The Infrastructure Investment and Jobs Act Will Do More to Reach 2050 Climate Targets than Those of 2030

On August 10, 69 senators voted for the roughly $1 trillion dollar Infrastructure Investment and Jobs Act (IIJA), a top Biden administration priority and the largest-ever investment in the United States’ “hard infrastructure.” The IIJA supports a number of climate priorities, but will likely do more to reach 2050 targets than those of 2030.

In a way, this is expected. Infrastructure investments are, by definition, long-term plays. Though the immediate impact of the bill on U.S. emissions will likely be negligible at best, long-term prospects are more promising, if far from guaranteed. As a vehicle of green industrial strategy for a long-term, economy-wide transition to clean energy, the IIJA is an arguably unprecedented step in the right direction. As a climate strategy to meet the immediate goals of a rapidly dwindling carbon budget, it is a dereliction of duty.

Recognizing this, Democrats are looking to the forthcoming $3.5 trillion budget reconciliation bill as their best chance to put the United States on track to reach Biden’s climate goals. Biden’s American Jobs Plan (AJP) included roughly $1.6 trillion in climate-related spending, $1.4 trillion of which did not make it into the IIJA. Much of the AJP proposal is poised to make it into the budget package, though that could change over the course of negotiations.

This critical questions digs a little deeper into the IIJA, asking what climate provisions it includes, how important they are likely to be, what’s left for further legislation, and what it all might mean for climate politics in the United States.

Q1: What climate provisions are in the bill and how important are they likely to be?

A1: The IIJA is a compromise. Shepherded by moderates in each party, the bill reflects a limited bipartisan embrace of public investment in ongoing economic and environmental challenges without the transformative urgency demanded by climate hawks. According to Senator Rob Portman, one of the “gang of 10,” approximately 73 percent of the 2,700-page infrastructure bill is existing legislation already passed through various Senate committees. In this sense, it more reflects long-held priorities than a radically new agenda.

Biden’s core climate commitments, a 50–52 percent reduction in greenhouse gases (GHGs) by 2030 and net-zero emissions by 2050, cannot be reached with business as usual—they require bold action. But the IIJA contains more of the former than the latter. Over its five years of spending, the bill touches upon the major sources of emissions—transportation, power, industry, and buildings—but it is unlikely to beget more than incremental progress in emissions reduction and technological leaps in some sectors.

Transport

Almost two-thirds of the IIJA is devoted to the transportation sector, and the $15 billion for low-carbon mobility is, at its face, the most significant piece of climate funding. Though it includes the federal government’s first investment in electric vehicle (EV) charging infrastructure, it will likely fall short of Biden’s targeted 500,000 chargers nationwide. Just $2.5 billion will go to grants for the charging infrastructure that could facilitate widespread EV adoption, and this limited funding will be diluted by the inclusion of propane and natural gas charging stations. The IIJA also introduces a $5 billion Clean School Bus Program—only half of which has to go to zero-emission vehicles—and a $1.25 billion program for low-carbon ferries.

The bill also includes $30 billion for Amtrak’s development of the Northeast Corridor and an 83 percent increase over the Fixing America’s Surface Transportation (FAST) Act’s provisions for public transit, including $5.25 billion to help transit agencies move to low-emissions buses. While these measures are unlikely to wean Americans off automobile reliance, they could help stem declining ridership and funding in many U.S. cities.

Power

Biden’s original plan included hundreds of billions in clean energy tax credits and another hundred billion for grid infrastructure. The IIJA offers just $10–12 billion for grid projects. About half goes to innovative demonstration projects that, while important over the medium term, will do little to erect the hundreds of thousands of miles of power lines required to bring wind and solar to demand centers around the country. For clean electricity generation, the IIJA contains little beyond some continuing appropriations for solar, wind, and geothermal projects at the Department of Energy (DOE) and a $6 billion credit system for maintaining existing nuclear power facilities.

The most promising provisions for power are those without the billion-dollar price tags. The bipartisan deal gives the Federal Energy Regulatory Commission authority to overrule state regulators who deny project permits in DOE-designated transmission corridors, a power previously reserved for gas pipelines. This authority should make it less arduous to build new transmission capacity and could principally benefit about 680 gigawatts of proposed zero-carbon capacity in the interconnection queue.

Innovation

Every section of the IIJA includes a focus on innovation. Much as the 2009 stimulus helped kick-start the utility-scale solar industry, the IIJA is poised to accelerate the commercialization of emerging clean energy technologies, especially clean hydrogen, carbon capture, and advanced nuclear. Two-thirds of all funds appropriated for the DOE ($45 billion) go to innovation and industrial strategy (see chart). This includes both proven tech like smart grid technology and EV batteries and more speculative bets like the $100 million prize for direct air capture. The bill also establishes a new Office of Clean Energy Demonstrations in the DOE to oversee $21 billion in new demonstration projects.

Industrial Strategy

The IIJA contains some features of Biden’s industrial strategy to “strengthen our supply chains and rebuild our industrial base.” One priority is industries where the United States has a competitive advantage, such as carbon capture, which receives an $8.6 billion investment. Another is supply chain fragility of key sectors, especially EVs, which receive $3 billion for battery material processing, $3 billion for battery manufacturing and recycling, and $1 billion for rare earth and critical minerals resiliency. Finally, the IIJA eyes regional development, targeting “economically distressed” parts of the country. Over five years, $8 billion will support at least four “regional clean hydrogen hubs” to be located in different regions and demonstrate distinct technologies and end uses. As large as some of these numbers sound, they still pale in comparison to Chinese efforts, and target just a few of the necessary sectors to “win the 21st century.”

Buildings and Energy Efficiency

Reducing energy demand is critical to reaching net-zero targets, and the IIJA includes a range of programs to continue this effort. Though it largely recapitalizes existing initiatives like the Weatherization Assistance Program, it creates a few avenues for increasing efficiency in commercial, residential, and industrial institutions. For example, it includes the Energy Savings and Industrial Competitiveness Act of 2019, which supports stronger building energy codes, a low-hanging fruit to quickly reduce emissions.

Q2: What's left for the budget reconciliation bill?

A2: For many climate hawks, the IIJA is disappointing because it lacks the most ambitious programs and projects of the White House’s $2.7 trillion AJP. Now, as Senate Democrats look to maximize climate action in the $3.5 trillion budget reconciliation bill, it appears they will only include items from the AJP. While their bill will extend the lever on climate, it cannot ensure that the country reaches Biden’s climate goals, since the AJP itself was not sufficient to do so. What the reconciliation bill does do is reinstate some support for clean electricity and green industrial policy that is absent from the IIJA.

Clean Electricity Standard and Renewable Energy Tax Credits

Democrats hope to include a version of the Energy Efficiency and Clean Electricity Standard included in the AJP that many consider critical to meeting Biden’s goal of 100 percent clean electricity by 2035. Since bills passed through reconciliation must have budget impacts, the Democrats designed the Clean Electricity Payment Program (CEPP), which would pay utilities based on the amount of clean energy they add each year instead of setting a national target and penalizing utilities that do not meet it. There aren’t yet enough details to assess whether this program could achieve the net-zero electricity goal, but so long as carbon pricing remains a legislative pipe dream, the CEPP is likely the best tool available.

The AJP pledged to preserve key tax credits for renewable energy generation with a 10-year extension and expansion of the investment tax credit (typically used for solar projects) and the production tax credit (typically used for wind projects), likely costing as much as $400 billion. Further, it extended these credits to energy storage technologies. Importantly, AJP would have made these “direct pay,” which would allow developers to treat eligible investments as overpayment on their taxes and receive cash refunds from the Internal Revenue Service. Clean energy tax credits, left out of the bipartisan deal, appear in the framework for Senate Democrats’ companion bill, but details of timelines or direct pay provisions are not yet clear.

Green Industrial Policy

For the reconciliation package, Senate committees are establishing green industrial policy priorities related to manufacturing, workforce development, and community revitalization. Many of these programs are likely to be extensions or expansions of existing policies or policies included in the 2009 American Recovery and Reinvestment Act (ARRA). For example, the 48C manufacturing tax credit, included in the ARRA, benefits up to 30 percent of new investments in clean energy manufacturing. Though the 48C credit coincided with a robust increase in domestic clean energy manufacturing starting in 2010, there is limited evidence it played a significant role in that growth. Instead, the credit is likely to find a home in the budget bill to ensure buy-in from key legislators—particularly Senator Joe Manchin, for whom it’s a core priority.

Other components of the budget bill represent more of an evidence-based approach to green industrial policy. The Clean Energy Technology Accelerator (formerly known as the Clean Energy & Sustainability Accelerator), for example, will establish a national green bank to mobilize investment in climate-related projects alongside private investors. Historically, green banks have been the largest investors in green finance around the world. They are a crucial arm of industrial strategy in a range of jurisdictions, including Germany, China, Australia, and some U.S. states. The reconciliation package is likely to draw on one of many legislative attempts to establish a national green bank, which could help address the wide gap between necessary and committed climate investment.

Q3: What does the deal tell us about the state of climate politics?

A3: The IIJA fulfills Biden’s commitment to bipartisanship and represents a baby step in deescalating a decades-long conflict over climate action in this country. But the cost of that bipartisanship is measurable, amounting to exactly the billions of dollars’ difference between the reconciliation bill and the IIJA. That key items from the AJP were cut from the bipartisan bill, such as the clean electricity standard and renewable energy tax credits, highlights a persistent, party-line division on major energy and climate legislation.

As these legislative efforts come to a head, some important themes about U.S. climate politics emerge. First, the initiatives reviewed here reflect a continued preference for an incremental rather than transformative approach. The bipartisan deal, for example, commits more to transit than Congress has previously, but it does far more for carbon-intensive roads and bridges than for fundamentally rethinking mobility. To be clear, this observation is not limited to the bipartisan deal—Senate Democrats’ companion bill does not appear to wrestle with such questions, either.

The IIJA shows that the only point of bipartisan agreement on climate is a shared interest in innovating our way out of trouble. Central to this vision are clean hydrogen, carbon capture, and vehicles that burn natural gas and propane—technologies that stand to prolong the United States’ reliance on fossil fuels even as they promise to support a zero-carbon future. Underlying this common interest in innovation is a careful calculus to avoid imposing losses on any one industry. This helps explain a studious avoidance of challenges associated with phase-outs of fossil fuel infrastructure or other stranded assets.

This confidence in “technological salvation” lends itself to a clear preference for carrots over sticks. While Democrats show more support for regulation, the AJP, bipartisan deal, and budget bill all lean heavily on incentives. There is little appetite for taxation as a policy tool to curb emissions or generate revenue for climate investment. As a result, some key emissions-reducing measures, such as vehicle mileage standards, will fall to the Biden administration alone.

Finally, Biden’s effort to cast climate action in the more neutral terms of infrastructure spending and economic opportunity saw only limited success. While the cooperative effort is commendable in an era of unprecedented polarization, the vast majority of the IIJA was existing legislation already passed through Senate committees, and the bill’s impact on climate is likely to be long in coming. Since infrastructure and climate action alike enjoy popular, bipartisan support by the majority of the country, there is reason to imagine that the IIJA should have passed sooner and been more ambitious. The IIJA embodies a middle-of-the-road policy approach emblematic of so much of Biden’s presidency with its tentative steps toward an economy-wide green industrial strategy. Meanwhile, the reconciliation bill remains the United States’ best hope at cutting emissions and staving off climate disaster.

Morgan Higman is a fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C. Lachlan Carey is an associate fellow with the CSIS Energy Security and Climate Change Program. Stephen Naimoli is an associate fellow with the CSIS Energy Security and Climate Change Program.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2021 by the Center for Strategic and International Studies. All rights reserved.

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Morgan Higman

Morgan Higman

Fellow, Energy Security and Climate Change Program

Lachlan Carey

Stephen J. Naimoli