How the Inflation Reduction Act Will Drive Global Climate Action

This column contains a correction.

When President Joe Biden rejoined the Paris Agreement on his inauguration day, the United States indicated its intent to lead the world in tackling climate change. Yet until the Inflation Reduction Act was signed into law on August 16, 2022, the United States had not taken the meaningful domestic action needed to reduce its emissions, which grew by 6.2 percent in 2021 relative to 2020 and overall remain second only to China.

The Inflation Reduction Act may change this reality. Although it is domestically focused—and includes several harmful provisions on drilling that demonstrate the ongoing power of the oil and gas industry—this law represents the single-largest investment in climate action in U.S. history and will profoundly alter the international landscape. Indeed, this historic legislation will help the United States reach its emission reduction commitments, increase U.S. competitiveness and spur a “race to the top” in the clean energy economy, reshape the security landscape, and, crucially, restore trust and legitimacy for the United States within the global climate community.

The Inflation Reduction Act could mark the end of inconsistent U.S. climate leadership

Historically, the United States is the single-largest contributor to climate change, accounting for more than 22 percent of historic greenhouse gas (GHG) emissions—the equivalent of the historic emissions of 181 countries combined. Despite its disproportionate impact on the global climate, U.S. climate leadership has been inconsistent. The United States infamously failed to ratify the Kyoto Protocol in 2001 and withdrew from the Paris Agreement in 2020, while its previous landmark climate legislation—the American Clean Energy Security Act, or Waxman-Markey bill—failed dramatically in Congress in 2009. While the U.S. seesaws between climate leader and pariah, the Intergovernmental Panel on Climate Change (IPCC) warns that the world is on track to surpass the Paris Agreement’s goal of not exceeding 1.5 degrees Celsius of global warming within the next decade, with every fraction of a degree resulting in a disproportionate increase in the severity and frequency of devastating climate impacts.

President Biden entered office on the votes of Americans demanding climate action. Along with an updated nationally determined contribution (NDC) that set the goal of reducing U.S. emissions 50 to 52 percent below 2005 levels by 2030, the administration made pledges in 2021 to increase international climate finance, address adaptation, reduce methane emissions and deforestation, and help high-emitting countries transition away from coal and other fossil fuel energy sources. These pledges culminated at last November’s 26th U.N. Framework Convention on Climate Change (UNFCCC) Conference of Parties in Glasgow, Scotland, where world leaders agreed to keep the 1.5 degree goal alive and recommitted to the still-unmet goal of $100 billion in international climate finance.

Unfortunately, the Russian invasion of Ukraine threatens to derail global emissions reduction pledges. Despite the International Energy Agency’s warning that global net zero cannot be reached by 2050 with any new fossil fuel developments, there have been numerous calls to address the energy crisis unleashed by Russia’s war through increased drilling and construction of additional gas import terminals. European Union nations are also actively pursuing new oil and gas investments in Africa—in stark contradiction to their previous stance on energy development and promises to aid a clean energy transition on the African continent. The Russian war on Ukraine is a striking reminder of how precarious global climate commitments are, as well as how the destructive fossil fuel-based global economy continues to shape the world order in terms of international security, national economies, and the well-being of individuals, all while strongly influencing the democratic process within the United States and abroad.

Fortunately, a rapid shift by the United States to a clean energy economy, fueled by the investments stemming from the Inflation Reduction Act, could likewise shift the global landscape.

The Inflation Reduction Act’s global impacts

The $369 billion in Inflation Reduction Act energy security and climate change resilience investments have significant implications for the world, as they demonstrate U.S. leadership abroad and change the trajectory of international climate action.

Reaching emission reduction commitments

With the Inflation Reduction Act, the United States will be significantly closer to meeting its Paris Agreement commitment. At the 2021 Leaders’ Summit on Climate, President Biden announced an enhanced NDC that states the United States will “achieve a 50-52 percent reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030.” Under current policy, expected GHG emissions reductions were only 24 to 35 percent; however, independent analyses estimate that the Inflation Reduction Act will bring GHG emissions down by about 31 to 44 percent or 37 to 41 percent below 2005 levels by 2030. Both modelers agree that with the addition of state and federal regulatory action, these investments will put within reach the full goal of 50 percent emissions reductions this decade.

The Inflation Reduction Act, along with administrative regulations, will be viewed internationally as the U.S. NDC implementation plan as well as an indication that the United States is finally taking the real, necessary action to get its house in order as it works to reduce emissions globally. This step allows the Biden administration to head into November’s U.N. climate conference (COP27) in Sharm el-Sheik, Egypt, with a strong bargaining position and may help increase other nations’ ambition and ability to meet their NDCs.

Spurring an economic and manufacturing “race to the top”

With well north of $70 billion in clean domestic manufacturing investments, the Inflation Reduction Act strengthens America’s standing on global trade with both partners and competitors. Traditionally, American industries and federal support drove the technological innovations that fundamentally changed the energy, transportation, and manufacturing sectors. The Inflation Reduction Act gives the needed boost to domestic clean energy industries—through requirements for domestic sourcing and through manufacturing tax incentives designed to reshore supply chains—to enable these industries to catch up to nations that have outpaced the United States in the development of clean energy technological innovation, manufacturing, and deployment that will characterize the energy market for the remainder of the 21st century. These investments, paired with domestic content credits and the Biden administration’s robust “Made in America” agenda, will give the United States the necessary tools to incorporate climate and economic objectives into multilateral trade discussions.

Yet the Inflation Reduction Act will not only keep the United States competitive in global markets by protecting American industries; it will also further drive the global competitiveness necessary for a race to the top on clean energy innovation. Due to the outsize role of the U.S. economy within the global market, this boost in U.S. manufacturing and development of clean energy technologies will help lower the cost of clean energy, facilitating and incentivizing more rapid energy transitions abroad. These transitions are necessary in high-emitting countries and countries seeking energy independence, as well as in countries with limited emissions that have the opportunity to leap-frog over fossil fuel-based economies on their development pathway.

Reshaping the energy and national security landscape

The Inflation Reduction Act will improve U.S. national and energy security. The U.S. Department of Defense recognizes climate change as a global threat multiplier; extreme weather and other climate impacts in turn can destabilize governments and governance structures, resulting in cascading geopolitical and geostrategic impacts. By reducing overall GHG emissions, the Inflation Reduction Act makes a significant contribution to reducing conflicts over climate-dependent resources, loss and damage driven by natural disasters, and instability caused by volatile fuel prices.

The Inflation Reduction Act’s investments in clean energy will also reduce U.S. dependence on a fossil fuel-dominated global economy largely dictated by nations that do not share American values. For example, the Inflation Reduction Act will help cut U.S. oil demand by more than twice the amount the United States ever imported from Russia. Coupled with federal executive actions, the Inflation Reduction Act will dramatically reduce the exposure of the U.S. economy to volatile foreign fossil fuel prices, avoiding periods, such as this summer, during which Americans have to weather prohibitively high gas prices while oil and gas companies rake in record profits. Additionally, the legislation will negate the need for “fist-bump diplomacy” with authoritarian leaders.

Lastly, the Inflation Reduction Act strengthens partnerships with the EU—a critical ally—as it seeks to reduce reliance on Russian energy. As the U.S.-EU Task Force on European Energy Security ramps up deployment of energy efficiency technologies such as heat pumps and smart thermostats, the Inflation Reduction Act supports this work by providing $500 million in funding to support the production of heat pumps and spur critical mineral processing projects. Additionally, provisions such as the methane reduction fee—which requires oil and gas producers who vent, flare, or leak methane to pay a fee that could reach $1,500 a ton for some operators by 2026—and a provision requiring companies to pay a 16 percent royalty on vented, flared, or leaked methane on public lands work in tandem with EU priorities on methane emissions. While issues such as reporting methodologies and accounting for supply chains must be resolved, the Inflation Reduction Act strengthens U.S.-EU collaboration on reducing methane emissions.

Regaining diplomatic trust on the road to COP27

The Inflation Reduction Act demonstrates that President Biden’s international pledges are not hollow. It will allow the United States to regain trust, strengthen its leadership role on the international stage, and pressure other developed countries to increase their ambition and follow through on domestic implementation. Until recently, the United States has been operating from an international trust deficit for a number of reasons. The United States rejoined the Paris Agreement to global skepticism over how long it would remain an active participant in climate negotiations given its partisan political swings. Congress’ delay in passing climate legislation due to political divisions confirmed these concerns. Furthermore, Russia’s war on Ukraine and the ensuing energy crisis caused many developed countries to backslide on their GHG reduction commitments and the United States to negotiate a short-term increase in natural gas exports to help the EU through the crisis. In addition, the United States and other developed countries have failed to meet the $100 billion per year climate finance commitment for assisting developing countries with their clean energy transitions and adaptation plans.

Allies and competitors alike have developed a “wait and see” attitude on climate ambition and implementation based on U.S. actions. Swift enactment of the Inflation Reduction Act package would not only restore the credibility of U.S. commitments but also pressure countries that are in a holding pattern—including China—to step up and announce their targets and action plans by COP27.

Where to go from here

The passage of the Inflation Reduction Act will profoundly change the international climate landscape, but the Biden administration must build on this momentum to meet its remaining global pledges and work to address the international climate justice gap in its policymaking:

• International climate finance: The single most important step the Biden administration can take now is to meet President Biden’s pledge of $11.4 billion in international climate financing per year. Despite strong levels of funding in the House and Senate fiscal year 2022 appropriation bills, the final omnibus package only committed $1 billion and zeroed out the Green Climate Fund. Senior leadership within the Biden administration and Congress must prioritize meeting climate finance pledges for FY 2023 and FY 2024 in order to fund its strategic international climate commitments on adaptation, reducing deforestation, and supporting Just Energy Transition Partnerships (JET-Ps) abroad, as well as to avoid undercutting its standing with G-7 partners and developing nations.
• Loss and damage: “Loss and damage,” understood as the economic and noneconomic losses from climate change, is a long-sought priority for developing nations that contribute the least to climate change yet bear the brunt of climate impacts. The United States has historically been hesitant to actively engage in global loss and damage dialogues, in part to avoid making financial promises that the domestic political climate precludes delivering. To increase productive engagement on this issue, the Biden administration should start socializing within Congress the ideas and approaches to averting, minimizing, and addressing loss and damage and develop a constructive international policy approach to meeting loss and damage needs. In addition, the United States should support the inclusion of loss and damage as an official agenda item of COP27 and speed up the decision-making timeline on the provision of finance for loss and damage, in recognition of the urgent need to address this issue as the climate crisis continues to claim lives and livelihoods.
• Adaptation: Climate adaptation is critical to helping global communities prepare for, respond to, and recover from climate impacts that are already underway and that will worsen with every fraction of a degree of warming. Continued implementation of the President’s Emergency Plan for Adaptation and Resilience (PREPARE), meeting President Biden’s pledge for $3 billion per year in adaptation funding in order to close the adaptation gap, and increasing the visibility and number of adaptation experts and issues within the White House, State Department, and U.S. Agency for International Development (USAID) would help comprehensively address adaptation and build trust with developing nations for whom this is a priority issue.*
• Just Energy Transition Partnerships: At COP26 in Glasgow, the United States jointly announced with France, Germany, the United Kingdom and EU, and South Africa a JET-P designed to help South Africa transition away from coal. Six months later, the South Africa JET-P is making progress and being used as a model for similar initiatives in India, Indonesia, and Vietnam. It is critical that the United States and its partners successfully deliver on these initiatives—including by securing the necessary public and private financing—to make rapid global emissions reductions while ensuring that these partnerships are prioritizing engagement with local stakeholders, labor rights, and economic opportunities for local workers.
• Climate justice: The United States should incorporate climate and environmental justice into its international climate policy strategy. The domestic environmental justice block grants in the Inflation Reduction Act strengthen the Biden administration’s commitment to protecting those who have long been overburdened by toxic pollution and who remain the most vulnerable to climate change. However, it is important to note that due to the outsize influence of the fossil fuel industry in American politics, the Inflation Reduction Act also includes harmful provisions that promote dirty fossil fuels—the impacts of which will continue to fall disproportionately on already disadvantaged communities. It is critical that, as the Biden administration seeks clean energy transitions abroad, these same concessions to the oil and gas industry are not made internationally. The Biden administration should extend and prioritize environmental justice messaging and action into its international climate policy, particularly in developing countries.

Conclusion

The passage of the Inflation Reduction Act allows the United States to arrive at COP27 with increased bargaining power and provides a road map that other countries can use to achieve their own emission reduction ambitions. As the fossil fuel-financed Russian war on Ukraine continues to destabilize geopolitics and disrupt international energy markets, and as China increasingly disengages from the international climate process, a strong U.S. position at the climate conference is critical to build on the ambition of the Glasgow Climate Pact and keep the 1.5 degree goal alive. By also delivering on the issues of climate finance, loss and damage, adaptation, JET-Ps, and international climate justice, the United States can truly claim to have regained its position as a global climate leader.

* Correction, August 17, 2022: This column has been corrected to clarify President Biden’s per-year adaptation pledge.