Good things come to those who wait – The US passes Climate Bill

Being a climate activist in the US is an exercise in patience. They’ve suffered 30 years of pain to tackle the US’s rigid political system to fight for climate legislation, and as of last Friday, they finally won. The Inflation Reduction Act was passed by Congress on Friday evening and was signed by President Biden on Tuesday evening.

This is the first significant climate legislation ever passed in the US, the world’s largest economy and the biggest polluter in history. Previous failures go as far back as 1992, when Bill Clinton attempted to introduce the BTU tax. Since then, every President bar Trump has tried and failed, with many expecting Biden to fall to the same fate after his Build Back Better spending plan was torpedoed by the Senate.

The Bill will inject at least $369 billion into the US clean energy economy from now until the end of the decade, with much of the stimulus taking the form of tax credits focused on decarbonising the US power sector. This sector currently accounts for one quarter of US emissions and the hope is that investments in mature, clean technology like wind, solar, storage and nuclear power will help the US meet its commitment to reduce emissions by 50% by 2030.

The legislation will also prioritise support for the US’s fledgling electric vehicle (EV) industry. The US EV market is only a fraction of the size of Europe’s and China’s, but expect this to change if this legislation has the desired effects. The stimulus is designed to make electric vehicles more accessible and affordable to the average American, someone that up until now has shied away from electric cars. It should be a huge win for local manufacturers like Tesla and GM.

As well as supporting mature industries like solar, wind and electric vehicles, this stimulus is also focusing on new technologies such as carbon capture and hydrogen. Dominance in these industries is still up for grabs on the global stage and with these changes, it is hoped that the US can flourish in these nascent industries. In terms of Hydrogen technology, the US will now be a global leader in terms of public funding, as shown in this graph:

* Other includes Belgium, China, Romania, Finland and Estonia

Source: BloombergNEF

The Bill should revitalise the US clean energy sector, with an emphasis on the US. To get the deal over the line, most of the credits are dependent on the creation of US jobs and developing supply lines to the ultimate benefit of US manufacturers. For example, electric vehicle credits will be dependent on whether the batteries used in those vehicles are assembled in the US and the component materials sourced domestically or from agreed US trading partners. The legislation has one eye on saving the planet and the other on taking away China’s dominance in this area.

Whilst making US manufacturing more competitive was key for this legislation being signed off, there are other reasons for the change of heart from US politicians. Firstly, the impacts of climate change are clearer than ever before. In June this year, for example, nearly one-third of the American population was under some form of heat advisory warnings. And these conditions have been mirrored across the northern hemisphere. Even for US politicians who are normally allergic to change, it is increasingly clear that the time to act is now. The war in Ukraine has further focused politicians’ minds, who realise that energy sovereignty can only be achieved by investing in renewable technology.

The US now joins the EU and China in having national climate legislation. Having the three largest trading blocs now pulling in the same direction is a massive win for climate activists. As the US starts to develop its clean technology, you could see a green arms race develop between the three regions. However, critics of the stimulus argue it is not enough and still lagging behind the ambitions of other countries.

Take China for example, it is the world’s leading country in electricity production from renewable energy sources, with over three times the energy generation of the US. China released its 14th Five-Year Plan for renewable energy on 1 June this year, outlining the country’s renewable energy roadmap for 2021-2025. China’s climate pledge aimed for 1,200 gigawatts of wind and solar power capacity by 2030, and for 25% of energy consumption to be met by non-fossil fuels by 2030.

So, the US still has a lot to do if it wants to catch up with Europe and China, but that doesn’t take away the importance of this change in direction. Seeing a laggard finally clean up its act will push other countries to improve and revitalise those patient climate activists for the next 30 years.