Stop Trying to Make "IRA 2.0" Happen

The Inflation Reduction Act Was the End of Something Old, Not the Beginning of Something New

After its passage in 2022, climate advocates and journalists called the Inflation Reduction Act (IRA) “once in a generation legislation” and a “generational achievement” for the climate movement. As I’ve argued since then, these observers might be right about the legislation’s significance, but they’re wrong about its provenance.

The IRA was much more a product of the unique political and economic circumstances opened up by the government’s response to the COVID pandemic than a victory for grassroots organizing. It may be standard operating procedure for activists to claim credit even for policy reforms they had little to do with. But if the rest of us grant that theirs is the correct explanation for the IRA’s passage, then we encourage the climate movement to simply sustain their pressure campaign, to continue marching, smearing paint, blocking traffic, and physically confronting public servants.

More to the point, by indulging the idea that climate activists delivered the IRA, we encourage them to simply run the same play again. To wit, less than a “generation” after the law’s passage, some advocates are already pushing for IRA 2.0, 3.0, and even 4.0. As this tweet from Sunrise Movement staffer Daksh Arora suggests, “future federal IRAs…will get us pretty close to our 2050 targets.”

Daksh IRA2

The substance of these entirely hypothetical IRA sequels, of course, remains up for discussion. Sunrise’s Arora suggests “R&D, grid, interconnection & permitting” would comprise future bills, although this obviously leaves out significant detail. Carnegie Mellon’s Costa Samaras, who recently served as Principal Assistant Director for Energy at the White House Office of Science and Technology Policy, has proposed an “IRA 2” that would include incentives for virtual power plants, categorical exclusions for electricity storage projects, a clean portfolio standard, and more. Nathan Iyer from the Rocky Mountain Institute suggested that IRA 2 should emphasize the principles of “efficiency, targeted, leverage, public equity.”

These are all fine and legitimate policy ideas. But to expect them to come in the form of an “IRA 2.0” is to misunderstand the political economy of climate legislation. The circumstances under which Congress passed the IRA never happened before and, almost certainly, will never happen again.

Those of us in climate research and journalism need to understand and acknowledge the true origins of the IRA: the years-long efforts by a number of committed policy advocates and legislators to make clean energy subsidies technology-inclusive and encourage domestic production of minerals and technologies, codified in a law ultimately passed at the last minute before inflation anxieties cut down the post-covid Congressional money tree. By accepting this climate realpolitik, we can calibrate future policy advocacy against unfolding real-world circumstances, instead of naively and uncreatively hoping for IRA 2.0, IRA 3.0, IRA 4.0, and so on.

How We Got to IRA

Precisely because the conventional wisdom is so, well, conventional, it might feel rote to walk through the chronology that led up to the IRA’s passage. But since advocates seem to expect to do IRA all over again, it’s worth recounting what actually happened.

The Biden Administration rose to power in early 2021 with the narrowest of Congressional majorities, mounting inflation, and the specter of thermostatic public opinion bounding its ambitions and its timeline. Everyone, including leading climate advocates and journalists, understood that the Administration had one shot at a major Congressional reconciliation package before the midterm elections in late 2022. Democrats in Congress threw everything and the kitchen sink into that package, known as the “Build Back Better Act” (BBB).

BBB was composed of many of the clean energy investments that ultimately passed under IRA, along with Rube Goldberg-esque regulations of the electric power system and a raft of temporary social welfare programs that Democrats not-so-surreptitiously assumed would be extended after the legislation passed. All told, the kitchen sink would cost about $3.5 trillion.

From virtually the very beginning of Congressional negotiations, moderate West Virginia Democrat Joe Manchin, the pivotal vote in the Democratic caucus, told Majority Leader Chuck Schumer that he wouldn’t support BBB. In summer of 2021, Manchin offered instead a $1.5 trillion reconciliation package that included “fuel neutral” clean energy tax credits, along with a clean energy standard, tax increases, and means testing for any welfare policies.

This was just a few months after President Biden signed the American Rescue Plan (ARP), a $2 trillion post-COVID economic recovery package. But by the fall of 2021, it was widely perceived that the ARP, combined with Trump’s prior COVID recovery spending and supply chain stresses caused by the post-vaccination return to work, were fueling the highest rates of inflation experienced in decades.

Despite the increasing sense of inflation, in the months that followed, progressives continued to insist that a pressure campaign against Joe Manchin would force him to relent and sign up for BBB. He never did. Manchin finally killed BBB in summer of 2022 and then immediately released the text of the Inflation Reduction Act, a bill he alone authored and which included expansions of existing clean energy grants and tax credits along with other tax and health policy provisions. (Notably missing were several provisions Manchin had supported the prior summer.)

The Congressional Budget Office estimated that the climate provisions of the IRA would cost about $370 billion over ten years. Modeling from Goldman Sachs and the Brookings Institution, on the other hand, pegged total subsidy expenditures in the trillions of dollars over the coming decades.

Sensing widespread inflation anxiety and fearing the loss of their majority in the 2022 midterm elections, Democrats quickly glommed onto the IRA, passing it unanimously under budget reconciliation in a party-line vote.

In sum, “IRA 2.0” would be better described as "The multi-trillion dollar partisan Democratic reconciliation package written by a sui generis moderate Democrat as an explicit counteroffer to progressives and passed in the brief window between post-COVID Congressional profligacy and skyrocketing inflation...2.0."

Perhaps if another world-historic pandemic or war unseals Congress’s spigot of social and infrastructure spending, something like IRA 2.0 could become possible. But that is the future that progressives are betting on, not one in which they successfully pressure Congress to pass ambitious climate legislation, since that is not what precipitated the passage of the IRA in the first place.

Where Did We Come From, Where Do We Go

The IRA was, in many ways, the culmination of energy and climate policy debates of yesteryear, not a sign of a new climate-policy order.

The decade following the Global Financial Crisis was one mired in underemployment, low interest rates, low penetrations of wind and solar and electric vehicles, and stagnant energy demand. Juicing tax equity markets to subsidize the deployment of modular and globally traded wind turbines and solar panels with federal tax credits was a, if not the, central clean energy policy pursuit within that context.

But none of that holds anymore. Employment and labor market participation are high, as are interest rates. Wind and solar are testing current local grid congestion and value deflation constraints. And electric vehicles, combined with data centers and electrification of industry and heating, are promising to push electricity demand upward for the first time in decades.

Crafting climate and clean energy policy in these new circumstances will require a completely different posture, and different policy tools, than those that prevailed in the leadup to the Biden Administration. Chief among those must be environmental permitting and technology licensing reform that reduce the capital intensity of decarbonization in a high-interest rate environment. Now that federal energy subsidies have been normalized across technology categories, the licensing of next-generation nuclear reactors, geothermal drilling, and carbon injection wells must take center stage. Likewise, NEPA and the morass of environmental permitting regulations must also be reformed to advance the deployment of electric transmission infrastructure, power plant construction, rail and transit systems, housing construction, wildfire management, and more.

Attempting to tackle these policy imperatives under the auspices of “IRA 2.0” is not only futile but politically dangerous for climate policy advocates. The opportunity costs of pursuing phantom climate policies, in lieu of more pragmatic and efficacious goals like permitting reform, are high. What’s more, before the IRA, the repeal of clean energy subsidies was not a major interest of the Republican party; now it is. Perhaps that was worthwhile for the passage of historic climate legislation. But the public is mostly unaware of the IRA’s existence, let alone its significance, and the latest surveys indicate that climate change remains a low-priority issue for voters. With Republicans virtually guaranteed to take control of Congress and the White House for considerable periods over the next few decades, it would be the height of political malpractice to pursue all climate and clean energy policy under the auspices of a bill they are steadfastly polarized against.

Climate Activists vs. Climate Pragmatists

How much does all this matter? Perhaps not a lot. If you’re not invested in the success of progressive climate activists, you may not really care that they intend to spend the next decade or two fantasizing about IRA 2.0. Last decade’s fantasies about Green New Deals and climate emergencies did not, after all, ultimately prevent the passage of meaningful clean energy legislation.

Those of us not drawn to the mirage of future IRAs are already hard at work on permitting and technology licensing reform, trade policy and supply chain hardening, and technology-specific innovation investments in agricultural productivity, next-generation fission and fusion technologies, livestock enteric methane mitigation, green fertilizers, advanced geothermal drilling, cellular proteins, integrated carbon capture technologies, and more. These pursuits have built-in bipartisan constituencies in Congress, and are low-profile enough to avoid the polarizing attention climate advocacy seems to prioritize.

In other words, the coming years will provide fertile ground for the type of quiet climate policy that drove so much technological progress in the years and decades before the pandemic. It’s the type of progress that needs neither the mass mobilization nor the imprimatur of “IRA 2.0” imagined by various climate advocates.

All the same, it’s hard not to fantasize about a climate movement that gets out of its own way, takes public opinion and political economy seriously, and advances policies that would actually reduce emissions.

But at the end of the day, the demands of an NGO-coordinated grassroots climate movement are mostly inimical to the types of policies that decarbonization demands. At best, the climate army we have will spin their wheels demanding symbolic emergency declarations and net-zero pledges, taking more credit than is due for victories won mostly by other constituencies. At worst, they will continue to polarize the issue, while actively obstructing the infrastructure, technology, and productivity improvements that deep decarbonization demands. Either way, sustained progress on climate and clean energy will occur by looking forward at the unfolding path ahead of us, not backwards at the political context of yesteryear.