The Potential Global Impact of the Inflation Reduction Act’s Abolition on Sustainability Efforts

What Happens If the Inflation Reduction Act Disappears? The Global Implications for Sustainability
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### Overview

The Inflation Reduction Act (IRA), enacted in August 2022, represents the United States’ most comprehensive policy for climate and sustainability investments to date. With over $369 billion allocated to clean energy, emissions reduction, and environmental justice, the IRA has positioned the U.S. as a global leader in climate action. However, following the 2024 elections, political changes in Washington could jeopardize the IRA’s future. This article examines the IRA’s objectives, its global impact on sustainability, and the potential consequences if a new Trump administration dismantles it.

### The Inflation Reduction Act: Cornerstone of U.S. Climate Policy

The IRA is built around four key pillars of climate action:

1. **Clean Energy Tax Credits**: Long-term incentives that support the development of wind, solar, nuclear, battery storage, and green hydrogen. The Investment Tax Credit (ITC) and Production Tax Credit (PTC) provide a decade of stability for clean energy developers.

2. **Electrification and Efficiency**: Subsidies and rebates that encourage consumers and businesses to adopt electric vehicles, heat pumps, and energy-efficient appliances. The High-Efficiency Electric Home Rebate Act (HEEHRA) has had a significant impact.

3. **Industrial Decarbonization**: The IRA offers tax credits for carbon capture technologies, sustainable aviation fuel, and clean manufacturing, aiming to scale domestic production and reduce supply chain emissions.

4. **Environmental Justice and Green Banks**: The Greenhouse Gas Reduction Fund (GGRF), often referred to as the “green bank,” allocates $27 billion to support local sustainability projects in disadvantaged communities.

By early 2025, the IRA had already catalyzed over $400 billion in private-sector investments, significantly expanded clean technology production, and aided in the creation of tens of thousands of green jobs.

### IRA’s Role in Global Sustainability

1. **Emissions Reduction Leadership**: The IRA is expected to reduce U.S. greenhouse gas emissions by 40% by 2030 compared to 2005 levels. This significant reduction is primarily due to rapid advancements in clean electricity deployment, electrification of transportation and buildings, and emissions reductions in industrial sectors. Independent models from the Department of Energy and the Rhodium Group have confirmed that the IRA has placed the U.S. on its most aggressive emissions reduction path in history. Experts caution that without it, progress could be delayed by a decade or more.

2. **International Investment Dynamics**: The IRA has encouraged global companies to establish operations in the U.S. to take advantage of a new array of clean energy tax credits, particularly those associated with domestic manufacturing. This policy shift has attracted substantial investments from firms in South Korea, Germany, and Sweden, especially in electric vehicles, battery production, and clean hydrogen. These companies have responded to the IRA’s clear market stability and demand signals by relocating or expanding their production in U.S. regions such as the Midwest and Southeast. The IRA’s influence has also prompted international responses, like the EU’s Green Deal Industrial Plan and Canada’s Clean Economy Investment Tax Credit, aimed at retaining capital and ensuring global competitiveness in the energy transition.

3. **Boost to ESG and Corporate Strategy**: By linking incentives directly to carbon mitigation, the IRA has created strong economic motivations for companies to integrate sustainability into their core strategies. This shift in corporate behavior has led to a widespread adoption of Scope 1–3 emissions accounting, the implementation of internal carbon pricing, and the electrification of corporate vehicle fleets. There has been a surge in power purchase agreements for clean electricity, and companies in high-emission industries have initiated pilot projects in carbon capture and green hydrogen. Furthermore, financial institutions have begun to scrutinize how companies utilize federal climate incentives, prompting many global firms to revise their interim decarbonization targets to take advantage of opportunities presented by the IRA.

### The Trump Factor: Risks to IRA Continuity

Donald Trump and Republican leadership have expressed strong opposition to the IRA, labeling it a wasteful climate subsidy. With Trump potentially back in office, several policy changes are already in motion. Legislative repeal poses a significant threat as the GOP may use its congressional influence to dismantle or severely weaken IRA funding mechanisms. Regulatory rollbacks could occur through executive orders that negate implementation guidance from the Treasury Department, Department of Energy, and Environmental Protection Agency (EPA). Enforcement may also be significantly weakened. Even without a formal repeal, the administration could delay grant disbursements, modify eligibility criteria, or freeze budget allocations, all of which could undermine the act’s effectiveness.

### What Happens If the IRA Goes Away?

1. **Clean Energy Deployment Slows**: Projections from the Princeton REPEAT Project indicate that without the IRA, U.S. clean energy deployment could decline by 25–40%. This would severely hinder efforts to decarbonize the power sector, as many planned solar, wind, and battery storage projects may become economically unfeasible without the tax incentives and subsidies provided by the IRA. Grid modernization efforts reliant on renewable integration would also be stalled, potentially locking in fossil fuel infrastructure for years. Rural areas that were beginning to benefit from clean energy projects could see these gains reversed, increasing regional inequalities.

2. **Disruption of Green Supply Chains**: Global firms that expanded into the U.S. to take advantage of IRA incentives may reconsider or scale back their operations. Companies involved in battery manufacturing, solar module production, and electric vehicle supply chains could shift investments back to Asia or the EU, where policy support is stronger and more predictable. This not only risks reducing domestic production capacity but also undermines national energy security and weakens the U.S. position in the global clean technology race. A rollback could create uncertainty that stifles long-term investment and innovation.

3. **ESG and Corporate Climate Ambitions at Risk**: Corporations may postpone or abandon capital-intensive decarbonization projects without the assurance of government support. Internal carbon pricing, adoption of science-based targets, and Scope 3 mitigation strategies that depend on incentives may slow down. This uncertainty would also send a concerning signal to financial markets: ESG investing, already facing political resistance in certain parts of the U.S., could suffer from a broader credibility crisis. Companies might revert to minimal compliance strategies instead of pursuing progressive sustainability leadership, ultimately undermining transparency and impact within the ESG ecosystem.

4. **Environmental Justice Reversal**: Programs like the Greenhouse Gas Reduction Fund and Justice40, which prioritize funding for historically marginalized communities, could face defunding or severe limitations. These initiatives support local air pollution reduction, energy access, and workforce development in communities heavily impacted by climate change and industrial pollution. A rollback would result in fewer community solar installations, delayed building retrofits in low-income neighborhoods, and missed opportunities to create green jobs in areas most in need, widening the climate equity gap.

5. **Emissions Targets Jeopardized**: Without the IRA, the U.S. may only achieve a 28–30% reduction in greenhouse gas emissions by 2030, falling short of the 50–52% target pledged under the Paris Agreement. This shortfall would not only hinder global efforts to limit warming to 1.5°C but would also diminish the credibility of U.S. climate diplomacy. As one of the world’s largest historical emitters, the U.S. bears a leadership responsibility. Failing to meet its targets could discourage other nations from fulfilling their commitments, unraveling progress in international climate negotiations and straining transatlantic relations, particularly with the EU, which is already critical of American green industrial subsidies.

### Conclusion: The Future of Climate Policy in a Divided America

The Inflation Reduction Act has fundamentally transformed the trajectory of U.S. and global climate action. Its potential repeal would signify not just a policy setback but a systemic shock to the global green economy. However, the momentum in clean energy and market dynamics suggests that some of the IRA’s effects may endure. For global ESG leaders, the critical takeaway is this: political volatility is now a tangible sustainability risk. Strategic planning must encompass not only carbon and capital but also election cycles, policy reversals, and legislative resilience. The sustainability transition will continue, but its path may soon become more uncertain.