On August 16, 2022, President Biden signed the Inflation Reduction Act (“IRA”) into law. The IRA is designed to address climate change, invest in domestic energy production, reduce the deficit, and fight inflation. The IRA allocates over $300 billion in total to energy and climate reform, designating $60 billion for clean energy manufacturing in the United States. DWGP has been intensively engaged in the discussions leading to the passage of the IRA and has been educating clients, state and local officials, and energy industry stakeholders in the implications of the new law.
Among the significant features of the IRA that impact energy development and that address climate change are production tax credits to accelerate manufacturing of solar panels, wind turbines, batteries, and critical materials processing. Businesses can receive tax credits for making energy efficient changes to their commercial buildings and can receive grants or loans to reduce methane emissions from gas and oil. Electric cooperatives will receive $9.7 billion to reduce greenhouse gas emissions. Cooperatives, municipalities, non-profits and other governmental entities can receive “direct pay” as an equivalent to the tax credits, which should lead to a dramatic increase in renewable energy and storage projects for those entities. The new law also includes an energy storage credit for the first time.
In addition to businesses, the IRA incentivizes individuals to invest in cleaner energy sources by offering tax credits for residential clean energy costs such as rooftop solar, heat pumps and small wind energy systems. The law extends the federal solar tax credit until 2035 and restores the incentive amount to 30 percent of qualified installation costs until 2033. In 2033, the tax credit will start decreasing and will expire completely for residential solar installations in 2035. The 30 percent credit will be applied retroactively to those who installed their system since the beginning of 2022. The IRA also allocates $9 billion in consumer home energy rebate programs and provides 10 years of consumer tax credits to make homes more energy efficient. Home energy rebates programs will be operated by the state energy offices. The legislation provides $1 billion in grant programs to make affordable housing more energy efficient. Further, the IRA gives up to $7,500 in tax credits for new electric vehicles and $4,000 for used electric vehicles.
The IRA creates a new Advanced Industrial Facilities Deployment program to reduce emissions from the largest industrial emitters in the United States. Additionally, the IRA allocates $30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to clean electricity, $27 billion in clean energy technology, and a Methane Emissions Reduction Program to reduce leaks from the production and distribution of natural gas.
To drive environmental investments in disadvantaged communities, the IRA creates various grant programs including Environmental and Climate Justice Block Grants, which allocate $3 billion to projects for environmental and public health harms, Neighborhood Access and Equity Grants which provide $3 billion to support neighborhood equity, safety and transportation, as well as the Grants to Reduce Air Pollution at Ports which provide $3 billion to support the installation of zero-emission equipment and technology at ports. The IRA also invests in rural communities, by allocating more than $20 billion to support climate friendly agriculture practices, $5 billion in grants to support forest conservation and fire resilient forests, tax credits and grants to support the production of biofuel, and $2.6 billion in grants to conserve coastal habitats.
For more information, please contact Jeff Genzer, Pete Scanlon, Sean Neal, Keith Gordon, and Gelane Diamond.
