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The U.S. Inflation Reduction Act: A Climate Solution

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The Inflation Reduction Act is a complicated and lengthy but incredibly important legislation. It encourages businesses to switch to renewable and clean energy by making it cheaper and more accessible due to grants, tax credits, investment credits, etc. Signed into law in August of 2022 by U.S. President Joe Biden, this US$360 billion investment  boasts about its ability to make this resource affordable and profitable for the country, among other things. As we see from the list below, this act hopes to do many things for the United States.

According to the U.S. government, the Inflation Reduction Act:

  • Enacts historic deficit reduction to fight inflation
  • Lowers energy costs, increases cleaner production, and reduces carbon emissions by roughly 40% by 2030
  • Allows Medicare to negotiate drug prices and caps out-of-pocket costs to $2,000
  • Lowers ACA health care premiums for millions of Americans
  • Make the largest corporations and ultra-wealthy pay their fair share
  • There are no new taxes on families making $400,000 or less and no new taxes on small businesses

What does the Inflation Reduction Act offer?

In this section we will turn the focus to the second point: “lowers energy costs, increases cleaner production, and reduces carbon emissions by roughly 40% by 2030”.

The IRA offers investment and opportunities in supporting electric vehicle projects, including building power infrastructure. There will be support for consumer rebates encouraging people to get electric vehicles and build the infrastructure needed to charge them at home. The IRA will implement incentives to encourage Americans to convert to more renewable energy at home, such as installing solar, heat pumps, etc. These changes could save households thousands in energy bills and allow more stability and predictability in prices.

The U.S. Inflation Reduction Act: Climate Solution
Charging an Electric Vehicle

The revised clean electricity tax credits encourage and expand renewable energy sources such as solar, wind, geothermal, and nuclear. This tax credit includes “the first-ever 10-year runway for energy tax incentives”. The entire ten years can be used to their full potential by investors, manufacturers, and others to thoroughly plan and build any clean energy projects.

It also aims to support domestic manufacturing by using American-made products by expanding tax credits for clean-energy manufacturing. There are also extra tax credits specifically for heavy manufacturing of things like cement to work to reduce emissions. The IRA can award bonus credits if elements are domestically made.

Also offered by the IRA are grants, such as those provided for climate justice to help low-income and disadvantaged communities. These grants for the community aim to support monitoring and remediation efforts, assist in policy-making, and mitigate the urban heat island effect. The urban heat island effect is due to the large concentrations of pavements, buildings, and other areas that will retain heat, making the overall metropolitan area hotter.

The Greenhouse Gas Reduction Fund offers $27 billion for low and zero-emission projects. The money is broken down into:

  • $7 billion – rooftop solar and air-pollution abatement technologies in disadvantaged communities 
  • $8 billion – financial and technical assistance for clean energy projects benefiting low-income and disadvantaged communities
  • $12 billion – direct and indirect in renewable energy projects nationwide

Due to its hand in the climate crisis, investments in industrial agriculture were encouraged. These investments aim to assist farmers in shifting to more sustainable practices such as Regenerative Agriculture. It also aims to invest in research into current agriculture’s effect on the climate. Money is also invested in resilience and conservation solutions for carbon sinks such as the ocean and old-growth forests. This is done by providing grants to projects protecting forests, coastal resilience, communities, and ecosystems.

Many other investments, grants, etc., are offered. If you are interested in learning more, visit/download the summary provided by the U.S. government HERE.

Global Competition

Though these changes may take time, there will likely be a ripple effect worldwide. Supply chains and the overall benefit of reduced GHG (greenhouse gas) emissions will be affected. There will also be the likelihood of competition as countries work to meet the changes the U.S. will make. Governments and businesses need to be able to promise certainty and stability over time for investors.

Here in Canada, as we border the U.S., many investors and developers could move south with their businesses if we cannot keep up. However, there are also possible benefits, such as export opportunities for Canada.

So what can Canada do to ensure they are not left in the dust? The Climate Institute suggests three possible options.

The first option includes strengthening Canada’s existing policies, such as carbon pricing, regulations, and subsidies. Using the current guidelines to their full potential and enhancing market signals to encourage investor confidence.

The second possible option is to implement our own “Inflation Reduction Act,” with Canada implementing similar investments and subsidies for clean energy. Suppose Canada matches the ambition of the U.S. with this act. In that case, some Canadian issues may be solved, such as the cost-of-living crisis, as households could apply for energy transition subsidies.

The third option is for a middle path. This option would be a bit of both previous options by strengthening current policies and introducing some subsidies.

These options all come with their risks and disadvantages that need to be taken into consideration.


Barbanell, M. (2022, October 28). A Brief Summary of the Climate and Energy Provisions of the Inflation Reduction Act of 2022. World Resources Institute. https://www.wri.org/update/brief-summary-climate-and-energy-provisions-inflation-reduction-act-2022

Beck, M. (2022, November 02). Responding to the Inflation Reduction Act: What are Canada’s options? Canadian Climate Institute. https://climateinstitute.ca/inflation-reduction-act-what-are-canadas-options/

Democratic Senate. (2022). Summary: The Inflation Reduction Act of 2022 [PDF]. https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf

Earthjustice. (2022). What the Inflation Reduction Act means for Climate. https://earthjustice.org/brief/2022/what-the-inflation-reduction-act-means-for-climate

Frangoul, A. (2022, November 30). Biden’s Inflation Reduction Act makes green hydrogen profitable at scale, Goldman Sachs says. CNBC. https://www.cnbc.com/2022/11/30/the-ira-makes-green-hydrogen-profitable-at-scale-goldman-says.html

United States Environmental Protection Agency. (2022). Reduce Urban Heat Island Effect. https://www.epa.gov/green-infrastructure/reduce-urban-heat-island-effect

About Post Author

Alicia Advincula

Alicia graduated from the University of Guelph with an Honours Bachelor of Bio-Resource Management degree in Environmental Management in 2020. Through the years of 2020-2022 she completed a Certificate in Business and a Certificate in Environmental Conservation also at the University of Guelph, to broaden her understanding and skills in these areas. Alicia’s passions lie in Environmental Education, Sustainability, Corporate Social Responsibility (CSR) and Environmental, Social, Governance (ESG). In her free time she enjoys working on her knowledge and skills in these areas, completing multiple ISO and other CSR and ESG online courses
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