What Went Wrong With Biden’s Big Climate Law

There has been no shortage of post-mortems on the Inflation Reduction Act, Joe Biden’s crowning climate policy achievement that was swiftly dismantled by the Trump administration less than three years after going into effect. And yet there’s been little public reflection on the law from the individuals who were entrusted with actually implementing it.

A new report by three former Biden administration staffers shared exclusively with Heatmap offers that inside perspective, looking at what it took to roll out the nearly 30 clean energy tax credits and associated bonus provisions in the law and what future policymakers and officials can learn from the effort. In the wake of extraordinary federal staffing cuts under Trump, the authors also wanted to create a blueprint that a future administration could use to build back capacity and implement similarly ambitious policy.

“There was an enormous amount of interagency collaboration,” Dorothy Lutz, who served as a senior policy advisor in Biden’s White House, told me. “We wanted to take the time to preserve the lessons learned across as many of the agencies as possible, anticipating that there would have to be some future capacity-building and making sure that we were starting on day one building on the successes and not needing to go through the same learning curve.”

Lutz compiled the report with Ted Lee, the former deputy assistant secretary for tax policy and delivery at the Treasury Department, and Emily Barkdoll, a former strategic and policy design analyst at the Department of Energy. Each of them has since moved on to roles in either the private sector or state governments. The trio released the report independently with financial support from a philanthropy called the Navigation Fund.

Past analyses have highlighted the IRA’s failure to build a political coalition for clean energy and the lack of public awareness about the law. This new report, which draws on more than 70 interviews with officials across the federal government, is more interested in the mechanics of the policies — how they were written, how they were administered, and why some tax credits were more effective than others. Here are three key takeaways.

1. The tax credit rollout happened at an unprecedented pace …

While the Biden administration was often taken to task for working too slowly, the report makes the case that the government machinery was turning more quickly than ever before in the years following the IRA’s passage.

The Treasury Department published 96 pieces of tax credit guidance — more than 5,000 pages — in 26 months, as well as hundreds of additional resources for taxpayers. That’s nearly triple what the department achieved over a similar time period when it implemented Trump’s 2017 Tax Cuts and Jobs Act. It also created new online portals and processes to replace antiquated paper systems.

“What allowed that to happen, and is an important historical precedent for the future, is the funding for the IRS — $80 billion that was included in the Inflation Reduction Act — along with funding for Treasury and the Office of Tax Policy to actually do the implementation work required,” Lee told me.

2. … but it was also held back by capacity issues.

The IRA created enormous demand for attorneys with tax and regulatory expertise, both inside and outside the federal government, and the Treasury Department struggled to compete with the private sector for top talent. “To put it bluntly,” the report says, “there simply were not enough of these highly skilled, highly talented staff” considering the large number of new and modified tax provisions to implement.

The next time Congress passes a policy package of this magnitude and complexity, it should unlock the ability for agencies to offer more competitive compensation, the authors told me, either through more flexible pay scales or the creation of temporary, higher-paid positions. Barkdoll also emphasized the need for faster hiring processes — she said that roughly seven months passed between when she applied for her role at the DOE and when she was onboarded.

A related challenge stemmed from the wide-ranging expertise required to develop guidance on the tax credits. While the Treasury led the process, closely collaborating with the DOE, it relied on input from many other agencies — the Environmental Protection Agency on lifecycle analysis of greenhouse gas emissions, the Department of Agriculture on biofuels markets, the Department of Labor on prevailing wage and apprenticeship requirements, the Department of Housing and Urban Development on the low-income communities bonus, to name just a few examples. All of these agencies were housed in different buildings, and the government did not have good systems for digital collaboration.

Other than the DOE, none of these agencies were allocated additional funding to undertake this advisory work. Career staffers were “finding the space in their day job to lend their expertise to this,” Barkdoll said. “It was an unnecessary friction.” The fact that, in most cases, the legislation did not explicitly direct the Treasury to consult with these agencies also created uncertainty over who had the authority to weigh in on any given credit.

The reason all hell failed to break loose, according to the report, was the creation of the White House Office of Clean Energy Innovation and Implementation. Led by John Podesta, the group served as a central clearinghouse and coordinator for interagency communications and acted as the final arbiter of decisions in cases of disagreement. The authors are emphatic that future ambitious policy efforts should repeat this approach.

3. Clear policy goals are key.

Part of what made the IRA so ambitious is also what made it incredibly complicated to implement. The tax credits were not just designed to incentivize clean energy deployment. Several were written with the explicit requirement of reducing greenhouse gas emissions, requiring complex lifecycle emissions calculations. Others were engineered to spur domestic manufacturing, bring economic development to low-income communities, and create good-paying jobs.

The statute was not always clear about how implementers should prioritize these different goals, which sometimes conflicted with one another. For example, the lack of domestic supply for many clean energy components created tradeoffs between the goals of the domestic content bonus credit and clean energy deployment. Lenient rules for the domestic content bonus might have failed to enhance domestic supply chains, while too-strict rules would have removed any incentive for companies to source locally.

Perhaps the clearest example of these kinds of trade-offs was the clean hydrogen production tax credit. “The hydrogen tax credit was, like, the ‘final boss’ of all of the challenges that we talk about,” Lutz told me. It was designed to reward producers on a sliding scale depending on how clean their hydrogen was, but the science behind making that kind of calculation was new and rapidly evolving. The credit was also extremely generous, meaning that the stakes of getting the balance right were high. Clean hydrogen is also a nascent industry in the U.S., with very few operating projects, which exacerbated the pressure.

In the end, Treasury erred on the side of issuing more rigorous rules that would ensure lower greenhouse gas emissions, at the risk of limiting uptake of the credit from taxpayers and growth of the hydrogen industry.

In general, the report warns that credits that require precise calculations of the emissions associated with a given process will always present a challenge. “These calculations are rarely straightforward and are often the subject of ongoing methodological disputes, even within the scientific community,” it says.

The report emphasizes that the tax credits were most effective when they supported more mature markets where the biggest barrier was cost; when they were written with straightforward policy goals; and when they were relatively easy for taxpayers to claim. The $7,500 credit for electric vehicles, for example, was highly successful for all of those reasons: The primary barrier to EV uptake for consumers was cost, and the design of the credit, which enabled dealers to reduce the vehicle price at the time of sale, made it incredibly easy to claim.

That being said, the authors don’t want policymakers to think they’re arguing for reduced ambition. “The federal government can and should do highly ambitious policy, and I hope that our report can be used by folks to take the next steps to do so,” Lutz said. “What we are trying to articulate is making sure that for each specific tool, you understand what the intended policy goal is, and then you design it to directly influence that behavior as sharply as possible.”