The Inflation Reduction Act: A Climate Down Payment, but Doubts on Environmental Justice

August 5, 2022

The Inflation Reduction Act (IRA) is a necessary step forward for climate solutions and clean energy development. The generous tax incentives it provides for renewable energy and cleaner energy sources will help drive down greenhouse gas emissions in the electricity supply and help leverage the continuing trajectory of cost-competitiveness for renewables–a particularly notable benefit given the role of fossil fuel energy prices in driving up inflation over the last year. The bill would also impose a methane emissions fee on the oil and gas industry, starting at $900 per ton in 2024–a welcome advance in emissions control for this potent greenhouse gas. 

However, even at $369 billion, the climate provisions in the IRA are, at best, only a small down payment toward decarbonizing our economy on a scale that is sufficient to avert climate catastrophe. Given the 10- to 15-year window we have to prevent locking in significantly greater warming, it’s important to grasp that the IRA is a 10-year bill, which means annual spending of about $37 billion—equal to only 4 percent of next year’s defense budget of $840 billion and a far cry from the $1 trillion per year it would take to fully decarbonize the US economy by 2030. 

Furthermore, its heavy reliance on energy tax credits, rather than direct investment in communities, curtails the potential for a just energy transition—especially since the IRA removes direct pay for tax credits related to renewables (but not for hydrogen or carbon capture and storage). 

Tax credits tend to reproduce, not reduce, existing economic inequities, especially by race, and the IRA does not do enough to address this problem. A glaring example is that residential credits are not refundable under the IRA (unlike in Build Back Better), which means that approximately 40 percent of households with little or no federal income tax liability—disproportionately people of color—will continue to be largely excluded from installing rooftop solar, heat pumps, and other clean energy resources.   

In addition to its insufficient scale and equity gaps, the IRA also ties the development of solar and wind projects to further expansion of fossil fuel leasing and potential production. While the emissions impact of this policy is unclear, it opens the door to more fossil fuel development when the door should be slamming shut. 

Further, many environmental justice leaders are alarmed by a significant expansion of incentives and other support for carbon capture and other technologies that enable continuing use of fossil fuels, as well as by support for non–fossil fuel combustion sources such as hydrogen and biofuels that can directly and indirectly harm frontline communities. For example, compared to natural gas, burning hydrogen in industrial settings could potentially cause as much as six times more nitrogen dioxide pollution, a potent source of respiratory disease. 

Despite these legitimate concerns, the IRA does clearly address environmental justice with a set of positive investments–officially tallied at roughly $60 billion–that reflect some important priorities of the environmental justice movement. These include $3 billion for environmental justice block grants; $3 billion for projects and investments that reconnect communities by remediating historic infrastructures designed to segregate and isolate communities of color; and $3 billion to reduce pollution from ports. There is also significant investment in home energy efficiency for low-income households and affordable housing; and one innovative aspect of the IRA, a national green bank, targets a majority of investment for disadvantaged communities. 

However, while the scope of these investments is impressive, again, the scale is woefully inadequate. They comprise a mere 16 percent of the overall climate package, falling short of the share of environmental justice investments in Build Back Better and, more notably, falling well short of the Biden administration’s own Justice40 (J40) standard of targeting 40 percent of overall climate-related investment for the benefit of disadvantaged communities. And, again, this is a 10-year plan, which means only $6 billion per year in new environmental justice investments—less than 1 percent of the nondefense discretionary budget. 

Nevertheless, to make the most that we can of these resources, it is essential that agencies provide guidance on and oversight of funding implementation. For example, agencies should work with states to help them target resources—especially resources provided through formula funding, where states have the most discretion—to the most disadvantaged communities. This could be aided by requiring or strongly encouraging the use of J40 tools such as the Climate and Economic Justice Screening Tool

Attention to implementation should be complemented by ensuring that community organizations have the resources they need to pursue and secure federal resources, whether through formula funding or competitive grant programs. Philanthropists need to greatly increase the small fraction of foundation funding currently devoted to people-of-color-led grassroots climate groups in order to ensure they have the resources they need to take a leading role in implementation processes. This burden will only grow if Congress passes the package of environmental permitting reforms promised to Senator Manchin in exchange for his support of the IRA, which would gut key pieces of legislation that environmental justice organizations rely on to push back against fossil fuel expansion and the development of other harmful projects affecting disadvantaged communities.  

The IRA is undoubtedly a product of compromise both in terms of its scale and scope. It is a good step forward in some respects and worrisome in other respects, and there is no doubt that our nation’s dedicated work to combat climate change is only just beginning, even as the threat is accelerating. 

As we increasingly recognize the costs of inaction and how the risks and vulnerabilities faced by disadvantaged communities and people of color harm us all, more urgent and larger-scale commitments will continue to be imperative. In the meantime, the administration’s commitment to robust implementation and oversight of the authorized spending is essential to ensure that all applicable resources reach the communities most in need of new investment.  


Read more Roosevelt analysis of the Inflation Reduction Act.