A Prosperous Year for the Inflation Reduction Act

When I gave my first major climate speech in the late 1990s, many still regarded the effects of climate change to be abstract and remote. No longer. Today, no one can ignore the mounting evidence of climate change’s destabilizing effect on our planet and on our way of life.

Americans are witnessing it firsthand this summer. From Phoenix to Miami, the past few months have featured extreme heat. Major parts of the country have been shrouded in smoke from wildfires abroad, while others are experiencing floods and droughts.

These phenomena have a serious economic cost, both in lost productive capacity and in their potential long-term threat to macroeconomic stability.

One year ago, President Biden signed the Inflation Reduction Act into law. It’s the boldest climate action in the nation’s history—one that pushes us toward a net-zero economy by 2050. Over time, the Inflation Reduction Act will drive down the cost of clean energy technologies, which will boost their adoption and reduce emissions globally.

The law is also designed to advance two other goals: economic opportunity and resilience. It’s already delivering on both fronts.

Building a clean-energy economy is among the biggest economic transformations of our lifetimes. Global investment in clean energy has reached more than $1 trillion a year. For too long, the U.S. lacked a concerted strategy to lead the development of low-carbon technologies and other industries of the future. With the Inflation Reduction Act, we are delivering on what I call “modern supply-side” economics: a policy framework that animates much of Bidenomics. It includes government investment to mobilize private capital, spurring economic growth and helping the U.S. reach its climate goals.

Since the Inflation Reduction Act’s passage, we’ve begun providing the long-term certainty that businesses need to invest at scale. With expanded demand- and supply-side tax incentives, companies in the clean-energy industry are finding an even greater commercial case to invest in the U.S., creating high-quality, well-paying American jobs. The Inflation Reduction Act is helping power a boom in U.S. factory construction spending, which has doubled in real terms since the end of 2021. Since President Biden took office, companies have committed more than $500 billion in investments in clean energy and manufacturing.

I am seeing these green shoots emerge around the country. In Las Vegas this week, I spoke with members of an electrical workers union that has called the Inflation Reduction Act a “historic win.” The law requires companies to pay prevailing wages and abide by apprenticeship requirements to reap the full value of many of its incentives. The law promotes investment in low-income communities and those historically dependent on fossil-fuel jobs and revenue. As one example of the law’s early impact, commentators are now dubbing the Midwest and the South as the new “Battery Belt” because of the rise in electric-vehicle battery factories there.

Expanding economic opportunity isn’t only morally right—it’s also good economics. Research has shown that investments in underserved communities can deliver a bigger bang for the buck. That means that taxpayer resources are spent more productively and the benefits to the overall economy are magnified.

The Inflation Reduction Act is also strengthening our economic resilience. While oil prices have declined significantly in the past year, their spike after Russia’s brutal invasion of Ukraine caused significant hardship for many families. Building a clean-energy economy means reducing U.S. dependence on fossil fuels and exposure to the autocratic regimes that control them, providing greater certainty for families and businesses on their energy costs. The Inflation Reduction Act aims to make this transition easier for households through cost savings on electric vehicles, heat pumps and other energy-efficient appliances.

But our strategy is more ambitious than that. Advancing U.S. energy security also means reducing the risks of overconcentration in our critical clean-energy supply chains, which create potential choke points and heighten the likelihood of disruption. The Inflation Reduction Act’s two-pronged approach begins with building up our industrial base, while also encouraging companies to work with trusted trading partners on secure global supply chains for clean-energy inputs and products. In the past year, we have begun establishing formal mechanisms to facilitate these efforts.

The Inflation Reduction Act is a turning point in the national effort to preserve the planet and to shape a prosperous, inclusive and resilient economic future.

Ms. Yellen is Treasury secretary.