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How the Inflation Reduction Act Harms the Environment

A large spending bill just passed the Senate and is likely to be heading for President Biden’s signature to become law. As a green energy proponent, I wonder… is this bill going to help the U.S. improve the environment?

The total amount to be spent on green energy projects or climate action is $369 Billion. Of that, $30 Billion is for Solar and Wind energy. If you consider the fact that solar costs on average $2.75 per Watt; this $30-Billion pays for 10.9 Million kW of intermittent electricity generation. The U.S. had a total of 1.2 Billion kW of electricity generating capacity in 2021. Adding 10.9 Million kW amounts to increasing that generating capacity by 0.9%. Mind you, that generating capacity is intermittent, so added fossil fuel or nuclear power may be needed to supplement the additional this wind and solar energy.

I can hear my fellow environmentalists, “$30-Billion is better than nothing; and there is another $339-Billion that will be spent on other climate initiatives.”

Let’s think about that.

If you review the rest of the spending bill, it covers random incentives for manufacturers to build heat pumps, electric cars, and some added infrastructure. There are also incentives to switch from natural gas heating to electric heating in your home. There are many incentives to buy electric cars. The remaining $339-Billion is invested in converting from fossil fuels to electricity.

If the current electricity generation capacity is 75% nuclear and fossil fuel, and you displace 0.9% of that with renewable, you now have 74% nuclear and fossil fuel generating electricity. Since the demand for electricity, without electrification, is growing by 1.4% per year, this added 0.9% is a drop in the bucket.

That’s not the bad news.

When you incentivize the U.S. population to buy electric cars, electrify their homes, and demonize fossil fuels, you will create a high demand for electricity. This means the growth in electricity demand will grow at a higher rate than 1.4% per year. When you consider economic drivers of supply and demand, electricity prices will sky-rocket. That’s not the only price that will increase. The price of electric cars, electric heating, heat-pumps will also increase as demand increases. The majority of the climate action portion of the Inflation Reduction Act is for conversion to electricity.

If you are incentivizing people to convert their homes from natural gas to electric, you are doing two things wrong: 1) electric heat will be needed at night and in the winter when most solar panels will contribute nothing to the electric grid; and 2) natural gas combustion creates far less CO2 emissions than the fossil fuel consumed at the electric power plant. Charging electric vehicles at night comes with the same disadvantages.

In our energy efficiency industry, we demand utility rebates and government incentives for our projects. What we don’t realize is that government subsidies drive prices up, not down. If you doubt me look no further than higher education. The cost of a college education has outpaced inflation for the past five decades due primarily to increased student aid. The average cost to attend a public college in 1980 was $3,000 per year. In 2021, this same education costs $30,000 per year. The increases in the cost of college have outpaced inflation by 3% per year. In 1980, the average amount of student aid was 17% of the cost of college. In 2021 the average amount of student aid grew to 56%. Well intended government programs try to make it easier for those who can’t afford college to attend college. Unfortunately, the traditional law of supply and demand are broken; and price increases unabated while efficiency and innovation to improve the cost efficiency of education is ignored.

This same problem will happen with energy efficiency, and renewable energy generation. As the government pours more subsidies into green-energy, green-energy will become more expensive; and unaffordable. Ironically, much of the Inflation Reduction Act includes subsidies for low-income housing buildings. This may be a shock to you, but low-income families do not own low-income housing. A family in one of these units could care less if they have solar panels on their building or not. These families cannot afford a car at all, let alone an electric car.

I hate to be a buzzkill on this great celebration for most environmentalists. However, if you really care about our environment, you must better understand the cause and effect of government spending decisions on our economy and our environment. Maybe we should stop supporting political parties; and start making the best decisions with energy efficiency, electricity generation, and renewable energy.



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