For nearly 18 months after taking office, President Joe Biden attempted to lead a robust climate policy. Negotiations in the U.S. Congress had plenty of ups and downs with Democrats wrestling within party lines, sparking doubts about President Biden’s ability to unite his troops and triggering clashes between various party factions.
Finally, when it seemed all efforts had failed and that there was no hope of reaching an agreement before the congressional summer recess, a deal was reached, placing pivotal climate and energy legislation on President Biden’s desk for his signature. This transformative legislation – a budget reconciliation bill named the Inflation Reduction Act, or as it’s commonly referred to, the “Climate Bill” – represents the most comprehensive U.S. effort to date to combat climate change.
The Climate Bill, signed into law by President Biden on Aug. 16, 2022, is expected to have a broad diversified impact across private industries, academia, local state governments and consumers. As companies are gearing up to take advantage of the new legislation’s provisions, Israeli companies with climate-impactful solutions should also prepare for the new opportunities facilitated by the U.S. Climate Bill.
The bill provides a $437 billion spending on climate, health subsidies and drought relief while raising about $740 billion in revenue over 10 years. However, despite the name given by Democrats to the bill, some independent studies argue it will have a limited impact on inflation. Republican lawmakers, who blame historic inflation on last year’s stimulus bill, argue that the bill’s climate-related tax credits, such as for electric vehicles (EVs), are a giveaway to the upper middle class.
The bill also includes a key compromise at the demand of U.S. Sen. Joe Manchin of West Virginia, considered the most conservative Democrat in the Senate. The bill requires more leasing of federal lands and waters for oil and gas projects, and also that previously announced offshore lease sales in the Gulf of Mexico and Alaska must be held during the next two years.
With regard to energy and climate change, the bill provides unprecedented amounts of funding – nearly $369 billion in direct investment to ensure energy security, reduce carbon emissions, increase energy innovation and support environmental justice objectives with direct support for underserved communities. It will allow for the deployment of low-carbon energy technologies and help fulfill President Biden’s objective to create good-paying jobs and on-shoring domestic manufacturing – all while reducing emissions by approximately 40 percent by 2030. For the first time, this legislation not only creates a 10-year runway for many energy tax incentives, it fundamentally revises the tax code to create a technology-neutral approach to incentivize the deployment of low-carbon technologies. Finally, there are a number of provisions included to support conventional energy development in the United States.
Some of the key climate provisions in the bill include:
- $40 billion will go to the U.S. Department of Agriculture (USDA) to expand various climate-focused programs launched under the Biden Administration, a top priority of Agriculture Secretary Tom Vilsack in order to help farmers shift to more climate-friendly practices via grants and incentives. For example, $8.45 billion of the funding is directed toward a USDA voluntary conservation program, the Environmental Quality Incentives Program (EQIP), which has gained a large bipartisan buy-in.
- Direct investments in programs across more than a dozen agencies will provide unprecedented resources to improve air quality, invest in climate-smart and resilient infrastructure, and advance domestic energy and transportation technologies. In fact, between the Infrastructure Investment and Jobs Act that was signed into law in November 2021 and the Climate Bill, the U.S. Department of Energy (DOE) has been allocated more than $100 billion in new funding for clean energy and climate change adoption. Among other resources, this notably includes substantial additional funding to the DOE’s Loan Programs Office (LPO), which is designed to help deploy innovative clean energy, advanced transportation and tribal energy projects in the United States.
- Tax credits are provided for both clean fuels and clean vehicles. For example, a $7,500 tax credit will be given for purchasing new EVs made in North America and a $4,000 credit will be given for used EVs, subject to an individual’s income and other eligibility requirements.
- Subsidies will be given to reduce the prices of energy generation and manufacturing, including thermal energy storage, solar panels, heat pumps, and other energy-efficient home improvements. Consumers can claim the subsidies through tax filings or, in some cases, as a separate rebate immediately upon purchase. Tax credits are also provided for carbon sequestration for facilities that begin construction before 2033.
- Reinstating the Superfund tax on crude oil received at U.S. refineries and petroleum products entering the U.S. for consumption, use or warehousing.
Now that President Biden has signed the bill into law, U.S. federal agencies must move quickly to implement the law, a process that will require significant resources. The agencies have significant authority and ultimately will be responsible for the success of the Climate Bill, as implementation will include the promulgation of many new rules and decisions on how to deploy funding.
Impact in Israel and Beyond
Innovative and climate-impactful Israeli companies in the AgriFoodTech, renewable energy, energy efficiency and climate-tech sectors with operations in the U.S. have much to gain from the new opportunities created by the bill.
The U.S. has long recognized Israel’s innovative leadership in those sectors via various bilateral partnerships such as the BIRD and BARD programs, and as recently as the U.S.-Israel strategic cooperation agreement signed during President Biden’s July 2022 visit to Israel. Moreover, programs supporting innovation and competition in the U.S. have ultimately led to benefiting not only American citizens and businesses, rather also having a substantial impact around the globe.