Conflict Alerts

Conflict Alerts # 543, 11 August 2022

The US: White House to invest USD 370 billion through Climate Bill
Vijay Anand Panigrahi

In the news
On 7 August, the US Senate Democrats passed the Inflation Reduction Act aiming to combat climate change, lower the cost of prescription drugs, and increase the corporate tax to extract revenue. US President Joe Biden said: “The House should pass this as soon as possible and I look forward to signing it into law". This act focuses largely on the climate crisis and will inject over USD 370 billion to reduce greenhouse gas emissions by 40 percent below 2005 levels by the year 2030. This act could become the most significant federal investment ever to have addressed the climate change battle. 

The bill suggests an increase in the production of cleaner energy through solar and wind power. It also proposes to bring down the prices of electric vehicles to boost their market demand and to provide oil companies with USD 1.5 billion to encourage them with technologies like carbon capture and sequestration. The bill also mandated the government a lease sale of around 60 million acres of federal waters for the production of oil and gas, keeping intact the availability of fossil fuels as well. 

Issues at large
Firstly, the energy consumption trajectory. The US is the second largest carbon emitter after China but has failed to live up to its greenhouse gas reduction commitments made during COP summits. The US commitment to cut its carbon emission by half by 2030 was derailed by the untimely Russian invasion of Ukraine, which created a fuel supply shortage around the world, and led the countries to look for self-reliant options. Consequently, the Biden administration has pressed for an increase in oil and gas production to combat the crisis. However, the administration has now pushed forward a bill that transforms the American energy consumption and climate policy sector. 
 
Secondly, the divided Senate. Following a 27-hour-long session, the bill was passed with a party-line vote of 51-50, which indicates the displeasure of the Republicans who claim that such heavy expenditure will only cause further deterioration of the economy. Some fellow Democrats like Kyrsten Sinema also raised opposing remarks, causing some addition and subtraction to the bill. Although there was criticism among the Democrats, they were united when it came to voting for the bill. The Republicans opposed the Democrats' claim that the bill will pay for itself by pointing out the reinstatement of the “Superfund tax.” This will reinstate taxes on crude oil and imported petroleum products thereby increasing spending.  

Thirdly, the role of the MNCs. Although the bill postulates a deliberate strain on the corporate sector, the major MNCs in the petroleum sector like Shell US, Chevron, and ExxonMobil have all lauded the introduction of the bill. However, the imposition of a minimum corporate tax on the richest corporation might not sit right with them. This tax demands a 15 percent return, which expects to bring around USD 313 billion in revenue.
 
In perspective
Firstly, the reconciliation factor. After an 18-month-long wait, the Senate passed the bill through a parliamentary manoeuvre called reconciliation, which allows approval by a simple majority. This move might return to haunt them if the policy does not fare as planned. However, manufacturing more solar panels and wind turbines will create a new job market, which will play to the advantage of the Democrats. Similarly, the lowered cost of energy consumption will be another deciding factor for the people in the upcoming elections.

Secondly, the election gamble. The Democrats are hoping that the people will understand their approach to reducing carbon emissions. However, the rising inflation is an immediate roadblock. The Democrats claim that the policy will pay for itself and will reduce the federal deficit over time, but it certainly won’t happen in three months. The Republicans have already claimed that this policy is a job-killing spending spree that will lead to a state of recession. Now, the Democrats have to play safe and not let the Republicans be proven right three months before the elections.
 
Lastly, the government’s whopping financial commitment reflects how they are not afraid to make big decisions. Moreover, the bill would bring the US to the forefront of the climate change battle. Being the second-largest carbon emitter, this action by the US will encourage more nations to take concrete steps toward saving the environment. 

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