The Inflation Reduction Act: A Boon for Clean Energy

By David Jiang, NECEC Policy Intern

On August 16th, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. Worth $737 billion, the IRA’s overarching goal is to combat inflation by reducing the deficit, which would be accomplished by a multitude of investments and reforms, spanning from healthcare to taxes to manufacturing.  However, the IRA's single largest area of investment goes towards “Energy Security and Climate Change” (estimated at $369 billion), which, if executed well, is a game-changing prospect for the clean energy industry. The IRA’s emphasis on energy investments and commitment to a 40% emissions reduction by 2030 demonstrates the Biden administration’s recognition that the nation’s clean energy transition will play a central role in both addressing the short-term problem of inflation as well as cultivating a long-term, sustainable economic growth. Such a landmark piece of legislation will create many opportunities for clean energy companies and related stakeholders to benefit from its provisions. We look forward to working with our members and our communities in the days and months ahead to deliver on this promise throughout the Northeast region and beyond.

To reach the $737 billion, the IRA will raise revenue in several main ways. The institution of a 15% corporate minimum tax and a reformation of prescription drug pricing are the primary strategies, accounting for an estimated two-thirds of the total amount needed. The remaining third is accounted for through IRS tax enforcement, the implementation of a one percent stock buyback fee, and loss limitation extensions. Most of these practices are only levied to corporations and higher income earners.

An essential portion of the IRA’s energy provisions deals with environmental justice, which has been built into nearly all of the law's clean energy incentive programs. The most notable of these programs are Environmental and Climate Block Grants and Neighborhood Access and Equity Grants. These are direct grant investments at the community level  to reduce legacy pollution and its impacts. With a focus on communities that are seriously impacted by pollution and public health crises caused by proximity to conventional transportation hubs, such as bus terminals and rail yards, these two programs are funded at $3 billion each..

A number of tax credits and rebates are offered for individuals to make clean technology affordable to low-income residents and consumers, with programs ranging from $9 billion towards a consumer home energy rebate program to $1 billion directed towards making affordable housing more energy efficient. Slightly less involved are additional incentives directed towards companies that locate projects in brownfields or tribal lands. At a minimum, most clean energy provisions have either additional incentives or an emphasis placed on environmental justice in disadvantaged communities, to ensure an equitable transition to clean energy.

The IRA provides billions in tax credits targeted to both consumers and producers/suppliers. The following is a list of notable tax credit programs included in the law:

For Consumers:

  • $7,500 consumer tax credit to buy new clean vehicles and $4,000 to buy used-clean vehicles (Section 45W and Section 25E)
  • $9 billion in consumer home energy rebate programs, focused on low-income consumers, to electrify home appliances and for energy efficient retrofits.
  • 10 years of consumer tax credits to make homes energy efficient and run on clean energy, improving the affordability of heat pumps, rooftop solar, electric HVAC and water heaters

For Manufacturers/Utilities/Companies:

  • $30 billion into production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing (New Advanced Manufacturing PTC, Section 45X)
  • $10 billion investment tax credit to build clean technology manufacturing facilities, like facilities that make electric vehicles, wind turbines and solar panels (Advanced Energy Project Credit Section 48C)
  • 30% tech-neutral investment tax credit for most renewable energy projects, with additional 10% bonuses for projects located in energy communities or tribal land (New Clean Electricity Investment Tax Credit, Section 48E)
  • 40% investment tax credit for solar or wind projects located in low-income communities or tribal land; 20% for facilities part of low-income residential housing or low-income economic benefit projects. (Energy Credit for Solar and Wind in Low-Income Communities)

In addition to the billions given in tax credits, the IRA includes multiple grant and loan programs. The most notable of these are include:

  • $30 billion in targeted grant and loan programs for states and utilities to accelerate transition to clean energy and clean fuels
  • $27 billion clean energy technology accelerator to support deployment of technology to reduce emissions, especially in disadvantaged communities
  • $4.3 billion through 2031 for grants from DOE to states and tribes to implement a high-efficiency electric home rebate program (High-Efficiency Electric Home Rebate Program)
  • $2 billion in grants to retool auto manufacturing facilities to produce clean vehicles; ensuring that they stay in communities that depend on them
  • $1 billion for grants and rebates up to 100% of costs for clean heavy-duty vehicles and associated services, with $400 million specifically for communities in “nonattainment areas” (Clean Heavy Duty Vehicles Program)

With billions of dollars invested into projects and grants, the Inflation Reduction Act represents an unprecedented opportunity to effect the massive structural and systemic change needed to implement clean energy nationwide. As a nationwide leader in the green transition and home to over 370,000 clean energy jobs, the six New England states and New York are uniquely positioned to take the fullest advantage of the fruits of this law. Given such a comprehensive law as the IRA, it will be extremely important to be aware of its programs and keep track of how funds get distributed. Only through education, close monitoring, and, when needed, advocacy, can one be truly assured of the IRA’s success in lifting all stakeholders in America’s equitable and sustainable clean energy future.

NECEC will be working with our members and partners to ensure that the clean energy community in the northeast is aware of federal opportunities and poised to take advantage of them as the IRA is rolled out through the U.S. Department of Energy, the U.S. Environmental Protection Agency and other federal offices.


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