THERE'S A LOT in the so-called Inflation Reduction Act - modest tax hikes, a huge increase of IRS funding, the beginnings of prescription drug negotiations, etc. But the biggest standout is the stunning environmental provisions. Activists are happy; a dramatic move toward cleaner air is coming.
PROPONENTS OF THE BILL believe U.S. emissions will be cut by as much as 40% by 2030, which would put pressure on other nations to reciprocate; the measure would spend $369 billion on environmental and energy provisions. The House will approve the bill later this week and President Biden will sign it within a week.
CHUCK SCHUMER GETS A LOT OF CREDIT ON CLIMATE: He calls it "the boldest climate package in U.S. history," and it's hard to disagree with him. "It will kick-start the era of affordable clean energy in America. It's a game changer, it's a turning point, and it's been a long time coming," he said.
THE DEMOCRATS WANTED TO SPEND EVEN MORE (they always do), but this bill is by far the biggest outlay ever in the U.S. on green programs - and it even provides for more drilling and exploration of fossil fuels, which Sen. Joe Manchin demanded, and he got a promise to re-visit the issue of energy "permitting."
ENVIRONMENTAL PROVISIONS IN THE BILL: Billions of dollars to expand wind and solar power production, subsidies for purchases of electric vehicles, funding for people to install energy-efficient heating and cooling systems in their homes and money to retrofit buildings.
AND THERE WILL BE $1.5 billion available to oil companies to reduce greenhouse gas emissions and penalties for those that fail to do so. Democrats agreed to mandate new oil and gas leasing in the Gulf of Mexico and off the coast of Alaska, which the industry favors.
IRONICALLY, REPUBLICANS WERE GRUMBLING in the past week about a lack of support from the oil industry in opposing the bill, according to a juicy article in this morning's Wall Street Journal. Republicans point to a provision in the bill that would reinstate the so-called Superfund tax on crude oil and imported petroleum products to fund the cleanup of polluted industrial sites.
THE BILL WILL help develop technologies such as carbon capture and sequestration, hydrogen and small nuclear reactors. The new and expanded tax credits for low-carbon technologies would remain on the books for a decade, providing certainty to clean energy developers who have faced regular lapses in the incentives, Politico points out this morning. The bill also includes a fee of up to $1,500 a ton for methane emissions.
VIRTUALLY ALL EXPERTS BELIEVE THE BILL will dramatically increase the need for labor (thousands employees for the IRS and thousands to retrofit). This raises the issue of where the workers will come from. The extraordinarily tight labor market may revive an immigration reform debate next year.
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WILL THIS HUGE BILL HELP THE DEMOCRATS IN NOVEMBER? Probably a bit, but the more important election narrative remains inflation, which makes this week's data crucial: CPI on Wednesday, PPI on Thursday. Both numbers are expected to show small improvement, but probably not enough to avoid a 75 basis point rate hike from the Fed next month.
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