It turns out the planet might have a future after all. Following a period of acute and rising pessimism, the US Congress — and President Joe Biden — have pulled off the most significant climate change bill in American history.
The fact that almost every observer, including many Democrats, had written off any chance of a breakthrough makes it all the sweeter. The bill, misleadingly named the Inflation Reduction Act, will also empower the US government to negotiate lower prescription drug prices and provides more generous healthcare subsidies for millions of Americans.
These are milestones in their own right. But the game changer is the bill’s clean energy provisions. After more than a generation of trying, and many years later than would have been desirable, Washington is finally taking a lead on global warming. On this basis, Biden has earned a place in the history books.
The fact that Congress was still unable to embrace a carbon tax — a step that most economists insist will nonetheless be essential — should not cloud the bill’s impact. Political reality dictated that the stick of higher taxes could not come before the carrot of renewable tax subsidies. In spite of that, it passed the US Senate without a single Republican vote.
It is conceivable that the effects of these subsidies, which are forecast to enable the US to reduce carbon emissions to 40 per cent below 2005 levels by 2030 — within striking distance of the US goal of halving emissions by then — will make it easier to sell a carbon tax further down the road. As the US energy portfolio shifts towards greener sources, public opinion could reach a tipping point. But that moment is far off. Biden’s Democrats are still liable to be punished for high petrol price inflation in the midterm elections this November.
The bill’s long-term significance is likely to be two-fold. First, its $369bn fiscal outlay over the next decade will crowd in private investments. It will provide a taxpayer-funded rocket booster to a range of cleaner energies, including electric vehicles, wind and solar output, and research on carbon sequestration, hydrogen conversion and small-scale nuclear reactors. Federal investments will give the far larger universe of private capital every incentive to step up.
Given the imperfect nature of public subsidies, some of the dollars will go into the wrong pockets. Some will bankroll activity that would have happened anyway. There are also questions about whether America’s big electric vehicle producers, such as Tesla and GM, can meet the local content thresholds required to unlock the tax breaks of up to $7,500 per vehicle. Moreover, on pure tax fairness grounds it is disappointing that Congress once again failed to close the carried interest loophole — this time at the insistence of Arizona senator Kyrsten Sinema. But these are minor concerns compared to the big prize.
The second effect will be to boost America’s ability to kindle a sense of global urgency. It is unfortunate that the bill’s passage coincided with China’s announcement that it would suspend talks with the US on climate change. Beijing, which was angered by House Speaker Nancy Pelosi’s visit to Taiwan last week, risks cutting off its nose to spite its face. Whatever the bilateral tensions, both China and the US have a duty to humanity’s larger interests. By the same token, Germany’s announcement late last month that it plans to invest €177bn in energy efficiency and green energy over the next four years is very welcome.
As America endures what is forecast to be its hottest summer on record for the second consecutive year, the era of theoretical global warming has long since passed. The time for action was yesterday. But today is still far preferable to tomorrow.