Joe Biden’s climate law is too valuable to repeal
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Gabriel Rubin
WASHINGTON, Sept 18 (Reuters Breakingviews) -Rare is the politician who turns down an invitation to a ribbon-cutting ceremony, especially one that comes with the promise of hundreds of manufacturing jobs. In 2022 no Republican members of Congress voted for U.S. President Joe Biden’s signature climate investment law, yet its most lucrative provisions are likely to survive even a possible return of Donald Trump to the White House. A gusher of private investment and strategic placement of projects in Republican-leaning areas has made the Inflation Reduction Act too valuable to repeal.
Trump is no ally of climate policy. The former president opposes tax credits for electric vehicles, endorses conspiracy theories about offshore windmills, and prefers to open up federal lands for oil wells rather than solar farms. If he were to win office while Republicans took control of Congress, he would likely appoint climate skeptics to key administrative posts and roll back environmental rules. But the nominee has also spoken favorably of expanding nuclear power and has diluted somewhat his opposition to battery-powered cars, perhaps in part due to his courtship of Tesla TSLA.O CEO Elon Musk. That has allowed members of his party leeway to support some green initiatives.
Crucially, there has been no significant groundswell of opposition to the IRA, unlike the organized campaign against President Barack Obama’s healthcare law in 2010, which swept Republicans into control of Congress and statehouses throughout the country. On the contrary, Republican gripes against climate policy have focused on narrow issues like emissions standards for cars or skirmishes over consumption of red meat and cooking on gas stoves. The largest piece of climate legislation in American history remains largely unscathed.
The muted response has solid financial foundations. In the two years following the law’s passage, U.S. business and consumer investment in clean technologies and infrastructure totaled $493 billion, a 71% increase on the prior two-year period, according to Rhodium Group, a consultancy.
Utility-scale solar panels, batteries, and the electric vehicle supply chain have been the biggest winners. But nascent technologies like carbon capture and storage and small-scale nuclear reactors have also attracted funds from Bank of America BAC.N and oil giants like Chevron CVX.N and Exxon Mobil XOM.N. Demand for the law’s tax credits for production and investment has been so overwhelming that initial cost estimates have faced eye-popping revisions. The governmental Congressional Budget Office initially calculated the 10-year cost of the credits, most of which are uncapped, at less than $400 billion. Goldman Sachs GS.N and other forecasters reckon the final bill will be at least three times that figure.
Initially reticent Republicans have taken notice. Eighteen of the party’s members of Congress in August wrote to Mike Johnson, the Republican speaker of the House of Representatives, calling on him to protect the law’s investment and production tax credits, citing the jobs and economic activity the IRA has spurred in their districts. Given the party’s current slender grip on the House, and continuing strong support for the IRA among the Democratic caucus, those members likely make large-scale repeal of the law impossible.
The bipartisan bullet-proofing of the law didn't happen accidentally. Companies deliberately targeted investments in Republican states and districts, both to neutralize the politics of climate investments and to take advantage of more business-friendly tax regimes. Georgia, for example, under Republican Governor Brian Kemp, has successfully courted battery and solar manufacturers. South Korea’s Hanwha Qcells has announced plans to supply Microsoft MSFT.O with solar panels from its $2.5 billion factory in the state, while Hyundai Motor 005380.KSand LG 003550.KSteamed up on a $4.3 billion battery plant. An executive from VSK Energy, a solar manufacturer, last month told the Financial Times it was looking to place a photovoltaic production facility in a Republican state for strategic reasons.
Different states have stakes in disparate parts of the law. While Midwestern states might depend on production and consumer credits for electric vehicles, Nevada benefits more from incentives that encourage the mining and processing of minerals like lithium in the United States rather than relying on imports from China.
Officials in the Biden administration and Vice President Kamala Harris’s campaign have eagerly highlighted the location of climate investments. Appearing in the battleground state of North Carolina this month, Treasury Secretary Janet Yellen cited data showing that households in the state had claimed hundreds of millions of dollars in tax credits from the IRA, and dared Republicans to make the “historic mistake” of repealing them.
Yet while the IRA’s credits for production and investment would probably survive even a full Republican takeover in November’s election, other parts of the law may be more vulnerable. For instance, Republicans might freeze grants which encourage homeowners and landlords to install energy efficient heating and appliances, and repurpose the funds for other priorities. The party’s representatives could also tweak eligibility requirements for clean hydrogen and carbon capture tax credits, making them more accessible to the fossil fuel industry. Wind power projects, which come in for particular scrutiny from Trump, might find it harder to receive federal permits, while new oil wells and liquid natural gas plants would likely be fast-tracked.
If elected, Trump could use his executive authority to award new leases on federal land or change the eligibility criteria for particular programs, as these decisions don’t require buy-in from Congress.
But the core of the IRA will remain intact. Corporate investment was the linchpin in the law’s design: its tax credits were meant to be generous enough to spark a virtuous circle of investments in green technology, which would then further drive down prices and support new supply chains and jobs in the United States, placating even the most skeptical political foe. It’s hard to repeal a law with a shovel in your hand.
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Graphic: Manufacturing construction has boomed since the IRA passed https://reut.rs/3AyWKqv
Editing by Peter Thal Larsen and Sharon Lam
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