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Federal Policy Update: Historic Passage of the Inflation Reduction Act

September 14, 2022

Written by: Isabella Gambill, Senior Policy Advisor on Climate, Energy, & Resilience

On August 16^th, President Joe Biden signed the Inflation Reduction Act (IRA) into law, thereby enacting the largest federal investment in climate change to date in the United States. With sweeping investments in lowering energy costs, bolstering clean energy workforce development, scaling up domestic manufacturing of clean energy technology, supporting small businesses, expanding electric vehicles, providing cleaner air, lowering healthcare costs, supporting climate-smart agriculture, and investing in resilient communities, the Biden Administration promised to “combat the existential threat of climate change and build a clean energy future that creates jobs, advances environmental justice, and lowers costs for families.¹” The IRA commits to reducing greenhouse gas emissions by roughly 40%, or about 1 gigaton by 2030 (also known as 1 billion metric tons), which amounts to 10X more impact on U.S. climate commitments than any other piece of legislation thus far enacted. Specific commitments and investments from the IRA include:

Lowering Energy Costs

The IRA offers greater regulatory certainty by extending tax credits for wind, solar, and energy storage through at least 2032, and encourages projects that benefit low-income communities and that provide a prevailing wage (often aligned with union wages). The IRA estimates that millions of homes will install rooftop solar and storage, alongside considerable utility- and community-scale projects for clean energy development. Specific IRA components seeking to lower energy costs include:

• Tax credits covering 30% of the cost of community solar projects, with additional 20% bonus credits for affordable housing property projects and 10% for low-income community projects.
• Tax credits covering 30% of the cost to install solar, battery storage systems, and other home improvements like weatherization and/or upgrades to heating and cooling systems (no income limits apply).

Decarbonized and Climate-Resilient Buildings

The IRA establishes a set of tax credits, consumer rebates, and other program subsidies to help incentivize decarbonized heating systems. With tax credits for heat pumps that can be applied multiple times, to tax credits for battery storage, the IRA also considers upgrades to electric panels, rewiring, and weatherization in measures eligible for rebates. In order to help scale up decarbonized and resilient buildings, the IRA includes:

• Grants to help state and local governments adopt the latest building energy codes.
• Tax Credits for commercial building owners up to $5 per square foot to support energy efficiency improvements that deliver lower utility bills.
• Incentives (in the form of rebates, tax credits, and other cost reduction measures) of roughly $9 billion for high-efficiency heating and other electrification. Note: since state governments are tasked with administering these funds, consumers in Massachusetts may not see these funds until 2023 or 2024.
• Rebates covering 50-100% of the cost of installing new electric appliances, including heat pumps (ex. $14,000 in direct consumer rebates for families to buy heat pumps or other energy efficient home appliances).

Clean Energy Workforce Development

With considerable commitments to a clean energy transition and to the American manufacturing of clean energy technologies, the IRA will bring an estimated $11.4 billion of investment in large-scale clean power generation and energy storage to Massachusetts by 2030, creating substantial demand for a clean energy workforce. In order to prompt equitable workforce development, the IRA:

• Expands tax credits for energy efficient commercial buildings, residential homes, and EV charging infrastructure, which all contain bonus credits for businesses that pay prevailing wages and hire registered apprentices.
• Includes tax incentives that are designed to increase if clean energy projects incorporate American-made materials (ex. American-made steel used in offshore wind projects).
• Considers how to transition the fossil fuel workforce, with a 10% increase in clean energy tax credits if projects are established and offer employment in communities that previously were employed by the fossil fuel industry.

Transportation

The IRA promotes the scaling up of electric passenger vehicles and commercial fleets, as well as the expansion of EV charging infrastructure and battery supplier infrastructure. The commitments of the IRA will operate in tandem with the Massachusetts state plan recently submitted for using Bipartisan Infrastructure Law funds to expand EV charging stations along MA highways. Specific transportation components of the IRA include:

• Tax credits covering 30% of the costs of purchasing clean trucks and vans for commercial fleets.
• Point-of-sale rebates for electric vehicles of up to $7,500 for new EVs and $4,000 for used EVs (millions of residents in Massachusetts will be eligible).
• A first-ever Production Tax Credit for EV battery manufacturing.
• A new Neighborhood Access and Equity Grant Program to support multi modal transportation projects in communities that were previously divided by highways, with particular focus on projects that are resilient to flooding, extreme heat, and more (ex. these grants could convert a highway into a boulevard, add bike lanes and sound barriers, build green stormwater infrastructure, and more – but, importantly, IRA money cannot go towards single-occupancy car lanes).

Environmental Justice & Resilient Communities

The IRA includes several environmental justice and community health provisions, and claims to reduce air pollution that would result in 100,000 fewer asthma attacks by 2030. In particular, the IRA:

• Provides environmental justice block grants to communities suffering disproportionate impacts of air pollution.
• Establishes a Clean Energy and Sustainability Accelerator tasked with prioritizing decarbonization projects in environmental justice communities.
• Invests in strengthening forests (committing to protecting nearly 2 million acres nationally), including programs focused on preventing wildfires.
• Invests in tree planting projects to help protect communities from extreme heat.

For any questions on the Inflation Reduction Act and/or A Better City’s energy and environmental policy work, please contact Isabella Gambill.

1. whitehouse.gov/wp-content/uploads/2022/08/Massachusetts.pdf