$369 billion in Inflation Reduction Act climate investments: How does this compare to Build Back Better?

Build Back Better returns as the rebranded Inflation Reduction Act…but how does it compare on climate investment and impact?

The Inflation Reduction Act, which Senate Democrats hope to bring to a vote as soon as this week, budgets $369 billion for energy security and climate change investments. Understandably, most coverage of the bill has focused on what is in it, including fossil-fuel-friendly provisions that helped secure support from Senator Joe Manchin (D-WV) and changes to the tax treatment of carried interest that may yet cost the support of Senator Kyrsten Sinema (D-AZ). By any measure, it’s a massive investment likely to incentivize a whole range of climate action from private companies, public agencies, and individuals across the country. (Check out our summary and analysis of the bill here). It’s also significantly smaller in scale and scope than the expansive proposal President Biden and Congressional Democrats dubbed “Build Back Better.” The climate-related spending in the Inflation Reduction Act totals $186 billion less than the $555 billion called for in Build Back Better. Fiscal concerns and worries about inflation (the new title is no coincidence) compelled the new bill’s drafters to scale back the package. Understanding what programs and policies survived unscathed, which were slimmed down, and which were dropped entirely can paint a clearer picture of the political realities that shape the likely future of climate policy. Major thematic changes include:

Funding for climate resilience and mitigation is far less prominent in the new bill. For example, $20 billion in new funding for AmeriCorps programs (The Corporation for National and Community Service and the National Service Trust) and for climate resilience and mitigation-related workforce development are absent from the IRA proposal.

Agriculture and conservation would receive less additional funding under the IRA than under BBB (but still more than current levels). The IRA’s funding proposals in these areas total at least $35 billion less than BBB’s, with some programs now slated to receive only modest increases (e.g., just over $2 billion for restoration of the National Forest System instead of over $17 billion) and others missing from IRA entirely.

Unlike BBB, IRA does not propose to increase the individual tax credit for the purchase of new electric vehicles. IRA would make a number of changes to eligibility for these credits and would create a new credit for the purchase of used electric vehicles, but it does not increase the new vehicle credit amount from $7,500 to $12,500 as was proposed in BBB. (As a tax credit, this is not a provision that requires a new appropriation. The aggregate budgetary impact is not clear at press time.)

Funding for projects and programs that advance environmental justice is lower but still significant. Exactly which programs are plausibly linked to environmental justice goals is a matter of debate, but some estimates claimed that Build Back Better would entail over $160 billion to advance environmental justice priorities. Senate Democrats claim that the new bill would allocate $60 billion to such goals.

The table below outlines many of the major differences in climate-related spending and tax policy between IRA and BBB. While not comprehensive, it gives an indication of the types of changes made.

 

Climate Investment Comparison: Build Back Better vs. Inflation Reduction Act


Build Back Better

Inflation Reduction Act


% change

Total climate investment

$555 billion*

$369 billion*

33% ↓

Energy and natural resources

Extension of the Advanced Energy Project Credit

$5 billion*

$10 billion

100% ↑

Grants to Facilitate the Siting of Inter-state Electricity Transmission Lines

$800 million

$760 million

5% ↓

Interregional and Offshore Wind Electricity Transmission Planning, Modeling, & Analysis

$100 million

$100 million

0% =

Climate Pollution Reduction Grants

$5 billion*

$5 billion*

0% =

Lead Remediation Projects

$9 billion*

N/A

X

Funding for Water Assistance Program

$225 million

N/A

X

Electric vehicles, transportation, and infrastructure

Credit for the purchase of new EVs

$12,500

$7,500

40% ↓

Consumer rebates for electric home appliances and energy-efficient retrofits

$9 billion*

$9 billion*

0% =

Domestic manufacturing conversion grants

$3.5 billion

$2 billion

43% ↓

Community Climate Incentive Grant Program

$4 billion

N/A

X

Passenger Rail Improvement, Modernization, and Emissions Reduction Grants

$10 billion*

N/A

X

Climate Resilient Coast Guard Infrastructure

$650 million

N/A

X

Agriculture and conservation

National Forest System Restoration

$17.1 billion*

$2.15 billion

87% ↓

Investing in Coastal Communities and Climate Resilience

$6 billion*

$2.6 billion

57% ↓

Non-Federal Land Forest Restoration and Fuels Reduction Projects & Research

$6 billion*

N/A

X

Rural Water Grants for Lead Remediation

$970 million

N/A

X

Rural Energy Savings Program

$200 million

N/A

X

Assistance for Certain Farm Loan Borrowers

$1 billion

N/A

X

USDA Assistance and Support for Underserved Farmer, Ranchers, & Foresters

$1.4 billion

N/A

X

Department of Agriculture Research Funding

$2 billion

N/A

X

Soil Conservation Assistance

$5 billion*

N/A

X

Pacific Salmon Restoration and Conservation

$1 billion

N/A

X

Environmental justice

Neighborhood Access and Equity Grant Program

$4 billion

$3 billion

25% ↓

Grants to reduce air pollution at ports

$3.5 billion

$3 billion

14% ↓

Improving Energy or Water Efficiency or Climate Resilience of Affordable Housing

$2 billion

N/A

X

Strengthening Resilience Under National Flood Insurance Program

$20.5 billion*

N/A

X

Qualified Environmental Justice Program Credit

$1 billion

N/A

X

GHG reduction

Greenhouse Gas Reduction Fund (Green Bank)

$29 billion*

$27 billion*

7% ↓

Methane emissions reduction program

$775 million

$850 million

10% ↑

Other

Corporation for National and Community Service and the National Service Trust

$15.2 billion*

N/A

X

Workforce Development in Support of Climate Resilience and Mitigation

$4.3 billion

N/A

X

Climate Education

$20 million

N/A

X

*indicates investments valued at or over $5 billion

 

It’s also worth noting that the Infrastructure Investment and Jobs Act (IIJA) includes funding for at least some programs envisioned in BBB but left out of IRA. For example, BBB designated $2 billion of the newly-proposed Greenhouse Gas Reduction Fund to fund infrastructure and charging equipment for zero-emission vehicles. The Greenhouse Gas Reduction Fund features in IRA, but the provision for charging infrastructure does not. However, the IIJA does include $7.5 billion in related funding. Similarly, while BBB proposed $10 billion in grants for passenger rail improvements that are not included in IRA, IIJA directs $66 billion for similar purposes.

Perhaps the most important comparison between BBB and IRA regards the expected impact each would have on emissions. With all due caveats about the myriad assumptions and uncertainties inherent in long-term projections of policy impact, early analysis suggests that IRA could lead to a 40% reduction in U.S. greenhouse gas emissions by 2030 (relative to a 2005 baseline). That’s less than the 50-52% BBB was projected to achieve, but the reduction in proposed new climate spending (33% less in IRA) is greater than the proportional decrease in emissions impact.

 

Inflation Reduction Act Relative Efficiency

Build Back Better

Inflation Reduction Act

% change

GHG emissions reduction goal for 2030, from 2005 levels

50-52%

40%

~20%

Climate investment value

$555 billion

$369 billion

~33%

 

It seems that IRA may be a more efficient allocation of resources, at least if emissions reduction per dollar of federal government spending is a relevant measure. However, a few questions loom:

  1. Are federal incentives even the right tools? IRA is heavy on carrots and light on sticks. This is not a bill that mandates emissions reduction or penalizes climate-unfriendly behaviors. Instead, it aims to change the investment calculus for companies and individuals throughout the economy. Debates about the relative merits of such market interventions are beyond our scope here, but still relevant. What is clear is that incentives will change if IRA is passed, and business leaders would do well to think through those changes well in advance.
  2. What do the diminished ambitions to address adaptation and mitigation concerns signal about the government’s priorities? Economic competitiveness and geopolitical considerations weigh in favor of the clean-energy focus of IRA, but the negative physical impacts of already-locked-in levels of climate change on businesses and individuals will require attention at some point—if nothing else, through emergency response funding.
  3. Is a 40% reduction in emissions by 2030 enough (probably not), a good start (most definitely), or the limit of our collective political willpower (not necessarily, but uncertain)? IRA, if passed, is surely not the final legislative word on climate. But whether it represents true momentum or a temptation to rest on laurels is unclear.

Here at The Climate Board, we’re watching the legislative give-and-take as policymakers push toward a vote on IRA. If—when—things change, we’ll be here to help you and your teams understand what’s happening, what it means, and what you should be doing in response. Be sure to sign up for updates and let us know what kinds of policy research and analysis would help you most.  Reach out at www.theclimateboard.com/contact

44% of US workers won’t accept a job from a company that doesn’t align with their ESG values

Amid the flurry of studies, analysis, and guidance on how companies should navigate the Great Resignation, a recent survey by HR consulting group Randstad found that 44% of US respondents said they wouldn’t accept a job with a company that wasn’t aligned with their social and environmental beliefs. 34% of survey participants from the US said they wouldn’t accept a job from a company that wasn’t making efforts to become more sustainable. Gen Z respondents were even more discerning: over half said they wouldn’t accept a job offer from companies that aren’t engaged in sustainability efforts.

We have to acknowledge that this was a survey, and these exact percentages are theoretical; it isn’t certain that each of these respondents would act accordingly when a job offer hit their desk. But it does have some interesting implications for business leaders who are – or even worse, aren’t – engaging in ESG programs. And these findings do track with other recent reports. An analysis of Fortune’s 2019 “100 Best Companies to Work For” found that employers with the highest employee satisfaction had ESG scores 14% higher than average, and employers who were most attractive to young professionals and students had ESG scores 25% higher than the average. If employees act in accordance with these stats, these findings have some serious consequences.

Recruiting isn’t cheap, and the longer that a company’s HR department has to search for employees who aren’t impressed by their ESG actions, the more expenses the company incurs. This isn’t including the productivity or value lost by unfilled positions. One recent estimate from Deloitte HR expert Josh Bersin reported that replacing a lost employee could cost as much as 1.5 to 2x their annual salary (with costs accumulating from onboarding, training, lost productivity, lost engagement, and negative impact to company culture).

The list of reasons to get serious on ESG is long enough, with clear benefits like accessing lower-cost capital, maintaining positive consumer reputation, and increasing operational efficiency (we’ve talked about some of these in past blog posts – read posts like this one for more). While HR has been largely excluded from discussions around environmental responsibility, underestimating the returns from an ESG-aligned recruiting strategy means that companies are underinvesting in their ESG efforts. By ensuring that top talent will join, stay, and maintain engagement with their work, companies will win big.

Our work at The Climate Board focuses on how company leaders can position their company for maximum climate action while gaining real benefits in all aspects of their business. Reach out to us if you’re interested in learning more about our work.

65% of executives say they don’t know how to advance sustainability efforts—and that’s good news

Happy Earth Day, Climate Board readers! We’ve been publishing our “Stats of the Week” for almost two months now, and we’d love to know what you think of them. Are there topics you’d like to see us cover? Corners of the climate space you wish someone would shine new light into? Let us know by reaching out at info@theclimateboard.com.

A recent Harris Poll conducted for Google Cloud paints a two-sided picture of executive attitudes toward sustainability. While the survey results are stuffed full of plausibly good news—96% of companies have at least one program in place to advance sustainability, 86% of executives “feel empowered to make change that evolves their organization’s climate posture,” and so forth—there’s quite a lot to spark concern as well.

One finding just makes me shake my head: 80% of executives give their company an “above average” grade on sustainability. Now, I’m a math guy, and while it’s technically possible for a big majority to be above average if a few outliers way at the bottom are dragging things down, I doubt that these survey respondents are really thinking in terms of the mathematical mean. (What is the metric we’re averaging, anyway?) If my conversations with leaders in a range of industries are any indication, nobody really has much idea what their peers and competitors are actually up to. So it’s easy to look at one’s own efforts and feel like they must have put the company a step ahead.

But comparison to average performance, even if we could define it, doesn’t really matter. What matters is whether companies’ own sustainability efforts are delivering meaningful results. It seems that executives are clear-eyed on this question, and the picture isn’t great.

  • 58% of executives say their company is guilty of greenwashing.

  • 66% question whether their initiatives are genuine.

  • 64% lack measurement tools to quantify sustainability, and of the 36% that have the tools, only half are using them to optimize performance.

As someone who speaks all the time with the individual humans who make up those statistics, I actually see a ray of hope in all that dour data. Executives have largely reached two critical thresholds: First, there’s near-universal acknowledgment that sustainability warrants executive attention. Second, executives now know enough about the problem to know that they don’t know enough. 65% of executives say they want to do more, but they don’t know how. That’s a big thing to realize and to admit. Our current situation—patchworks of token efforts, underfunded mandates, emphasis on appearances rather than results—is the product of a phase in which leaders thought there might be an “easy button.” That illusion is now gone. As more leaders recognize their continued obligation to learn more in order to do more, we’ll see the capacity for real sustainability grow.

The Climate Board exists because of that 65% who want to know how to do more. There are effective approaches out there. There are ways to pursue sustainability without compromising the core business. And there are pathways for leaders to translate their own personal concern into deeply embedded organizational change. There are also dozens of missteps, distractions, and mirages to avoid. If you’re in that 65%, we can help you sort it all out. Check out our upcoming research agenda, and get in touch if you’d like to know more about how we work with our members.

Only 6% of board members from Fortune 100 companies have climate-relevant sustainability credentials

Early last year, the NYU Stern School of Business found that of the 1188 board members of Fortune 100 companies, only 29% had any ESG credentials (e.g. experience with human rights issues, ethics, cybersecurity, climate, or water issues), and most of that expertise was in social issues. Only 6% of board members had credentials related to environmental sustainability. The Stern researchers judged that only five of the 1188 board members had relevant climate experience. Combined with earlier research showing that only 10% of boards from the top 475 companies in the Fortune 2000 reviewed sustainability issues at their meetings, these findings paint a rather dismal picture of underpowered governance on climate issues.

Good boards feature a diversity of experience and perspective, and it’s not necessary that all members, or even a majority, be experts in any particular field. But it is generally helpful for boards to be well-attuned to the risks and opportunities their company faces. As my colleague Jacqueline Kessler wrote last week, climate risk and climate action are material factors that clear majorities of investors and insurers consider. As companies face mounting pressure to set emissions reductions targets, outline climate action plans, and show commitment on ESG issues, leaders must know which issues are material, how to respond strategically, and how to capture additional value from their actions. When directors lack knowledge of ESG issues and aren’t regularly reviewing the ESG plans of the companies they’re meant to oversee, boards will only hinder successful ESG management, and they will be far off from guiding strategic ESG action.

What do we do with this knowledge now? Considering – even prioritizing – ESG expertise during nomination can help strengthen top-down leadership on these issues over time, but there are also steps available to strengthen current directors’ responsibility for, awareness of, and emphasis on climate and ESG issues. Given the experience gap described above, education can go a long way. The Climate Board is proud to have helped its members’ boards to understand everything from the basics of climate science to industry-specific financial imperatives for action.

Corporate governance practices and policies also play a key role. In our work on effective ESG governance practices, The Climate Board examined how different ESG-forward companies structure their board-level review and oversight of ESG risks and strategy. Executive ESG steering committees, formalized champions for sustainability at the board level and C-suite, regular reporting through the Sustainability team to the top of the organization, and sustainability-linked compensation are all effective tools. Our research showed that ESG governance practices don’t have to be one-size-fits-all, but there are some common elements of success. The boards of companies we profiled were active participants in their ESG action plans, and accountability for climate and ESG plans ran through successful organizations at every level.

No matter what your company’s path to a climate-conscious board of directors looks like, be sure you’re on one.

Is your board pulling its weight on sustainability, or sitting on the sidelines? Are you a director who wants to learn more about how climate action fits in with core strategy? Or maybe you’re one of the lucky few leveraging your climate experience and expertise from the boardroom. No matter which, we’d love to hear your perspective. Click here to get in touch with our research team.

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