Five Key Takeaways from the Inflation Reduction Act

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(Credit: Johns Hopkins University)

by | Mar 13, 2023

Sponsored Content by: Johns Hopkins University

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The Inflation Reduction Act (IRA), signed into law by President Joe Biden in August 2022, is widely considered to be the largest investment in combating climate change in U.S. history. It is a turning point in the country’s response to the climate crisis, and it is being watched closely by everyone interested in the future of clean energy.

“The IRA […] fundamentally reframes how the government approaches climate change,” said Jonas Nahm, assistant professor of energy, resources, and environment at the JHU School of Advanced International Studies in MIT Technology Review. “After decades of understanding climate policy as primarily about cutting emissions, the IRA pitches it as an opportunity to invest in new sources of economic growth.”

While the full impact of the act is yet to be seen, there are already some notable takeaways to consider.

1. The historic legislation brings the country closer to meeting U.S. climate goals.

The IRA alone may not fully achieve the Biden administration’s goal of reducing half of all carbon emissions by 2030, but a Department of Energy analysis estimates that the bill could reduce emissions by about 40 percent in that time frame. International leaders are also optimistic: during a talk at the World Economic Forum in Davos, Fatih Birol, the executive director of the International Energy Agency, called the IRA the most significant climate action since the 2015 Paris Agreement.

2. Experts say more comprehensive change is needed, especially to meet Paris Agreement targets.

Climate experts agree that the act is a promising development, but it will not be enough to achieve the Paris Agreement’s two-degree limit for global temperature change. They say that more comprehensive action is needed, including reducing greenhouse gas emissions, promoting clean energy, and transitioning to a low-carbon economy.

Others point to additional economic solutions. For example, Johns Hopkins University Professor of Environmental Management Benjamin F. Hobbs explained that tax credits are only a partial solution.

“There is much more to be done to achieve our zero carbon goals by midcentury,” said Hobbs. “Full decarbonization will be affordable if we use tax, utility pricing, and other policies to set a consistent price on carbon throughout the economy.”

3. The U.S.-first approach will require a build-up of resources in the country.

A major goal of the act is to move clean energy manufacturing to the United States. The IRA’s $43 billion in tax incentives include measures such as an electric vehicle tax credit that gives consumers $7,500 per vehicle — but only if that vehicle underwent final assembly in North America, among other restrictions.

The U.S.-centric approach has raised questions about whether the country is ready for such a vast domestic demand. “The IRA is essentially the opening move in a process of catch-up development for the United States,” said Nahm. “That’s exciting and ambitious, but also a novel test for domestic institutions that are not set up for this purpose.”

Not only will the U.S. need to step up funding, but it must also be ready to rapidly train and expand its relevant workforce.

4. The IRA is likely to impact politics as much as the economy.

The consequences of the act are likely to reach far beyond mitigating climate change and reducing inflation and could have significant implications for the country’s political system and its players.

“The IRA puts economic opportunities rather than economic costs at the center of the climate policy conversation,” said Nahm in a Washington Post analysis with Georgetown’s Joanna Lewis and JHU’s Bentley Allan. “That may transform America’s economy — and perhaps its politics, too.

“The scramble to meet domestic content requirements will lead to a rapid build-out of domestic manufacturing capacity for electric vehicles, batteries, wind turbines, solar panels, and the components and materials required to produce them,” the researchers explained. “As states compete for these investments, many new plants will inevitably be constructed in parts of the United States where voters to date have not considered climate change a key priority.”

5. A more stable economy will drive clean-energy innovation.

As the act’s name implies, stabilizing the economy is a key goal, and if it is successful, this will create a prime economic environment for businesses and innovators. A stable economy can make investors more willing to support research and development. This combined with the bill’s financial incentives could accelerate new sustainable energy tech.

“The extension of tax credits for carbon dioxide capture and the introduction of credits for clean hydrogen generation are very exciting,” said Jonah Erlebacher, a professor in the Department of Materials Science and Engineering at the Ralph O’Connor Sustainable Energy Institute (ROSEI). “They should really drive innovation and adoption of advanced clean energy technologies like the ones being developed here at ROSEI.”

For more details on the IRA’s impact on renewable energy, including a look at what’s next in climate policy, read “The Inflation Reduction Act and Renewable Energy Policy” on the Johns Hopkins School of Advanced International Studies blog.

The Inflation Reduction Act is opening up historic opportunities for those who want to lead clean-energy breakthroughs. Those who have the strategic knowledge and analytical skills to make the right moves will be able to advance their careers or businesses all while contributing to some of the most important energy and climate improvements in our lifetime.

Learn more about how you can shape the future of clean energy with a Master of Arts in Sustainable Energy (online) from the Johns Hopkins School of Advanced International Studies.

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