This bill just might catalyze a crucial energy transition.
After all the false starts and dashed hopes of the past two years, I’m reluctant to count my chickens before they’ve actually been signed in the Oval Office. Still, it appears that Democrats have finally agreed on another major piece of legislation, the Inflation Reduction Act. And if it does become law, it will be a very big deal.
First, would the law, in fact, reduce inflation? Yes, probably — or at least it would reduce inflationary pressures. That’s because the legislation’s increased spending, mainly on clean energy but also on health care, would be more than offset through its tax provisions; so it would be a deficit reduction act, which other things being equal would make it disinflationary.
But you want to think of the Inflation Reduction Act as being like the National Interstate and Defense Highways Act of 1956, which probably did strengthen national defense a bit but mainly benefited America by investing in the nation’s future. This bill would do the same, and maybe even more so.
To understand why this bill inspires so much hope, it’s helpful to understand what has changed since Democrats’ last big effort to deal with climate change, the 2009 Waxman-Markey bill, which passed the House but died in the Senate.
The core of Waxman-Markey was a “cap and trade” system that would, in practice, have operated a lot like a carbon tax. There were and are good arguments for such a system, which would give companies and individuals an incentive to cut emissions in multiple ways. But politically, it was easy to portray it as an eat-your-spinach plan, one demanding sacrifices from ordinary workers.
With the failure of Waxman-Markey, the Obama administration was reduced to a much more limited agenda, one that relied on carrots rather than sticks — tax breaks for clean energy, loan guarantees for companies investing in renewables.
