What has the Inflation Reduction Act done …so far?

Photo by POW Creative Alliance member Sara Robbins

When President Biden signed the Inflation Reduction Act (IRA) in August 2022, it was hailed as the most important climate law in US history. Since then, the IRA’s impact has only grown.

Initially, the Congressional Budget Office (CBO) estimated the set of incentives would amount to just under $400 billion in support for clean energy over 10 years. However, this was only an estimate because the main policy instrument was an uncapped tax credit. The CBO has since revised its estimate to double that, and banks have estimated it at three times the original, with over $1 trillion in spending to address climate change.

The IRA has grown because individuals, households, organizations, and companies are more willing to invest their money to be a part of the effort. Clearly, this isn’t an issue of the government’s deep state forcing people to use technologies that they don’t want. It’s dramatically the opposite. People and communities are more eager to adopt clean technologies than government analysts expected, and the IRA is helping them do just this.

Here’s a look at the IRA’s impact to date, 2 years after it was signed:

Incentives Driving Clean Energy Adoption: Creating incentives for the adoption of clean energy is at the core of the IRA, bringing energy and climate action to individuals, communities, and households. In 2023, $126 billion was invested through a mix of solar panels, home batteries, heat pumps, and electric vehicles. By far the biggest impact has been for electric vehicles, which grew by 16%, more than doubling its investments from a few years ago.

The industrial and energy sectors also benefited, investing $250 billion since the IRA began—a 34% increase. These projects have been distributed nationwide and include a mix of solar, wind, energy storage, hydrogen, and carbon removal. Solar energy received the most investment, with utility-scale solar more than doubling in the first five months of 2024 compared to last year.

Creating Clean Energy Equipment: The IRA goes beyond deploying clean energy. It’s also about establishing a domestic industrial base to produce clean energy equipment, like batteries and solar panels. These investments have grown rapidly, with $152 billion poured into clean energy development since the IRA’s inception—more than doubling from the previous two years. This has resulted in significant investments and new jobs around the country. Many of these projects are located in the Midwest and Southeast, with most of the IRA’s manufacturing funding projects in states that have voted Republican in recent elections, bolstering the durability of the policy. Battery production and electric vehicle components have led this investment.

Justice40 & Advancing Environmental Equity: A key part of the IRA aligns with the Biden Administration’s Executive Order 14008, “Tackling the Climate Crisis at Home and Abroad.” This includes “Justice40,” which aims to ensure that 40% of the benefits from laws like the IRA go to disadvantaged communities. Since many IRA programs became part of Justice40 in late 2023, it’s too early to see the full impact. However, one report found that 20% of the 500+ programs under Justice40 are clearly meeting goals.

Measuring the environmental justice outcomes of the IRA is crucial, as it reflects the IRA’s commitment to Justice40’s goals through its support of disadvantaged communities.

Measuring the IRA’s Impact on Emissions Reductions: As a climate change law, the IRA’s success will ultimately be judged by its effectiveness in reducing emissions. Models indicate that the IRA will help US emissions fall 40% below 2005 levels by 2030. While it’s still early, we have seen a positive trend, with 2023 carbon dioxide emissions in the US being 3 percent lower than 2022 levels, aligning with the 2030 goal.  

In just two years the IRA has made a significant impact on clean energy development in the US. This is evident in the surge of investments in clean energy manufacturing, the increase in electric vehicle adoption, the widespread use of solar energy, and the growth in battery storage, which supports higher levels of renewable electricity.

Facing the Challenges Ahead

Addressing Infrastructure Challenges: While the IRA has driven significant progress, certain areas still face challenges. Wind power projects, both onshore and offshore have lagged expectations. Additionally, building transmission lines is crucial to fully utilize the abundant wind and solar resources located away from population centers.  Higher interest rates have played a role but the bigger obstacle has been the permitting process, which leads to projects being in queues for years. POW is doing critical work in this area to help transmission line advancement through the Energizing Our Communities Act (EOCA). The EOCA is a bill that was introduced by Senator Peter Welch (D-VT) and Congresswoman Annie Kuster (D-NH) and supports responsible clean energy implementation, benefiting the communities we love by funding roads, schools, healthcare, first responders, and of course, outdoor recreation while advancing clean energy infrastructure.

The IRA creates strong incentives for building these essential clean energy projects. However, it does not streamline the permitting process, squandering a real opportunity, particularly for offshore wind, onshore wind, and large-scale and rooftop solar. Addressing these permitting issues is essential to unlock the full potential of clean energy infrastructure.

State-level Implementation: A crucial area for IRA’s success is state level implementation. While the IRA incentives are federal, whether these funds go into a supportive or restrictive state environment depends on state policies. State electricity regulators at the 50 public utility commissions play a vital role in this. The progress of the IRA—and its emissions reduction and environmental justice goals—hinges on how these regulators approve new projects and the factors they consider. 

State regulators can empower consumers who want to take a more active role in their communities, by becoming not just consumers, but also producers of energy, aka “prosumers.” This means taking advantage of the IRA’s support to install solar panels, heat pumps, battery storage, and electric vehicles. The more consumers can access information, sell power to the grid, and store it in their car batteries, the more likely the IRA will succeed.

Local and state rules are consequential in these decisions. For example, installing solar in the US costs more than three times as much as in Germany and Australia. The panels are the same, and the tariffs are a little higher, but the main difference is an unsupportive regulatory environment. The IRA provides a major push, but state regulators need to support it rather than maintain outdated rules and decisions that hinder progress, even for highly motivated households benefiting from the IRA.

Envisioning an IRA 2.0

It’s not too soon to start thinking about an IRA 2.0, which would extend key aspects, correct any adverse incentives, and engage more globally. This next phase should also provide stronger encouragement for states to facilitate progress, and most importantly, build on all the remarkable advancements made in the US over the past 2 years. By refining and expanding the IRA, we can ensure continued momentum in reducing emissions and further strengthen our clean energy future.

Author: Greg Nemet

Gregory Nemet is a Professor at the University of Wisconsin–Madison in the La Follette School of Public Affairs. He teaches courses in policy analysis, energy systems, and international environmental policy. Nemet’s research focuses on understanding the process of technological change and the ways in which public policy can affect it. He received his doctorate in […]