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The Inflation Reduction Act Has A Sneaky Little Provision

Posted by: Erik Bjornstad

All summer long, we’ve heard the big story of inflation being at a forty (?) year high. We've probably said the word ‘inflation’ more in the last 5 months than we did in our entire lives before. We also watched Democrats and Republicans spar politically about who was responsible for it and what the best thing was to solve the problem and get prices under control.  Hence, that was the (stated) aim of the Inflation Reduction Act, another one of the broad spending and aid legislation packages with all sorts of stuff jumbled together to help a lot of different areas.

the-inflation-reduction-act-has-a-sneaky-little-provisionGiven its name, we can be forgiven if any of us missed a rather significant part of the IRA (Inflation Reduction Act) that doesn’t really have anything (directly) to do with reducing consumer spending or fighting COVID or cutting consumer inflation. Yet it IS something that has broad consequences for the future of addressing climate change. Does that make it good news? Probably.

Fighting climate change? What does that have to do with inflation? How did we pull that from something called the Inflation Reduction Act? And remember back in June when conservative commentators danced a big dance of joy over the Supreme Court ruling that the EPA didn’t have the authority to regulate power plant emissions? They rejoiced that the Supreme Court stuck it to the Biden Administration? This has a big something to do with that, too. Let's dig in for the details.

How Does Climate Law Work In The United States?

First, we lay the groundwork by talking about who does what when it comes to climate law in the United States. Congress makes the rules about what the country is going to do and what goals & aims the country is going to have. These goals and this direction gets defined in legislation like the Clean Air Act.

The Clean Air Act is the “stick” in that it not only defines what needs to happen (and remember, because it’s legislation, it’s “the law”), it also defines the penalties for not complying. That’s the “stick” - the incentive (positive or negative) that's going to spur someone or something to do what Congress wants them to do.  An example of this is contained in the very Inflation Reduction Act we're talking about. In the Act, it defined a new methane-emissions fee that charged oil and gas companies a minimum of $900 for every ton of methane they leak into the atmosphere. That $900 penalty is the stick that Congress hopes to use to lower methane emissions by these companies.

Yet it’s not enough just to have a stick. You also have to have someone to wield the stick. With much of our nation’s climate law, that has been the EPA. The Inflation Reduction Act = the stick.  The EPA = the one who swings the stick.

What's Significant About The Inflation Reduction Act?

There are 2 big things in the Inflation Reduction Act that lots of people seem to have missed.  Especially all those who proclaimed victory back in June with the Supreme Court victory against the EPA. The first is that the IRA defined carbon dioxide as a type of air pollution.

That’s it? That’s the big news? Well, let’s talk about why that matters - why it’s a really big deal.  Way back in 2007, in a case called Massachusetts v. EPA, the Supreme Court made a ruling that carbon dioxide could be counted as an air pollutant. They also ruled that if the EPA (remember, they are the agency designated by Congress to enforce these things) decided that carbon dioxide harmed the environment and/or human health, it could regulate carbon dioxide emissions under the umbrella of the Clean Air Act. Indeed, a few years later, the EPA did make an official determination that this was so - that carbon dioxide emissions caused harm to people and the environment. And they used this ruling to anchor their climate regulations on both the auto industry but also power plants.

All of that sounds significant. So what? All of these things have been true from 2007 to the present time. Did something change such that we get to write a blog about it? Why yes, yes it did.

To understand this, we jump forward to June of 2022 and the Supreme Court case West Virginia v. EPA that made conservatives dance. In that case, the Supreme Court pulled back on the reigns of the EPA and said, in a nutshell, that the Biden Administration’s regulatory rules to control power plant emissions were unconstitutional. More correctly, the EPA’s authority to enforce these rules wasn’t constitutional. Why? Because that kind of authority can't just be granted to an agency by anyone. It has to be specifically delegated to that agency by Congress. The Supreme Court (correctly) noted that, up to that point, Congress had never clearly delegated that kind of power to the EPA.

Conservatives and everyone else not sympathetic to the Biden Administration cheered SCOTUS for thumbing its nose at Biden’s green plans. And they all lived happily ever after.

Ironically, I wonder how many of those who were cheering that “monumental victory” have realized that something significant happened with the recently-passed Inflation Reduction Act. And so we come to the key point.

Giving The EPA More Power

The Supreme Court said Congress never gave EPA the authority to regulate greenhouse gases like carbon dioxide? Now they have.

That’s right. The little-known key fact about part of the Inflation Reduction Act is that because it clearly defines greenhouse gases like CO2 (and others) as air pollutants, it grants EPA authority under the Clean Air Act to do certain things to control that air pollution.

Remember, the Inflation Reduction Act is a piece of legislation from Congress. It's Congress' voice granting power and authority to whomever to do what Congress wants them to do. That means Congress has now done exactly what the Supreme Court said it hadn’t when it struck down power plant emissions rules in June. The EPA can now move forward regulating carbon dioxide with full legal authority it didn’t have before because Congress has specifically given them the authority to do so.

Wow. If you’re not saying that, you should be. Or maybe you’re just feeling understated. That’s okay, too.

And That's Not All

And that’s not all we have to talk about with the IRA. As big as this point is, it’s not even the most important way that the Act strengthens the EPA’s ability to regulate this kind of emissions in ways they couldn't before. The Inflation Reduction Act also makes some key changes that are going to allow the EPA to wield that stick much more effectively than it could before. 

Whenever a new regulation is proposed, it has to pass a cost-benefit analysis that demonstrates that the benefit of the regulation is going to be greater than its cost. The law requires this. The Inflation Reduction Act brings a couple of new things to the table that is going to skew the analysis in the EPA’s favor. 

First, all the clean energy subsidies and incentives contained in the Act will functionally make environmental regulations less expensive to comply with. 

Second, the bill contains provisions that actually allow the EPA to directly subsidize the cost of compliance by giving grants and loans to companies to help them meet the costs. This is pretty significant because one of the big complaints about government regulations is about “unfunded mandates”, where the government tells a group “you have to do this” and the group says “that will cost eleven kajillion dollars that we don’t have” and the government says “we don’t care”.

It looks like the Inflation Reduction Act is going to have some really significant effects that will be felt in our economy and our society for decades to come. There’s little doubt that environmental regulations are going to get broader and broader in the coming years. The Inflation Reduction Act appears to have laid some important groundwork to make those rules less onerous and easier to comply with. And that will be great for the environment.

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This post was published on September 27, 2022 and was updated on September 27, 2022.

Topics: Fuel Policy