UPDATE: The Inflation Reduction Act has passed Congress and has signed by President Biden.
For many of us working in clean energy and environmental stewardship, hearing that the Inflation Reduction Act passed through the Senate filled us with hope for a future where the United States prioritizes and funds climate action. As you’ve undoubtedly heard, the Inflation Reduction Act is the single largest investment in our nation’s clean energy initiatives and emissions reduction ever. Regarding climate, this bill aims to strengthen domestic supply chains, lower clean energy costs, and lower greenhouse gas emissions.
The $740 billion Inflation Reduction Act was voted through the Senate by a 51-50 vote in early August. Approximately $369 billion is allocated for addressing climate change, while the remainder involves health care as well as taxes and tax enforcement. As it currently stands, the Inflation Reduction Act still must pass through Congress and the president’s office to become law.
Here are a few of the most exciting pieces of the legislation for the HeatSpring community:
- Manufacturing tax credits for solar components (like solar panels, tracker systems, inverters, and processing minerals), wind turbines, electric vehicles, and batteries (see a breakdown from Kelly Pickerel in Solar Power World)
- Consumer tax incentives to buy new and used electric vehicles
- Extension of the Investment Tax Credit (ITC) for renewable energy systems (including geothermal, stand-alone energy storage, and more)
- 30%: 2022-2032
- 26%: 2033
- 22%: 2034
- Ending in 2035
- Extension and enhancement of the renewable energy production tax credit (PTC)
- Provides tax credits based on power produced over 10 years
- This would be the first time solar is able to access PTC
- Support for new technologies like direct air capture and hydrogen production
- Consumer home energy rebate programs with an emphasis on low income consumers – covering things like heat pumps and energy efficiency retrofits
- Environmental justice focus on low-income and disadvantaged communities burdened by pollution
- Among other provisions, this would include environmental and climate justice block grants for community-led projects and various other localized grants
- Many projects will need to adhere to prevailing wage and union apprenticeship regulations
- Funding for soil health related agriculture and conservation programs
The Inflation Reduction Act is being hailed by some as the climate action legislation of a lifetime. Many are already dreaming of all the ways to put this legislation to work for this country, ultimately benefiting all life on Earth, as the U.S. is one of the biggest users of energy and creators of pollution in the world.
According to the U.S. Energy Information Administration, the United States accounted for about 4% of the global population in 2019, but was responsible for 17% of total energy use. According to Our World in Data, the U.S. has emitted more carbon dioxide than any other country to date and is responsible for 25% of historical emissions.
It is estimated that the bill would help to cut as much as 40% of nationwide greenhouse gas emissions by 2030. While this is a great improvement, it falls short of this administration’s goal to halve emissions by 2030.
We checked in with Chris Lord, instructor for Financial Modeling for Solar PV Projects and the Solar Executive MBA, lawyer, and solar deal maker, to get his thoughts on this new legislation:
“The Inflation Reduction Act has something for everyone, but not everything for anyone.
There is a lot of fine tuning of existing mechanisms and tools, but there are also a lot of brand new provisions with new approaches. Between the two, people will need to take time to ensure they have the details right, but the new provisions will force people to reconsider existing market position and strategy. For example, on the fine tuning side, there are extensions of the existing ITC and PTC. There is also an extended carryback right of three years, up from one-year, for applying ITC and PTC to previous tax years. On the brand new side of things, there are new incentives to pay prevailing wages and apprenticeship/training – framed as reductions in the ITC and PTC for projects that don’t meet prevailing wages and apprentice/training.
The direct pay option is also a game-changer for tax-exempt organizations and government entities. Where these entities could only take advantage of the Federal tax incentives indirectly through a PPA with a tax-paying entity, they may now apply directly for a cash payment for the ITC/PTC. Unfortunately, they still won’t have an equivalent benefit for depreciation.”
While there are many victories to celebrate within the Inflation Reduction Act, it is worth noting that there are still new provisions that further expand fossil fuel leasing and potential production, included as concessions to get the bill approved by the Senate. Additionally, there has been criticism that while the bill allocates $60 billion to priorities of the environmental justice movement, it is just 16% of the whole climate package and still falls short of being considered a climate justice bill due to scale and equity gaps.
With so many new opportunities, also comes a big challenge – finding and training enough workers to get it done. Solar Energy Industries Association (SEIA) president Abigail Ross Hopper said that SEIA expects the solar and energy storage workforce will quadruple from the current number of solar energy workers of around 250,000.
Now more than ever, companies will need to attract and retain top talent through creating excellent workplace culture and benefits, providing opportunities for advancement, and quality training and professional development.
Looking for more coverage on the latest developments on the Inflation Reduction Act? Check out Canary Media’s coverage.