From offshore wind turbines to electric vehicles to solar panels, California stands to emerge as a major winner from the passage of a historic climate and energy bill in Washington, D.C., experts said Monday.
The bill, dubbed the “Inflation Reduction Act,” cleared the U.S. Senate on a 51-50 vote, with Vice President Kamala Harris breaking a tie. It heads next to the House of Representatives, where passage is expected Friday, and then to President Biden’s desk for his signature.
The 775-page bill, the culmination of more than year of negotiations and deal-making, achieves key priorities for Democrats. Among them: a 15% minimum tax on corporations, a requirement that the federal government negotiate with pharmaceutical companies to lower drug prices for Medicare, and an extension of health insurance subsidies under the Affordable Care Act.
But the centerpiece is a sweeping effort to reduce climate change. The measure provides $369 billion over the next 10 years for federal tax credits, grants and other incentives to dramatically expand solar power, wind power, electric vehicles, battery storage projects and other efforts to reduce greenhouse gas emissions that are warming the planet.
“This is by far the most significant piece of legislation on climate that Congress has ever passed,” said Michael Wara, director of the Climate and Energy Policy Program at Stanford University’s Woods Institute for the Environment.
California has led the nation in passing laws to reduce pollution since the 1960s, when then-Gov. Ronald Reagan created the California Air Resources Board.
Billions of new federal incentives in the bill will help California reach its climate goals more easily than if Sacramento had to fund them on its own, said Anand Gopal, executive director of strategy and policy at Energy Innovation, a San Francisco research firm.
“There’s a lot of money that can flow to the state,” said Gopal, a former research scientist at Lawrence Berkeley National Laboratory. “This bill will help the state go even faster than what we were planning to do.”
“Any state that takes the lead is going to get rewarded richly from this bill,” he added. “There’s a ton of money for automakers to set up battery plants and to produce electric vehicles. If they see the California market is large, there’s a good chance the battery plants will be built in the state.”
Over the past 20 years, California governors from Gray Davis to Arnold Schwarzenegger to Jerry Brown and Gavin Newsom have promoted electric vehicles by tightening smog standards, and offering rebates, tax credits and access to carpool lanes for EV drivers.
Currently, 16% of cars sold in California, or one in six, is electric. More EVs are sold in California than any other state. California has 43 companies that manufacture electric vehicles or electric vehicle equipment, led by Tesla, and electric vehicles are the state’s largest manufactured export, with a value of $5.6 billion.
But the state is still far short of Brown’s goal of 5 million electric vehicles sold by 2030, having recently passed 1.2 million. And studies show more chargers are needed.
In 2020, Newsom signed an executive order banning the sale of new gasoline-powered passenger vehicles in California starting in 2035, following the lead of many European countries.
California already has a $2,000 rebate for electric vehicles. But the state’s incentives rise and fall depending on whether California’s budget is in surplus or deficit.
“The federal credit is just essential to lock in long-term certainty,” Wara said. “I don’t think you can fully assume the California credit is fully funded through a recession.”
The new bill extends an existing $7,500 federal tax credit for people who buy electric cars. Importantly, it drops a current rule that left out companies once they have sold 200,000 electric vehicles.
Tesla and General Motors hit that cap in 2018. So buyers of those vehicles have not been eligible for the federal tax credit in recent years. Nissan and other automakers are nearing it.
The new federal bill also provides a $4,000 tax credit for the sale of used electric vehicles.
Californians have seen record droughts, searing heat waves and massive wildfires in recent years — all of which have been made worse by the warming climate.
Through dozens of programs and laws, greenhouse gas emissions peaked in California in 2004 and have fallen about 14% since. But the state has a goal of reducing emissions 40% from 1990 levels by 2030. And it’s only cut them about 6% so far.
To continue expanding fossil-free power, California has a goal of receiving 100% of its electricity from carbon-free sources like wind, solar, geothermal, hydropower or nuclear power by 2045. Currently, 59% of California’s electricity comes from carbon-free sources.
The new bill passed Sunday, which was endorsed by the Silicon Valley Leadership Group, Intel, Microsoft and other tech companies, contains $30 billion in production tax credits for U.S. manufacturing of batteries, solar panels, wind turbines and critical minerals processing. And it extends for 10 years a 30% federal tax credit for rooftop solar panels.
Not everyone is happy. Senate Republican leader Mitch McConnell, R-Kentucky, called the bill “a so-called climate bill that will have no meaningful impact on global temperatures whatsoever.”
And some environmental groups, along with Wara, were disappointed that to win the key vote of Sen. Joe Manchin, D-West Virginia, language was included to streamline oil and gas leasing in the Gulf of Mexico and parts of Alaska, moves that will increase emissions and impact nearby communities.
But Gopal’s organization calculated that for every 1 ton of carbon emissions from the new drilling, 24 tons would be saved from the bill’s green provisions, and that the bill would would prevent up to 3,900 premature deaths from air pollution and create 1.5 million new jobs by 2030.
The bill “is a historic down payment towards tackling the climate crisis,” said Mary Creasman, CEO of California Environmental Voters, an Oakland nonprofit. “It is fitting that our vice president from California was the deciding vote.”