcement, including $117 million for communities near industrial sources of pollution.
• $1.5 billion in competitive grants for tree planting and other activities to reduce urban heat challenges in underserved areas.

Curbing methane pollution

The Inflation Reduction Act will create a program to tackle methane — a greenhouse gas that’s more than 80 times as potent as carbon dioxide for the first 20 years after emission.

The program complements critical Environmental Protection Agency regulations to drive down methane emissions from oil and gas operations that waste energy resources, harm our health and drive climate change.

Details on the Methane Emission Reduction Program (MERP):

• MERP will assess a charge on wasteful methane emissions by the largest oil and gas polluters above levels based on the industry’s own targets, starting in 2024 at $900/ton of methane.
• The program allocates funding for the EPA to monitor methane emissions, improve emission estimates and support disadvantaged communities impacted by pollution from oil and gas operations.

Climate-smart agriculture and climate resilience

The law contains vital investments that put rural communities at the forefront of climate solutions, including nearly $21 billion in funding for climate-friendly agriculture.

This funding will create jobs while helping U.S. farmers and rural communities cut emissions and prepare for climate impacts. Farmers and rural communities are on the frontlines of climate change, with higher temperatures and changing rainfall making it harder to grow food.

The legislation also funds coastal resilience solutions — including $2.6 billion to the National Oceanic and Atmospheric Administration — that help protect coastal communities, ecosystems and infrastructure in the face of growing climate threats.

Other notable resilience investments:

• $5 billion in funding for forests, including significant funding for natural climate solutions like reforestation and building resilience to catastrophic wildfires.
• $150 million to NOAA to accelerate advances in weather, ocean, coastal and climate research, observation systems, modeling and forecasting.

It’s important to note that this deal is not perfect. It does have trade-offs, including reinstating offshore oil and gas lease sales that could increase emissions and cause air and water pollution, but on the whole, the Inflation Reduction Act is a huge win for the economy and climate.

This historic law will deliver lower energy costs, healthier communities and historic progress in the fight against climate change.