Opinion – Why? Economês in plain English: Green Resumption: How can the US environmental package change US carbon emissions?

It is not news that the United States is considered one of the villains in greenhouse gas (GHG) emissions. Since 1850, no country in the world has emitted as much as they did. Cumulatively, its emissions are twice as high as China’s. Data from the Global Carbon Atlas show that in 2020 the United States was the second largest emitter of CO2, accounting for about 12% of global emissions.

It is also not new that the country did not ratify the Kyoto Protocol in 1997, contributing to the extinction of the regime, since the non-participation of the largest emitters would make it impossible to reach the collectively proposed goals. And when everyone thought that the scenario would change, the then American president decided to stay out of the Paris Agreement, in force since 2016. It is understandable that the country, in the midst of economic crises and recessions, tried to buy time to commit to the stipulated goals. . Reducing emissions could mean giving up economic growth (in the short term) and committing to significant investment in structural changes in the energy matrix and in transport. Climate Watch data shows that in 2019 about 48% of GHG emissions in the United States came from power, electricity and heating generation and about 16% came from transportation.

But now the tables seem to be turning.

In the seminar that we promoted in the first week of September, on the Green Return in the United States, we discussed with the Executive Director of the Climate Alliance and also Principal Deputy Assistant Secretary at the Office of International Affairs of the Department of Energy the approval of the Inflation Reduction Act ( Inflation Reduction Act/IRA) and its impacts on the country and the world.

The IRA was signed on August 16, 2022 by current US President Joe Biden and addresses several important issues for the country, such as the cost of health plans, reducing prescription drug costs and stock buybacks. However, the most prominent theme is the climate and measures to mitigate the impacts of climate change, encourage investment in green innovation and the transition to a clean energy matrix. The goal is to raise about $800 billion from multiple sources, with $369 billion going to climate and energy initiatives. The estimate is a 40% reduction in GHG emissions by 2030 compared to 2005 levels. The estimate in the counterfactual, without IRA approval, was a reduction of only 26%. In other words, the predicted impact of the IRA on the level of GHG emissions will be 14%. In addition to the impacts on emissions, there are estimated savings of around US$ 500 per year in household energy costs, an improvement in wages and an increase in skilled labor.

The Law aims to create tax incentives to boost investment in sectors such as electricity, transport, construction, industrial equipment, clean fuels, carbon capture and sustainable supply chains. The Law creates and expands Investment Tax Credits (CTI) and Production Tax Credits (CTP) for clean energy generation and allows producers to choose between CTI or CTP, based on what works best for them.

Enactment is also considered socially progressive. Gives greater incentives to project managers who pay better salaries to their employees. How will this work? Most available tax credits provide a base that has the potential to be multiplied by five if the taxpayer meets the requirements for better wages and guaranteed training for its employees.

In addition to the basic CTI and CTP, tax incentives will also be allowed in community energy projects or in cases where a portion of the iron, steel and other components used come from domestic production.

Special attention is given to encouraging the production of “clean” hydrogen. A credit of US$ 0.60/kg of hydrogen produced is provided, provided that the carbon intensity is within a limit of 0 to 0.45 kg of CO2 equivalent/kg of hydrogen (H2). In cases where producers pay better wages and meet the training requirements established by law, they will be eligible for a tax credit of US$ 3/kg of hydrogen produced.

In terms of impact on families, approximately US$ 8.6 billion will be allocated to state energy offices to help consumers refurbish their homes in order to achieve high electrical efficiency, in addition to the program to encourage conscious consumption. Both programs will be able to generate discounts and lower energy costs for families. More details about the Act and the planned investments can be accessed on the US Department of Energy website.

The approval of the IRA is strongly influenced by the work of the American Climate Alliance (US Climate Alliance), formed in 2017 by a group of governors with the aim of committing to the goals of the Paris Agreement to limit the increase in global temperature by 1 .5 degrees Celsius by 2030. The Alliance was formed after the US federal decision to withdraw from the Climate Agreement negotiations. Since then, the Alliance has grown: there are 24 governors who represent 59% of the US economy, 54% of the population and about 42% of the country’s gross emissions.

One of the key findings from our seminar is that the success of the IRA has depended and will continue to depend on state-to-state alliances and public-private partnerships to deliver the necessary funding and investment for a clean and inclusive transition.

Several advances, but also many criticisms. Among the criticisms of experts, the most common is that the price reduction will not happen in the short term. From an environmental point of view, there is also the hypothesis that the savings arising from the energy bill and improvements in wages may stimulate household consumption and generate other negative environmental impacts, such as the generation of waste. Even so, there is no doubt: the IRA has the potential to affect the entire world in advancing the fight against climate change, given the trade relations and agreements established between the countries.

And how is Brazil in this game? Brazil’s emissions profile is quite different from that of the United States. Climate Watch data show that in 2019, emissions from the energy matrix, electricity and transport totaled only 38.9%, against 47% from agriculture, land use change and deforestation. This profile represents an opportunity for comparatively faster and cheaper reduction, through the control of illegal activities linked to deforestation and changes in land use.

There is no secret: it is necessary to reconcile command and control measures with market instruments to guarantee sustainable development. We’ve done this successfully in the past. From 2007 to 2012, the GDP of our agribusiness grew at the same time that deforestation decreased. We do not need to exchange forest areas for areas for agriculture or mining, on the contrary. We have technologies in Brazilian agriculture capable of increasing the productivity of crops and livestock. Technologies that align with the concept of solutions based on nature – regenerative agriculture, no-till farming, crop rotation, livestock integrated with the forest, among others. We have enormous potential to explore the services of nature, especially the carbon market with the issuance of credits associated with conservation (REDD+) and forest restoration (ARR). According to a McKinsey study, Brazil concentrates 15% of the total potential for offering nature-based solutions, well ahead of the United States (3%) and China (2%), but currently takes advantage of less than 1% of the possibilities .

What are we missing? Capacity for mass mobilization to ensure that environmental and social issues are central to the political and business agendas of our economic recovery.