The Inflation Reduction Act of 2022 ranks as the single largest bill addressing climate change in U.S. history.
The IRA includes about $370 billion for programs such as tax credits for more efficient home appliances, building new battery factories and subsidies for renewable energy. And that sparked a boom in new construction and manufacturing, including solar panels. Hundreds of thousands of new jobs were also created.
But two years later, much of that money remains unspent.
The biggest investments in the clean energy transition in history have yet to materialize in actual hardware such as heat pumps and wind turbines. For example, more than $7.5 billion has been earmarked for the production of electric vehicle chargers, yet only a fraction are actually built. According to the Financial Times, around 40% of large IRA projects are experiencing delays.
There were many factors behind Democrats losing the White House, but one particular source of dissatisfaction in the White House was that President Joe Biden received little credit for IRA spending, and that Many targeted Republican-controlled districts and were structured. To achieve the goals of environmental activists, such as prioritizing disadvantaged communities. The slow rollout is also one reason why the IRA remains largely unregistered, even among voters concerned about climate change.
Now, President-elect Donald Trump says he wants the unspent funds back, making Congressional Democrats nervous. In a recent letter, dozens of senators and congressmen sent a letter to the White House urging Biden to externalize more money from the IRA and other bills such as the bipartisan infrastructure bill.
“There are plenty of other good projects, good jobs, and great savings to be had,” they wrote. “We urge your agency to quickly implement major climate change and clean energy programs to avoid politicization and manipulation of future climate change programs.”
Meanwhile, the White House is rushing to expand programs such as the Clean Energy Loan Guarantee. Some households are scrambling to take advantage of incentives for heat pumps, home weatherization and energy-efficient appliances before the new administration takes office.
All this shows that despite political will and time pressures, spending money can actually be quite difficult. Many states and local governments are finding that federal funds come with stricter terms than they anticipated. Meanwhile, ordinary people are running into hurdles like red tape and supply chain whirlwind when trying to take advantage of tax credits and discounts.
In the waning days of the Biden administration, the White House could still ramp up investments on climate change, but the question is whether they will be done in time and whether the next president can scale them back.
Why is it difficult to spend large amounts of government funds?
One of the big challenges with spending most federal funds on programs like IRAs is that the funds don’t go directly to suppliers of construction materials, EV chargers, batteries, or home insulation. Rather, the funds go to states and localities, which then distribute the funds.
This additional step introduces many complications. First, many local government employees are not prepared to receive large amounts of cash at once. Rigorous accounting and record-keeping requirements require recipients to invest in the personnel and tools to track funds before they can be used. And once the money is in a bank account, local authorities must decide where to spend it. That means looking for proposals, soliciting competitive bids, and giving the community enough time to consider them. Even “ready-to-go” projects often have to contend with last-minute hurdles, such as rising financing costs due to inflation or supply chain disruptions. and lawsuits that could prevent construction from starting.
Local governments also have their own incentives. The Biden White House has wanted to revitalize the clean energy economy as quickly as possible, but in many cases state and local governments want to expand funding. Donald Kettle said, “There’s always a sense that if money is spent too quickly, people can become used to it and even become addicted to it, and that once the money is gone, officials can make up the difference.” “We’re going to have to raise taxes to make up for it.” He is a professor emeritus at the University of Maryland School of Public Policy, where he studies government spending.
Delays also occur because of how funds are utilized, such as grants, loans, loan guarantees, and tax credits. Tax credits have an inherent delay because you can’t receive your cash benefits until you file your taxes.
However, there are some counterexamples. Many of the COVID-19 pandemic spending measures, like the Paycheck Protection Program, quickly put money into people’s hands. These programs were relatively easy to administer. For example, stimulus checks were automatically disbursed to people based on their tax records, but the program also lacked strong guardrails, leading to fraud and fraud. Billions of dollars in the PPP went to companies owned by celebrities and were spent on hotels, jewelry, and luxury cars.
“We have a balance between how many safeguards we want to put in place to prevent misuse of funds, and how insistent we are on extracting funds in a way that stimulates economic growth. So, there’s always a trade-off,” Kettle said. “Every time we do something like this, we tend to set the balance somewhere else.”
Obtaining IRA funds has also proven difficult for the average person. For example, many prospective EV buyers are frustrated by dealers who have no knowledge of tax credits or discounts that can reduce the list price. Buyers often educate sellers about sweeteners. Homeowners also have trouble finding heat pump installers. Reduced production and shipping delays are making it difficult to purchase more energy-efficient home appliances.
There are also factors at play that are beyond Biden’s direct control. Changes in global demand and uncertainty over the outcome of the presidential election have caused some companies to postpone implementation of IRA-funded projects. And companies that actually want to start operations often have to go through a tedious, sometimes years-long permitting process before they can break ground.
President Trump is unlikely to be able to completely stop the IRA
Trump does not have a favorable outlook on clean technology and wants to cut spending and “waste” across the government. Even Elon Musk, the CEO of one of the largest electric vehicle companies and President Trump’s pick to lead the new Office of Government Efficiency, has said he favors reducing the EV tax credit. . But President Trump may not be able to do much to recover funds that have already been spent or prevent the flow of funds that have been misappropriated. The fact remains that Congress is primarily responsible for spending funds, and abolishing the IRA would require a separate act of Congress.
But President Trump and his allies have floated the idea that the president has the power to seize funds. This is a legally questionable mechanism that allows the president to block future spending of funds already approved by Congress.
“The court has largely sided with Congress on this issue,” Kettle said. “Whether the court will be more favorable this time around is anyone’s guess.”
Changes to tax credits are unlikely to be reflected in the current tax system and would need to go through the budgeting process. It’s worth noting that President Trump expanded tax credits for renewable energy, energy efficiency, and carbon capture during his first term.
Mr. Trump could delay the rest of his fundraising, and if his second term is as chaotic as his first, that may not even be a deliberate choice. But he could pay a political price for cutting clean energy funding. Biden and Vice President Kamala Harris did not benefit much from IRA-like laws at the polls, but as the programs mature, they are likely to become more difficult to overturn.
“While the political logic was sound, the programs were rolled out too quickly for the various programs to reap electoral benefits so quickly,” Stephen Vanderheiden, an environmental politics researcher at the University of Colorado, wrote in an email. Ta. “I think the Biden team could have done a better job of communicating the value of these efforts, but ultimately I don’t think they had enough time to be a real game changer in the recent election.”
With President Trump in office, IRA investing will become even more entrenched.
Republicans may remain ideologically opposed to these programs, but about 60% of the resulting jobs will be in districts whose members voted against them. About 80% of the investment is concentrated in Republican-led states. The political uncertainty that hampered clean energy spending before the election has now dissipated, and there could be an appetite for more projects.
So while President Trump may try to cut off further new funding from the IRA, it will only become harder to stop what is already underway.
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