How the Inflation Reduction Act will affect the green transition: Experts

President Biden signed the Inflation Reduction Act (IRA) into law last week, mobilizing $369 billion in climate spending.

"This bill is the biggest step forward on climate ever — ever," Biden said in a speech. "And it’s going to allow us to boldly take additional steps toward meeting all of my climate goals — the ones we set out when we ran."

Experts and climate scientists roundly cheered the bill as a key step to curb emissions and fight climate change but noted there is still work to do.

“Getting to net zero is something that I think we can all see we're on a path to,” Josh Griffin, co-founder and chief policy officer at nZero, told Yahoo Finance.

The policy package comes with a number of tax breaks for clean energy, with $51.1 billion allocated for renewable energy production, $50.9 billion for clean electricity investment, $30 billion for nuclear production, and $3.2 billion for carbon capture technologies.

It also includes some novel features like a fee on methane gas emissions and $27 billion for the Greenhouse Gas Reduction Fund — essentially a green bank that lends money to startups that can help decarbonize the economy.

The Inflation Reduction Act also includes environmental justice initiatives including incentives to install solar and wind in low-income and disadvantaged communities as well as drought mitigation funding to help parts of the U.S. suffering under water restrictions and extreme temperatures linked to climate change.

Griffin highlighted the "totality" of the IRA and how its approach includes a variety of industries beyond the energy sector.

“More steps will need to be taken,” Griffin added, “but this to me, the Inflation Reduction Act, is just the start, and it's engaging the market, it’s engaging investors, it's engaging banks, it’s engaging equity, it's engaging policymakers, it's engaging manufacturers, and those build on themselves and will only improve.”

Green transition won't take place 'overnight'

Under President Biden, the U.S. set a target to achieve a 50-52% reduction in greenhouse gas emissions relative to 2005 levels by 2030 and reach net-zero emissions by 2050.

A preliminary analysis by independent research provider Rhodium found that the Inflation Reduction Act will get us closer to that goal with a 31-44% greenhouse gas reduction by 2030. On Thursday, the Department of Energy released similar estimates, forecasting a 40% reduction in emissions by 2030.

Amid the optimism, however, two analysts cautioned that the new legislation won't smooth every bump in the path to net-zero, especially as supply chains and inflation remain core concerns.

“I think that my one cautionary point is simply that it's going to take some time to see if all of those 40-plus different tax credits that are in the legislation for clean energy are actually going to work," Isaac Boltansky, director of policy research at BTIG, said on Yahoo Finance Live. "We're covering everything from automobiles to wind turbines to heat pumps. Some of those are going to fail, and they'll miss the mark.”

Boltansky added that the bill "should be a tide that lifts all boats. But over the next few months, we're going to have to dig through and say, perhaps, some of the requirements regarding, let's say, electric vehicles, and having to get the materials for the batteries on shore to get the full value of the credit, might prove a little bit difficult over the next few years.”

Another analyst pointed out that investors in clean energy stocks won't see benefits overnight.

“It is going to provide a demand boost for a lot of technologies — EVs, wind, solar, batteries, hydrogen — there's goodies in there for anybody looking at the clean energy space,” Rob Barnett, senior clean energy analyst at Bloomberg Intelligence, told Yahoo Finance Live (video above). “But none of it is overnight. You've got to think this bill is going to unfold over the course of 5 to 10 years kind of range.”

There is one thing the bill does right away — it sends a signal to other actors and stakeholders all working on the same issue.

For one thing, it establishes credibility for the U.S. when leaders meet with other nations in November to coordinate a global response to climate change.

Separately, many states and companies have set their own net-zero goals, and federal action can reduce the uncertainty around energy policy.

Two-thirds of S&P 500 companies have set emissions targets of some kind, though many fall short of the science-based targets called for in the Paris Agreement.

Griffin, whose company measures greenhouse gas emissions at a granular level, asserted there was “significant appetite” among companies to reduce their emissions, even before the IRA passed.

“It certainly feels like there is momentum in all in all facets of the market,” he said. “What this bill does that I think has been typical in a lot of spaces for the renewable side is it engages the market — it doesn't dictate to the market. It creates incentives and it creates a path so private capital can also flow and deliver projects efficiently and timely as possible.”

Griffin noted that the uncertainty around how the Inflation Reduction Act could play out also means it could surprise to the upside in terms of carbon reductions.

“It's the industries that we don't see that are even more exciting of what's going to come from this,” he said. “What is what does the next generation of technology look like? I think this bill guarantees that the next generation is going to come quicker than we think. And it's going to be potentially very well received.”

Grace is an assistant editor for Yahoo Finance.

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