How durable is the Inflation Reduction Act?
In the United States Congress in August 2022, the Inflation Reduction Act (IRA) was adopted by a narrow, all-Democratic majority, to the surprise of most observers of US climate politics. The IRA enactment was unexpected given the history of federal climate policy initiatives, spanning from Clinton’s failed BTU-tax to Obama’s Clean Power Plan that was rolled back by Trump, leaving U.S. federal climate policy in flux.
The IRA surprise came on the back of an economic crisis caused by the Covid-19 pandemic and Russia’s war on Ukraine. High inflation and broken supply chains caused economic ripple effects across the world, and the Biden administration seized on the opportunity to add climate policy measures to large policy reforms such as the IRA and the Bipartisan Infrastructure Law, thereby ushering in federal climate legislation for the first time in the United States. The question now is whether the “all carrots and no sticks” approach of the IRA, at least $369 billion in public subsidies and tax incentives, will endure in the long term in a politically divided country.
Window of opportunity for policy change
Policy-studies theories emphasize the important role of disruptive shocks in policy processes. Events like major economic crises can be powerful disrupters that make policymakers more open for new policy ideas that can help alleviate the crisis. Interest-group coalitions that push forward new policy ideas can gain outsized influence in the policy process and help policymakers overcome institutional barriers to policy change.
In sum, theories predict that changes in policy ideas, interest-group influence, and institutional governance can lead to rapid policy innovation and substantial changes in status-quo policies. When a disruptive shock like a war, a pandemic, or an economic crisis occurs at crucial stages of the policy process it may form a ‘window of opportunity’ for policy change. Interest-group coalitions can then act as policy entrepreneurs that strategically take advantage of crucial moments (‘windows of opportunity’) to achieve policy change.
While these theories can explain policy-change processes, they are not as helpful for explaining policy durability. But can we reasonably expect US climate policy to stay stable in the context of ongoing extreme political polarization?
New policy ideas, interest coalitions & procedural tactics
My recently published article in Environmental Politics shows that the enactment of the IRA – a huge policy change – happed on the back of two disruptive shocks: the Covid-19 pandemic and the Ukraine war. These shocks helped push open a window of opportunity that a pro-climate interest coalition took advantage of to pressure the Biden administration to introduce novel climate policy ideas and employ creative institutional procedures to adopt the IRA.
The interests of the pro-climate coalition aligned around three key pillars for climate action: cutting climate pollution, addressing environmental injustice, and incentivizing green growth and more jobs. The IRA provides $369 billion in public spending for more than 50 policy programs designed to incentivize rapid innovation in renewable and emissions-free energy technology, uptake of electric appliances and vehicles by households, and local content requirements for production of EVs, batteries, and other renewable energy technology. Many IRA programs have local content requirements with the objective to create new jobs in the United States. If implemented according to plan, the IRA will help reduce US GHG emissions by around 40% from 2005 levels by 2030.
The coalition unified environmentalists, organized labor, renewable industry, and progressive democrats, and this pro-climate coalition became instrumental for elevating climate action on the agenda of the Democratic party. The coalition’s new climate policy ideas were anchored within the Biden presidential campaign and subsequently the Biden administration through several steps, such as proposing a provocative Green New Deal and using campaign-style activism that supported pro-climate candidates in the 2020 election cycle.
When IRA was debated in Congress in 2022, at least three institutional conditions worked in favor of the pro-climate coalition’s interests and ideas. First, Democrats used unorthodox legislative procedures – specifically the budget-related reconciliation procedure – that allowed for simple majority adoption, and avoiding the filibuster rule. Second, Democrats possessed majority control in both chambers, so the policy package had to persuade Democrats only. Third, the Democrats felt the pressure from upcoming midterm elections to adopt the legislation before the window of opportunity was closed.
While the Covid-19 pandemic strengthened the incentive for a green economic recovery program, two veto-players in the US Senate could not be persuaded to vote in favor of climate policy measures. It took the second shock, the Ukraine war causing prolonged inflation and more supply-chain disruptions, for senator Manchin to accept the IRA adoption. Without these disruptive shocks, the window of opportunity for the pro-climate coalition’s specific climate policy ideas and use of institutional procedures would not have been open.
The IRA policy process exemplifies a distinct political economy of US climate policymaking, where disruptive shocks can change the balance of domestic interests and the degree to which interest groups have access to policymakers. This enabled US climate policy under the Biden administration to move away from a situation where climate policymaking processes in federal institutions, which are quite accessible to lobbying interest groups, had for decades been captured by vested fossil-fuel interests that blocked efforts to introduce a carbon price. Through the IRA policy process, accessible government institutions such as the White House and the US Congress encountered a powerful pro-climate coalition that was able to push forward novel climate policy ideas and solutions combining green industrial policy with just transition concerns.
Conclusion
The IRA’s many investment and subsidy programs were designed to anchor climate action together with green economic growth at state level, so that jobs would be created and economic benefits displayed. The outlook for the full implementation of the IRA is fragile though, given the lessons from previous contentious policy reforms, such as the Affordable Care Act. Research shows that such reforms tend to be overturned or watered down during the implementation phase. Republicans in the US House of Representatives made 40 attempts at repealing the IRA in the period 2022-2024, even if Republican-led states and congressional districts disproportionally benefitted from IRA subsidies during its two first years, with 60% of announced projects representing 85% of investments and 68% of jobs emerging in such districts.
In the politically divided United States, it is very likely that federal climate policy will continue to be in flux. With a Republican majority in Congress and Trump in the White House from 2025, new interest-group coalitions with other climate policy ideas will become more influential, and act on institutional opportunities to start a new round of climate-policy change. The big question after the 2024 elections is if Republican lawmakers are truly willing to cancel all IRA subsidies benefitting their district, or if portions of it can survive.
This article is based on a recently published article in Environmental Politics and is also published as a guest blog on the journal's website.