Ivan Allen College Experts Break Down the Proposed Senate Climate Deal

Posted August 2, 2022

Senate negotiators are continuing to work on a deal that they say would help facilitate the nation’s transition to a green economy and make some significant tax changes. The climate change provisions in the bill would provide billions in dollars in tax credits to boost U.S. manufacturing of renewable energy equipment and increase power generation from renewables, offer rebates to people who retrofit their homes with energy-efficient appliances or buy an electric vehicle, and reduce the planet-warming effects from agricultural practices. It would also provide money to help disadvantaged and minority communities often disproportionately affected by climate change. Other key provisions would seek to increase taxes on corporations and levy higher taxes on public equity and hedge fund managers by closing what is called the carried interest loophole.

We asked Ivan Allen College of Liberal Arts faculty for their analysis of the proposal. Here are their takeaways:

It will help accelerate the adoption of alternative energy. “These cost-effective incentives will help accelerate our inevitable transition off of fossil fuels and will help further development of large-scale energy storage to mitigate issues of intermittency associated with wind and solar,” said Casey Wichman, an assistant professor in the School of Economics who studies environmental and public economics. Wichman says one particularly notable provision would increase fees on companies whose energy infrastructure — such as oil and gas wells and pipelines — leaks methane gas. “That’s huge since methane is a more potent greenhouse gas that contributes to more immediate warming,” Wichman said.

Incentives for electric vehicles are good but come with some caveats. The bill’s equitable rebates represent a vast improvement over past federal legislation, offering $4,000 consumer tax credit specifically for lower- or middle-income people to buy used electric vehicles, and up to $7,500 tax credit for income-capped people to buy new clean vehicles, notes Marilyn Brown, Regents Professor and Brook Byers Professor of Sustainable Systems in the School of Public Policy. Wichman notes that while it's true that the bill’s electric vehicle tax credits would help close the price gap between electric and internal combustion vehicles and potentially help moderate-income Americans save money on commuting expenses, the bill’s larger incentives for larger vehicles might also encourage some consumers to purchase heavier EVs. That could potentially increase other costs, such as those related to vehicle accidents, Wichman said.

The bill’s proposed tax credits to keep nuclear plants running, and fund improvements, also are important. “The reason is that intermittent wind and solar simply will not be able to provide power on a scale large enough to make a significant dent in our carbon emissions — certainly not in time to avoid getting locked into one of the more severe projected climate and temperature trajectories,” according to Matthew Oliver, associate professor in the School of Economics and an expert on the economics of energy, the environment, and natural resources. “While sure to generate a lot of controversy, my personal view is that this is incredibly important and a really positive development in the effort to fight climate change, and something that many people probably won't fully appreciate.”

It isn’t just about climate change. Richard Barke, an associate professor in the School of Public Policy who teaches American politics, notes the bill would establish a minimum tax for large corporations and increase taxes on public equity and hedge fund managers by closing the carried interest loophole. It would allow Medicare to negotiate drug prices. It provides funds to support coal miners with black lung disease — key to West Virginia Democrat Sen. Joe Manchin’s linchpin support in striking the deal. And supporters say some of the manufacturing and energy incentives could help relieve supply bottlenecks, potentially helping reduce the threat of inflation and preventing overseas energy shocks from so drastically impacting domestic supplies and prices.

Georgia stands to benefit. With recent investments in manufacturing plants to make electric vehicles and batteries, Georgia already has a stake in the green energy transition, says Brown, “The big potential for Georgia is in clean energy manufacturing jobs, incentives for households to invest in energy efficiency, rooftop solar, and environmental justice,” she said. “The alignment of this bill with the roadmap of 20 high-impact climate solutions that we helped develop as part of the Drawdown Georgia project is uncanny and reassuring. It suggests Georgia is poised to be a major beneficiary of this legislation.”

It’s not a done deal yet. Barke says that while Manchin signed on to the compromise deal, a key hurdle for Senate leadership, plenty of potential obstacles remain. They include the possibility of Republican amendments and concern over the position of Arizona Sen. Kyrsten Sinema, a Democrat who has yet to endorse the deal publicly and whose vote would be required to pass the legislation in the Senate. Media reports indicate Sinema may have concerns about the carried interest loophole provision. Another roadblock might come from progressive Democrats in the House, who might balk at provisions in the bill supporting oil, gas, and nuclear power — including oil and gas leases in the Gulf of Mexico previously planned but put on hold by a federal judge. “Democrats shouldn’t just be claiming victory here. If they want to pass this legislation, they should be creative in describing the benefits,” Barke said.