The Manchin-Schumer Deal Could Be the Biggest US Climate Legislation Ever

The surprise agreement could funnel hundreds of billions of dollars into clean energy and slash emissions by as much as 40 percent

By Nick Cunningham

July 30, 2022


Photo by iStock/FG Trade

Unless you’ve been on vacation this past week and completely unplugged, you no doubt heard the good news: Secret negotiations between Democratic senators Chuck Schumer and Joe Manchin finally resulted in an enormous political breakthrough that took the world by surprise. On July 27, the two announced a deal to make major investments in clean energy and climate. The announcement came just two weeks after the talks over a historic climate package appeared all but dead, and it left US climate activists with a giddy sense that victory may be at hand.

While it's far from perfect, the legislation, now called the Inflation Reduction Act, could result in an estimated 31 to 44 percent decline in US greenhouse gas emissions by 2030 if it's passed into law. 

The legislation would pump $369 billion into energy and climate programs, making it “the biggest climate action in human history,” in the words of Senator Brian Schatz, a Democrat from Hawaii. 

What does the legislation do? What are the most exciting provisions, and what are the drawbacks? Here’s a rundown of the landmark bill's main climate and energy provisions

Clean electricity subsidies: The array of clean electricity tax credits, expected to total well over $200 billion, are the workhorse of the entire climate package, a long-term policy signal that locks in a faster shift to clean energy. The short-term production tax credits for renewable energy projects, which have to be renewed regularly and expired at the end of last year, will be extended through 2025. Nuclear power is also made eligible. And the investment tax credit, currently available only to solar projects, is extended for the next decade and broadened to include other types of carbon-free energy. Facilities will receive more generous subsidies if they pay their workers higher wages. Nonprofits and tax-exempt entities (like rural electric co-ops, tribes, and municipal utilities) can claim the incentives directly, a big improvement from the current system, which requires project developers to go through Wall Street middlemen to get tax credits. 

Clean energy manufacturing: In an effort to bolster not just the deployment of clean energy but also the manufacturing of the equipment in the United States, the bill funnels $30 billion into the production of solar panels, wind turbines, batteries, and critical minerals processing. Another $10 billion in tax credits goes to clean technology manufacturing facilities. Roughly $2 billion is specifically offered for car factories to retool to make electric vehicles, and another $20 billion in loans goes to new clean vehicle manufacturing. In addition, the bill tops up the Defense Production Act with a fresh $500 million, to be used for heat pumps and critical minerals processing. Another exciting program is the $27 billion for a clean energy technology accelerator, a “green bank” of sorts to support the deployment of clean technologies.

The clean energy manufacturing incentives are “a huge new addition to why this [deal] is a massive win,” said Melinda Pierce, legislative director for the Sierra Club. “That's been a weakness when you think about US competitiveness and dependence on China for so many of these components.” New manufacturing facilities could emerge “up and down the supply chain” as a result of these new policies, she said. 

Electric vehicle subsidies: The $7,500 federal tax credit for electric vehicles is currently on its way out as more carmakers hit their limits under current law, and the Manchin-Schumer bill reinstates it for the next decade, eliminating the sales cap. It also includes a $4,000 tax credit for used EVs. Vehicles not made in North America would not qualify, and there are requirements for domestic battery sourcing that become more stringent in the coming years in an effort to encourage made-in-America batteries. For the first time, the tax credits will have income and price tag thresholds: only those making $150,000 annually or less (or $300,000 for joint filers) will be eligible. And the incentives are available only for new cars priced at $55,000 or less and SUVs and vans selling for under $80,000. In addition, the bill includes $1 billion in funding for heavy-duty trucks, and $3 billion for the US Postal Service to electrify its fleet.

Consumer rebates for energy efficiency: A total of $9 billion goes into home energy rebates, such as for electric appliances, energy-efficient retrofits, heat pumps, rooftop solar, and electric and water heaters. The tax credits last for 10 years. Consumer incentives are “inspired by the need to reduce costs for families. This is real and this is broad,” Pierce said. “Maybe I can finally get a heat pump.” 

Energy and environmental justice: In addition to the straightforward tax credits for renewable energy, there is an additional 10 percent bonus credit for solar, wind, and battery projects sited in low-income communities and another 20 percent credit for projects at affordable-housing developments. And in an effort to bring fossil-fuel-industry-affected communities along with the energy transition, there is a 10 percent bonus credit for projects sited in “energy communities.” That will make it highly attractive to build solar and wind projects in areas with shuttered coal mines or coal-fired power plants, for example. Climate action advocates often talk about a “just transition”—ensuring nobody is left behind as a result of society’s break with fossil fuels—and this bill puts some actual money behind that concept. 

Moreover, there are billions of dollars in funding for environmental justice block grants, $3 billion to electrify equipment and vehicles at ports, and funding to mitigate the negative impacts to neighborhoods divided by existing infrastructure.

The clean energy manufacturing incentives are “a huge new addition to why this [deal] is a massive win,” said Melinda Pierce, legislative director for the Sierra Club.

Methane fee: One underappreciated provision is the creation of a fee on methane emissions from the oil and gas industry. Methane is an extremely potent greenhouse gas, and its emissions are soaring, supercharging global warming. Fracking operations in the Permian Basin, for instance, spew methane with almost no oversight. The proposed climate package includes a $900-per-ton fee on methane that rises steadily to $1,500 per ton by 2026. Drillers will also receive some funding to implement pollution controls, and they can be exempt from the fee if they comply with forthcoming federal regulations on methane. 

Agriculture and forests: Programs for “climate smart” agriculture will receive $20 billion, and $5 billion is earmarked for forest conservation, tree planting, and support for “fire resilient” forests. There are also tax credits for biofuels, a technology that long ago fell out of favor with environmental groups

Fossil fuels: Here’s where the huge climate benefits of the latest deal start to get watered down a bit. In order to get Manchin on board, Schumer agreed to some goodies for oil and gas. The bill makes the leasing of public lands for renewable energy contingent on offering up land for fossil fuels: Any new solar and wind lease sale can occur only if the US government auctions off 2 million acres of public land and 60 million acres offshore each year for the next decade. The Department of Interior would also be required to conduct lease sales in the Gulf of Mexico and off the coast of Alaska. Some environmental groups have blasted this provision. “The new leasing required in this bill will fan the flames of the climate disasters torching our country, and it’s a slap in the face to the communities fighting to protect themselves from filthy fossil fuels,” Brett Hartl, government affairs director at the Center for Biological Diversity, said in a statement.

Carbon capture and hydrogen: Investments in carbon capture and hydrogen can be seen as must-haves to keep global temperatures in check—or as a greenwashing boondoggle and giveaway to the oil industry, depending on the circumstances. The deal includes long-term subsidies for both technologies. ExxonMobil’s CEO had some kind words for the deal, largely because of the company’s desire for lease sales for more drilling, along with carbon capture and gas-based blue hydrogen subsidies. 

Altogether, the Inflation Reduction Act has a lot to love and also some things to hate. It contains some giveaways to the oil industry and its allies, and tethering fossil fuel auctions to renewable energy is “a massive pain point” and there’s “no sugarcoating it,” Pierce said. 

At the same time, the package includes transformative investments in renewable energy, electric vehicles, and climate resilient communities. It will put the United States within striking distance of President Joe Biden’s goal to reduce greenhouse gas emissions by 50 to 52 percent by 2030. 

Final passage into law is still not 100 percent certain, but the Senate will take up the legislation in the coming days.