The next climate fight in Congress is already brewing

The Inflation Reduction Act (IRA), President Biden’s climate investment law, took more than a year of negotiation and debate before it was signed into law. Some of the next administration’s biggest climate measures will likely come in the early months of 2025, regardless of the election outcome.

At the heart of the issue are two events already set on the calendar: the reinstatement of the federal debt limit in January and the expiration of many of the Trump-era tax cuts at the end of the year. Both will force Congress into tax negotiations. And if Republicans control any combination of the House, Senate or White House, the IRA will likely enter the mix. Add in a pending Supreme Court ruling that is expected to limit agencies’ ability to craft policy without congressional guidance, and it’s easy to foresee a stacked — and urgent — legislative agenda.

As I’ve written before, no one in Washington expects a full repeal of the IRA. The policy is too complicated, with a wide range of interest groups benefiting from different provisions. But the law is vast, and a battle to eliminate or reduce provisions that do not enjoy broad enough support is possible, even likely. Think EV tax credits for consumers, widely considered a key target. The cost of this provision is expected to exceed government estimates and become one of the law’s largest expenditure items. (Goldman Sachs estimated last year that the government’s number is wrong by $379 billion). For that reason and many others, many Republicans hate it, and even some Democrats have been skeptical about its implementation.

Other provisions around renewables are more complicated, given that red states have benefited significantly from incentives that boost the production and deployment of clean technologies, but would be up for discussion depending on the makeup in Washington. On the other hand, measures supporting nuclear and carbon capture technology tend to enjoy broader bipartisan support.

In the midst of all this, other, perhaps surprising, policies entered the discussion. A carbon tax has long enjoyed some bipartisan support — even if Republican supporters have remained generally reticent to talk about the issue publicly. Now, some climate advocates see a grand bargain in which a carbon tax could help pay for continued tax cuts and deficit-reduction efforts.

Even without a carbon tax, which admittedly faces very difficult politics, discussions have heated up over bipartisan support for a border adjustment mechanism that would impose a carbon tax on imports. The climate element helps attract Democratic support, but members of Congress think it would punish imports from China while favoring partners like the European Union. At the same time, it would help raise revenue to fund other priorities.

The truth is that no one knows how this will all happen. Before we can undermine various options, we need to see who will be in power after the elections. Still, observers expect most of these negotiations to take place largely out of the public eye, given the high stakes. What is clear: What happens in Washington next year will have a major impact on the future of the country’s climate investments.