After months of negotiations among Democrats in the U.S. Senate, President Joe Biden signed new legislation today focused on reducing carbon emissions and steering consumers toward green energy. Mr. Biden signed the Inflation Reduction Act during a small ceremony at the White House today, with plans for a larger “celebration” for the legislation on Sept. 6, once lawmakers return to Washington.
U.S. House of Representatives approved the new legislation on Friday on a party-line 220-207 vote. The Senate approved the legislation on Aug. 7, after a marathon, 27-hour weekend session.
The US$430-billion bill represents the country’s largest single investment to combat climate change, earmarking US$369-billion for climate and energy programs. It would put the United States on a path to slashing carbon emissions by roughly 40 per cent by 2030.
Here are the details of the bill, including how it will address the climate crisis and how consumers will benefit.
What is in the historic climate bill?
On Aug. 16, Mr. Biden signed a sweeping US$430-billion bill intended to fight climate change, lower drug prices and raise some corporate taxes. The U.S. House of Representatives passed the measure on Aug. 12, while it passed in the Senate days earlier on Aug. 7.
The legislation, known as the Inflation Reduction Act of 2022, is aimed at reducing carbon emissions and shifting consumers to green energy, while cutting prescription drug costs for the elderly and tightening enforcement on taxes for corporations and the wealthy.
The 725-page piece of legislation provides US$369-billion for climate and clean energy provisions, which supporters have heralded as Washington’s largest-ever climate-change-fighting initiative.
The bill’s success in the Senate and the House of Representatives is a major win for Mr. Biden, after months of his green agenda being overshadowed by fears about runaway consumer prices and the looming threat of recession.
Which politicians voted for the Inflation Reduction Act?
After a 27-hour weekend debate session in the Senate, the Inflation Reduction Act passed 51-50 with Vice-President Kamala Harris breaking the tie. The legislation is part of a reconciliation budget that could only be passed with all 50 Democratic votes in the Senate, owing to unified Republican opposition.
The package is the product of intraparty negotiations and Senate Majority Leader Chuck Schumer worked to unify the Democratic caucus around the bill.
Democratic Senator Joe Manchin of West Virginia announced a surprise deal with Mr. Schumer that paved the way for the final passage. Mr. Manchin, who has made millions from investments in coal and gas, added a list of adjustments – including a name change – to the bill after previously saying he would not support any climate provisions until he had a better understanding of the most recent inflation figures.
After a day of negotiations, Democratic Senator Kyrsten Sinema of Arizona also offered her support of the bill – joining the rest of the Democratic party in backing the Inflation Reduction Act. She agreed to “move forward” with the bill after party leaders agreed to change the structure to a proposed 15-per-cent minimum tax on corporations and drop a tax increase on some wealthy hedge fund managers and private equity executives.
The House of Representatives voted 220-207 along party lines to pass the measure.
What tax credits and incentives are included in the bill?
While the bill would offer large tax credits for clean energy manufacturing, it also would include incentives that would help lower consumer energy costs, like tax credits to retrofit homes and purchase electric vehicles.
Here are the highlights of how the bill would affect industry:
- US$30-billion in tax credits to speed up the production of solar panels, wind turbines, batteries, and critical-minerals processing
- US$10-billion investment in tax credits to build facilities that manufacture electric vehicles, wind turbines and solar panels
- US$500-million through the Defense Production Act for heat pumps and critical-minerals processing
- US$27-billion toward the creation of a “clean energy technology accelerator” to support the deployment of technologies to reduce emissions, especially in disadvantaged communities
- US$20-billion to promote climate-friendly agricultural practices, and US$5-billion in grants to support fire-resilient forests, forest conservation and urban tree planting
The bill would also force oil and gas companies to pay fees as high as US$1,500 per tonne to address excess leaks of methane during drilling, transport, storage and processing. As part of concessions made to win over Mr. Manchin, the fee only applies to companies that emit 25,000 tonnes of CO2 equivalent per year, effectively exempting around 60 per cent of industry emissions, according to an analysis of the bill by the Congressional Research Service.
Here are the highlights of the bill’s impact on consumers:
- US$90-billion in consumer home energy rebate programs, focused on low-income consumers, to electrify home appliances and for energy-efficient retrofits
- A US$7,500 tax credit to buy new electric vehicles and a US$4,000 credit for buying a used one
- 10 years of consumer tax credits to make it easier and more affordable to buy heat pumps, rooftop solar and water heaters
- US$1-billion grant program to make affordable housing more energy-efficient
How is the bill affecting the stock market?
Shares of U.S. automakers jumped on Monday after the U.S. Senate passed the bill, which includes the tax credit for used electric vehicles and provides billions in funding for their production. Rivian Automotive Inc. rose 6.8 per cent, Ford Motor Co gained 3.1 per cent, General Motors Co. added 4.2 per cent, and Lordstown Motors Corp. advanced 3.2 per cent.
The bill could shave corporate earnings slightly and make companies bring forward their share repurchase plans, according to a report in Reuters. The bill would impose a new excise tax on stock buybacks and a minimum 15-per-cent tax on corporations. The two taxes are estimated to lower 2023 earnings per share of S&P 500 companies by roughly 1.5 per cent, according to a research note by Goldman Sachs, which said that larger declines would be expected in sectors with low effective tax rates, such as health care and technology.
What could the U.S. climate change bill mean for Canada?
For Canada, a massive opportunity lies in the legislation’s electric-vehicle incentives, notably the tax credit, writes The Globe’s Jeffrey Jones. Although the White House’s previous plans excluded foreign-made cars from the tax credit, the new bill specifically extends the incentives to electric vehicles built throughout North America.
The auto industry has been critical of the incentives, saying they would not apply to enough vehicles on the market today because of the number of car components that come from other countries, notably China. But manufacturers could solve that problem by sourcing North American parts. The proposals in the legislation also require that the critical minerals used to build batteries for electric vehicles be produced or processed in countries with which the U.S. has free-trade agreements. Canadian mining companies are already looking to boost domestic supplies of those minerals.
The Inflation Reduction Act will also create a big tax challenge for Finance Minister Chrystia Freeland. In October, 2021, a global minimum corporate tax rate of 15 per cent was agreed to by 137 countries that are members of the Organisation for Economic Co-operation and Development (OECD).
Ms. Freeland’s 2022 federal budget specifically mentioned the fact that proposed U.S. legislation planned to implement the 15-per-cent minimum corporate tax rate. However, that provision was dropped as part of a major backroom revision on the Inflation Reduction Act. If the OECD agreement is not implemented, Canada will bring in its own 3-per-cent tax on the digital revenues of large multinationals. The move could expose U.S. corporations to billions of dollars in new tax liabilities and complicate economic relations between Canada and its biggest trading partner.
With files from Jeffrey Jones, Bill Curry, David Shribman and Reuters
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