BiGS Actionable Intelligence: The Inflation Reduction Act (IRA) is the USA’s most significant legislation to address climate change and a transition to a clean-energy economy. In our highly polarized country, it can also be difficult to understand, track and measure impact. Keep reading to find out what business leaders should know, watch for and prepare for to take advantage of this ‘once-in-a-generation’ opportunity.

To our readers:

August 16 marked the one-year anniversary of the Inflation Reduction Act (IRA), the most significant step that the United States has ever taken to reduce carbon emissions to slow global warming and potentially reshape the nation’s economy in the process.

Some groups estimate the number of jobs created—from solar panel installers to electric vehicle charging station technicians—created through IRA-funded clean-energy projects so far to be as many as 170,000 across red states and blue. Yet 71% of Americans say they’ve heard “little” or “nothing at all” about the legislation, according to an August 7 Washington Post poll. Is this a PR problem or something else?

“The IRA is one of the great political experiments of our era,” HBS Prof. Debora Spar told me. Spar chairs the school’s Institute for the Study of Business in Global Society.

“Rather than approaching climate change from a more purely regulatory angle, it’s a massive bundle of ‘carrots,’ encouraging established firms and entrepreneurs to embrace the clean energy transition and reap substantial profits in the process. Many firms have already jumped at this opportunity,” she said.

“Many more will hopefully take this moment to learn more about how they and they stakeholders can benefit as well,” she said. “Already, we are seeing the birth of what is pretty clearly the post-Industrial Revolution. And like its predecessors, this massive transition can, with the right political nudges, create equally massive opportunities for both business and society to flourish.”

To better understand where we as a nation stand one year into the 10-year legislation from both the business and political perspectives, I asked five professors from across Harvard and climate fellows with our Institute for the Study of Business and Global Society (BiGS) to share their research-backed insights with us.

-Barbara DeLollis
Editor, The BiGS Fix at HBS

Harvard Prof. Dustin Tingley
Professor of Government

“For the IRA to be successful, it needs to be durable. I’d say that is the biggest theme from my recent book with Alexander Gazmararian about energy transitions entitled, Uncertain Futures: How to Unlock the Climate Impasse. We reached this conclusion after conducting surveys of 22,000 people in fossil fuel communities, the national public, local policymakers, youths, and union members, and 83 interviews of people ranging from coal miners to power company executives. One hope is that the IRA’s benefits will flow to political battlegrounds like Georgia or fossil fuel producers like West Virginia, in theory broadening the political coalition needed to defend the law from future attacks. While the law and its rollout are recent, in some conversations with communities where these investments are happening, we do not find much awareness of the role of IRA or—potentially worse—an active reluctance to make the linkage.

Business leaders can and should work with communities to help them understand the linkage. These same leaders should also find additional ways to invest in these new communities beyond temporary construction jobs. How can you contribute to the local schools, sports teams, and libraries while lining up long-term job prospects? In other words, leaders should focus on how to become part of the community lest their presence be seen as only based on government loans and credits. This not only makes communities better off but it could also help alleviate local opposition to promising green investments. Separately, we must figure out how to get renewable energy from its source to where businesses need it. That is proving to be a major challenge as transmission infrastructure continues to lag.”

HBS BiGS Fellow Gunther Glenk
Assistant Professor for Business, University of Mannheim

“The IRA is set to accelerate the transition to a decarbonized economy to unprecedented levels. Generous tax incentives propel a virtuous cycle of innovation and cost reduction, driven by the adoption of sustainable energy solutions and the learning effects for manufacturers and operators. However, it remains open whether the IRA will reduce greenhouse gas emissions fast enough for the United States to meet its commitment to the Paris climate goals.

Businesses stand to benefit from the IRA not only by adopting sustainable energy technologies such as rooftop solar power or electric vehicles but also by venturing into providing components and services to the clean energy sector. The recent influx of global investors into the United States in response to the IRA underscores the imperative for local companies to move quickly to avoid falling behind. In particular, the emerging war for talent is pushing companies to secure the necessary expertise in sustainable energy solutions early on.”

Harvard Professor Joseph E. Aldy
Professor of the Practice of Public Policy, Harvard Kennedy School

“Many IRA clean energy subsidies reflect an array of policy objectives–cutting emissions, promoting American-manufactured goods, rewarding higher wages and job training, stimulating growth in energy-dependent communities, and ensuring benefits to disadvantaged communities. Understanding how effectively the IRA delivers on each of these objectives will require rigorous performance evaluation.

This is more than simply accounting for who claims tax credits for various kinds of investment. For example, the benefits of electric vehicle tax credits go well beyond the lower cost borne by the new-car buyer; they include the improved air quality enjoyed by those downwind of major roads and freeways. And, as evident with the experience with solar subsidies, today’s subsidy facilitates innovation, which in turn drives down technology costs tomorrow. The best measures of IRA performance will reflect the evaluation of the broad impacts of the law and produce insights and lessons to enable climate policy reform and improvement over time.”

HBS BiGS Fellow Jonas Meckling
Associate Professor, University of California - Berkeley
Leader, Energy and Environment Policy Lab

“The IRA is only the first, yet major, step U.S. policymakers need to take to help the economy to decarbonize. With the IRA, the US is providing primarily “carrots” to industry to decarbonize, whereas other major economies combine carrots with sticks, as this study in Science shows. Regulatory sticks, such as standards or carbon pricing, give clear guidance for the direction of investments and ensure that firms and sectors do not backslide on emissions reductions, research suggests. The proposed EPA rule is a first important step to adopt a carrots-and-sticks approach for the US power sector.

The IRA will be a success if it builds support for decarbonization across U.S. states. Climate policy has been highly polarized in the U.S. But the IRA has a chance to win over opposing voters and businesses by creating economic opportunities in laggard states. As my research shows, clean energy interests are much less represented in red states than in blue states. The IRA may change this. Under one scenario, red states may receive almost double the per capita IRA funds than blue states. This builds economic interests with a stake in decarbonization.

Business leaders need to seize the day. The magnitude of the IRA creates a once-in-a-generation opportunity for businesses to receive substantial support to take on the risks of transitioning to new technologies and business models. Decarbonization is inevitable, the IRA makes it much easier for firms to move ahead.”