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A guide to the US climate, health and tax package

The US is historically the biggest contributor to greenhouse gas emissions despite its levels peaking in 2007, and it remains the second-biggest emitter behind China on an annual basis.

The effect of president Joe Biden’s tax and climate bill, which passed the House of Representatives on Friday, would be to reduce greenhouse gas emissions by 40 per cent from 2005 levels by 2030, according to experts.

This would go a long way towards hitting the administration’s goal of a 50-52 per cent cut in emissions under its Paris agreement commitment and compares with a reduction of just 30 per cent under preceding policies.

Power and transport have been the biggest contributors to US emissions, but the new Biden policy measures also sharpen the focus on industry.

Spread over 10 years, the measures are to be largely paid for from the corporate sector. More than $300bn is expected in revenues from a minimum 15 per cent corporate tax rate for companies with net income of more than $1bn a year. An estimated 150 companies would be affected.

Further funding will come from a 1 per cent levy imposed when companies buy back their own shares, effective from 2023. Buybacks have been used to spend the cash piles built by some of the biggest US companies, including ExxonMobil, rather than using the funds to invest in new areas.

Overall improved tax enforcement is also expected to bring in fresh revenue, with the Internal Revenue Service also benefiting from funding worth $80bn itself to do so. It will also explore plans to develop a direct online filing system.

Further revenue would come from significant Medicare savings as a result of prescription drug pricing reform that will allow it to negotiate lower payments to pharmaceutical companies on certain high-cost items.

Assessing the so-called Inflation Reduction Act of 2022, the non-partisan Congressional Budget Office says it will have a “negligible” effect on inflation in 2022 and into 2023.

The legislation is explicit that there will be no impact on “any taxpayer or small business with a taxable income below $400,000”.

Below is a summary of the calculations and what is in the legislation:

Climate measures: Industry

A cow grazes in a pasture as wind turbines rise in the distance near Reading, Kansas © AP

Methane penalty $900 per metric tonne of methane emissions that exceed federal limits in 2024, rising to $1,500 per metric tonne in 2026.

Carbon capture and storage Tax credit of $85 per metric tonne, up from $50.

Clean energy $30bn for companies that build solar panels, wind turbines, batteries, geothermal plants and advanced zero-emission nuclear reactors, including tax credits over 10 years. Replaces short-term wind and solar credits. The investment tax credit also now applies to battery storage and biogas.

About $30bn in grants and loans for utilities to help their transition to clean energy.

Nearly $6bn in grants and tax credits are available to help some of the worst polluters in industrial manufacturing, including chemical, steel and cement plants, to lower their emissions.

More than $5bn in tax credits created or extended for hydrogen energy coming from clean sources, biofuels and sustainable aviation fuels. Another $5.5bn for the extension of incentives for biodiesel, renewable diesel and alternative fuels.

Clean manufacturing $10bn in investment tax credits to build manufacturing facilities that make electric vehicles and renewable energy technologies.

Green bank $27bn for a “green bank” to support clean energy projects, such as rooftop solar panels and emission reduction technologies, particularly in disadvantaged communities.

Agriculture $20bn to cut emissions in the agriculture sector. This includes diet and feed management to reduce methane emissions from livestock, and improvements to soil carbon.

Forestry Hazardous fuel reduction programmes on national forest system land, vegetation management, protection of old-growth forests, inventory of old-growth forests and mature forests within the national forest system.

Community support $60bn to support low-income communities and communities of colour. Includes grants for zero-emissions technology, credits for solar and wind facilities in service in these communities, highway pollution mitigation, bus depots and other infrastructure located near disadvantaged communities.

Coal, oil and gas industry support The interior department is to reinstate a string of oil and gas lease sale rounds that the administration had said it planned to cancel after a court ruling on environmental grounds.

Commitment to accelerate the permitting process for gas pipelines.

Expanded oil and gas leasing on public lands and waters when renewable energy providers are given leases for solar and wind.

Climate measures: Households and individuals

Employees of NY State Solar install an array of solar panels on a roof on Thursday August 11 2022 in the Long Island hamlet of Massapequa, New York
Employees of NY State Solar, a residential and commercial photovoltaic systems company, install an array of solar panels on a roof on Long Island, New York © AP

Clean vehicles Tax credit of up to $7,500 for the purchase of new “clean” vehicles, including hydrogen-powered rather than only electric, for those with a maximum income of $150,000 a year. A credit of $4,000 for used vehicles priced below $25,000, for those with a maximum income of $75,000 a year.

Another $1 billion to provide funding for zero-emissions school buses, heavy-duty trucks, public transit buses and other commercial vehicles.

Retrofitting $9bn in rebates for Americans buying and retrofitting homes with energy-efficient and electric appliances. This includes heat pumps, water heater and boiler upgrades, and biomass stove tax credits:

Rebate of up to $1,600 for home insulation.

Rebate of up to $2,500 for electrical wiring improvements.

Rebate of up to $8,000 to install heat pumps that can both heat and cool.

Rebate of up to $1,750 for a heat pump water heater.

Rebate of up to $1,200 a year for household electrification.

Jobs Incentives that include bonuses for companies based on how much they pay their workers and credits for manufacturing steel, iron and other components in the US.

Healthcare measures

Insulin at Pucci’s Pharmacy in Sacramento, California,
Insulin costs will be capped at $35 a month for seniors on Medicare © AP

Medicare reforms These allow Medicare to negotiate prices for certain drugs, with estimated savings of more than $200bn expected over 10 years. It would start with a list of 10 high-cost, single-source drugs in 2026, rising to 20 drugs by 2029, with a ceiling on the negotiated price.

Drug companies face a penalty of a tax of up to 95 per cent of the drug sales if they do not comply.

Cap on out-of-pocket expenses The bill puts a cap of $2,000 on out-of-pocket prescription drug costs for people on Medicare, effective in 2025. Insulin costs will be capped at $35 a month for seniors on Medicare.

If drug companies raise prices in Medicare faster than the rate of inflation, they must pay rebates back to the government for the difference.

Affordable Care Act extension Financial assistance for those enrolled in ACA plans for three years, extending programme expiring this year and expanding the eligibility to allow more middle-income people to receive assistance and an increased amount overall.

Black lung assistance A permanent extension of the tax rate to fund the Black Lung Disability Trust Fund to finance claims from those afflicted with the occupational disease, caused by long-term inhalation of dust that affects an estimated 16 per cent of coal workers.

Further reading on the US climate and tax package

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here.

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here


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