It’s About Time

Posted on August 31, 2022, by Tom Peterson

Next to the Paris Climate Change Agreement, the passage of the Inflation Reduction Act of 2022 (IRA) may be the biggest thing to happen for climate change in a generation. The Paris Agreement brought forward 20 years of policy evolution to create a framework for comprehensive, multi-objective, policy development and assessment to support highly specific actions in all economic sectors that can stabilize the climate. But it does not self-implement. That is where the IRA and the Infrastructure and Investment Jobs Act, otherwise known as the Bipartisan Infrastructure Law (BIL) come into play. They fill the crucial void of translating policy to investment at scale. Climate change stabilization requires nothing less.

The reality is that the implementation of actions that can successfully reduce greenhouse gas emissions to stabilization levels will require money, a lot of money. How much? Just to give one example, in Maryland the transportation sector goals to meet its Climate Solutions Now Act and related targets for climate stabilization will require somewhere between $57 to $67 billion of new spending on top of $14 billion that has already been committed. The energy, buildings, and resource sectors will require similar outlays to get actions going by the end of this decade and preserve the hope that we can stabilize. And this is just to implement climate mitigation. We will need equal efforts to adapt to climate change that is already built in the system because of past and expected future emissions.

And of course, Maryland is just one state in the United States, and the United States is just one nation. The scale of funding that needs to be mobilized is enormous. Various global estimates place the need for new, near-term global spending on climate mitigation at well over $1 trillion.

“This is such a big step forward that it will have global repercussions.”

The federal funds that are being made available in the United States will do more than make a dent in this by allocating over $700 billion from the BIL and $369 billion to climate change actions through the IRA. The IRA alone is estimated to reduce national greenhouse gas emissions by 40% in comparison to the business-as-usual trajectory. This is such a big step forward that it will have global repercussions.

It's important to note that the BIL provides historic levels of new funding that can also be used to reduce carbon as well as meeting economic and social justice objectives. However, these funds do not necessarily require carbon reduction approaches and could be used for conventional purposes that increase emissions. So, it is crucial with this source of infrastructure funding, as with others, be deployed for new forms of infrastructure and technology and get past the old. In short, we need to think beyond traditional highway expansion and look at modern transportation alternatives when we spend these infrastructure funds and to make similar commitments as we are looking at the development and deployment of new sources and uses of energy and resources for buildings, manufacturing, agriculture, and other uses. We need to get sustainable.

“The handwriting was clearly on the wall at the time.”

To put this in perspective, I got started in the climate change field in 1995 in Senator Joe Lieberman’s office, back when the Kyoto Protocol was bouncing around as the top focus of national and international climate action. At the time, I helped the Senator and his team establish his national leadership on climate change and approach it as a long-term issue commitment. I then went to the White House Climate Change Task Force to help the Clinton-Gore Administration build domestic support for the agreement and identify new steps to advance national interests. One of the talking points we had for President Clinton at the time to describe our for action in advance of climate impacts was that “we can hear the whistle blowing, but we can't see the train.” Now, a more apt metaphor might be that not only can we see the train, but we can also see the train wreck.

The handwriting was clearly on the wall at the time. As greenhouse gas emissions increased, global warming also would increase based on direct cause and effect relationships in the atmosphere that have been known for over 150 years and are both measurable and predictable. They would lead to unprecedented and irreversible conditions in terms of both scale and speed. Best not to go there.

Consider where we stand now when we look at climate change indicators. We have all seen the news on unprecedented droughts, floods, and fires. We know also that 99% of sea turtles born in Florida are now female because the sex of the hatchlings is determined by temperature, and those temperatures have now strayed so far beyond the bounds of normality that the imbalance threatens the existence of these animals. Worst of all, we know that a trillion and a half cubic feet of methane exist beneath the Siberian tundra. If global temperatures reach the trigger for melting and release of this methane, the biosphere collapses.

To give some sense of the importance of addressing energy prices as we address the same issues, energy prices have been identified as the major component driving United States inflation by a factor of five over other causes. And it is now estimated that one third of all households in the United Kingdom will fall into poverty because of energy prices this year. More than 75% will fall into fuel poverty, a condition in which defined as when energy costs exceed 10% of a household’s net income, and 90% of lone parents with two or more children. These price increases are not driven by climate action but can be mitigated and reversed through smart climate actions such as those supported by federal funding.

“Now it’s time to get back to business.”

To stop a variety of negative and unnecessary things from happening, we need to stabilize the climate and modernize our energy and resource systems in affordable, fair, and equitable ways through actions that will be undergoing implementation by the end of this decade -- not just actions that are being contemplated. As part of this, we need to take actions to immediately bring energy prices down as well as the gaps in social and economic justice. We've known this for ages in the policy world, but we haven't had the federal investment tools to make it happen at a national level. Today we do. These tools enable implementation of state, local, community, household, and commercial actions that can accomplish crucial objectives that realign our future.

We also have tools for public and private collaboration, as has been so dramatically demonstrated through fully participatory climate action planning processes formulated at the state and local level in the United States – including those with spearheaded by CCS, such as 20 comprehensive state climate action plans. These created a method for joint fact finding and policy development that would ensure shared, expert, open, and fair decisions on practical actions that get the job done. Today the BIL and IRA depend upon the use of these comprehensive, collaborative planning and assessment processes to demonstrate the need for historic new levels of investment that is highly targeted. The good news is that the tools and templates are there. The bad news is that, as a nation, we got out of the saddle conducting this sort of work in the past decade and took our eye off the ball. Now it's time to get back to business.

I founded the Center for Climate Strategies (CCS) in 2004 to bring governments and stakeholders together for this very purpose. To develop and implement real and specific solutions to climate change that address other major issues, such as economic, equity, and security concerns. I can't begin to tell you how happy I am now to see new supportive new federal legislation finally becoming law. I hope it is not too late, but we will only know by trying and leaving no stone unturned where federal dollars can help.

Another element of these bills must be called out for its moment in history. For many years the concepts of fairness and equity in terms of environmental justice have existed but without a systematic, standardized, and operational format to ensure that they would fully enable policy and investment. Both new pieces of federal legislation change this. The Biden Administration’s Justice 40 initiative (J40) is cross-cutting in the BIL, as it brings forward definitions and needs of disadvantaged communities and low- and moderate-income households. The J40 initiative seeks to ensure 40% of Federal investments are allocated to disadvantaged communities. These include programs designed to address climate change, clean and efficient energy, clean transit, affordable and sustainable housing, reduction of pollution, and clean water infrastructure.

And the IRA enables expansion of workforce diversity and domestic sourcing of supply chains that localize or low carbon development transition for the business and consumer community, focusing on workforce development to spur clean energy development and climate change related projects. Both the BIL and IRA seek to improve diversity of the workforce, with major requirements for what we call domestic content. If you want to build something new, 60% of the inputs must be from the United States of America, creating new jobs for Americans along with whole new industries.  

“These programs level the playing field enormously.”

The IRA is specifically designed to bring down energy prices and emissions, while addressing environmental justice issues. The IRA builds on the 375 formula and completive grant programs in the BIL with additional grants and loans but adds two major new features: tax credits and direct pay, and a national green bank accelerator. The tax credits build on proven past investment instruments to accelerate market transition but now tax-exempt organizations, including counties, cities, churches, and ordinary households can play ball in the tax credit market through a direct payment option that is equivalent to the tax credit level but reimbursable directly by the US Treasury as a part of an overpayment of a tax filing.

These programs level the playing field enormously in terms of tax policy – a chance for ordinary consumers to affordably lower their carbon footprint. This includes $14,000 in direct rebates for energy efficient appliances and 30% tax credits for home rooftop solar. Direct pay tax credits for nonprofits and public utilities, who can claim credits even though they don’t pay taxes. The IRA also includes numerous other tax credits for clean energy, including expanding the Production Tax Credit to energy storage projects and restoring the Investment Tax Credit for renewable energy projects. The IRA also provides a $7,500 income tax credit for new electric vehicles and $4,000 for used ones. Loans and grants are also being deployed for expanding the production of wind turbines, solar panels, and battery storage systems domestically.

“This is a very big step forward in terms of moving from the whiteboard to the bank account. ”

The national green bank accelerator includes $27 billion, with $7 billion allocated to states through the EPA and another $20 billion funneled through the national independent green bank to state and local green banks on a demand basis. This is the first time such a mechanism has been introduced in the United States. But it is not the first time it has happened globally. Other nations have seen this need and stepped forward with a variety of mechanisms, including for instance the Central Bank of Bangladesh and its Sustainable Finance Department created to implement national sustainable development goals. Not only does this create a formal mechanism to enable public funding to move forward on an accelerated basis, but it creates a leveraging mechanism by which these financial centers can bring commercial debt in equity, as well as charitable grants, multiplying the available money for investment. This is, of course, the future of climate finance. As critical as our new federal funds are today, they will not last forever. Ultimately, the private sector will need to become the predominant finance ear of climate change actions in the United States and across the globe. This is a first step towards crossing that bridge period. Among other things, the IRA the Greenhouse Gas Reduction Fund can quickly deploy funds or residential rooftop solar and energy efficiency upgrades for homes and businesses.

At long last we are able to fully integrate economic, energy, and environmental justice through active policy development for climate change stabilization and resilience. This is a very big step forward in terms of moving from the whiteboard to the bank account.

Throughout the past few months, CCS has focused on identifying funding opportunities from the BIL for the State of Maryland in the transportation and energy sectors, helping it find ways to leverage these federal dollars to reach its new ambitious net zero goal. Many of these programs have application due dates that are fast approaching, but also several requirements to be met and need to be matched with specific state program and policy actions. CCS has produced multiple briefing memos and presentations detailing available funding and programs from the BIL, matching the potential uses of funds to Maryland programs and identifying eligible parties, requirements and key deadlines.

This is a lot to have on our plates. But it's way better than the plate being empty. My advice is that we take a moment to truly appreciate this big step forward in our nation's history, and perhaps celebrate by planning to buy a low carbon product for our home and business -- whether it is a new or used electric vehicle, new insulation or energy efficient appliances for our home, local organic food products, a bigger recycling bin, or something else that enables us in our daily lives to build a better, safer, and more just world.