What is the Inflation Reduction Act?

The Inflation Reduction Act is a bill proposed to fight inflation and boost domestic energy production and manufacturing – it has also been hailed as a big step forward in the fight against climate change.

On August 7th, 2022 the Senate passed the Inflation Reduction Act. We can expect the House of Representatives to vote on the bill this week.

What are the climate & tax implications?

Inflation Reduction Act (IRA) contains $369 billion investments to boost clean energy and curb greenhouse gas emissions.

It is considered the most significant climate legislation in U.S. history.

It means a sizeable impact on our Nation’s greenhouse gas emission goals and significant investments in innovative clean technology. It means bold climate investments and restored faith that congress can do big things.

1) This isn’t the bill that was originally proposed.

While the IRA is a highly significant climate act, it is not quite as effective as the initially proposed Build Back Better Act. The IRA is a compromise that contains provisions benefiting oil and gas companies. Over the past year and a half, Senator Joe Manchin of West Virginia has acted as a roadblock in accomplishing federal climate policy. With West Virginia being a state deep-rooted in fossil fuel infrastructure, Senator Manchin is invested in maintaining fossil fuels as they are. The new Inflation Reduction Act is a compromise that may permit some fossil fuel infrastructure to be maintained. But even with this, and reduced funding for clean energy programs, about 75% of the original emission reductions will be retained.

2) Regardless of the compromises lawmakers made, the IRA will have a big impact on greenhouse gas emissions.

According to Energy Innovation, for every ton of emissions generated by IRA fossil fuel provisions, at least 24 tons of emissions are avoided by the other provisions. The United States has pledged to reduce GHG emissions to 50% of peak levels by 2030. Energy modeling estimates that the IRA will do about two-thirds of the work needed to get our emissions to that pledged goal. These reductions will keep us in the climate fight, and we can close that gap with further action from state and local governments and corporate leaders.

3) The proposed IRA will reduce energy costs and increase American energy security.

President Biden set a goal to hit 100% clean power by 2035. To do that, the IRA will invest billions of dollars in more effective tax credit structures and programs, allowing the U.S. to build domestic clean energy infrastructure. No longer reliant on the volatile, international oil and gas market, the costs of energy will be lower, and more predictable. The IRA will also create energy-related credits to allow for investments in rooftop solar and energy-efficient building systems.

The bill also restores the $7,500 personal tax credit for electric vehicle (EV) sales. And there are stipulations on that tax credit that are good for long-term U.S. domestic EV manufacturing. The tax credit ramps up depending on what percentage of the EV is manufactured in North America, which will encourage a build up of a domestic supply chain.

4) The bill will tackle environmental social justice.

The IRA set aside $60 billion for addressing ESJ issues. The IRA would fund a variety of programs that reduce pollution in low-income and minority community, make zero-emission infrastructure more affordable and equitable, and promote the Justice40 Initiative.

5) The bill has economic and tax benefits.

41% of inflation is being directly driven by fossil fuels. Lawmakers say that the IRA will reduce the federal government’s deficit and combat inflation by supporting clean energy production and raising tax revenue. The IRA is designed not to impact small business and middle-class income taxes but rather to raise corporate minimum tax (for some of the largest companies in the world, like Amazon and Nike). The Inflation Reduction Act proposes $80 billion in additional funding for the IRS, which has some critics in an uproar. While it isn’t exactly clear what this funding is for, the hope is that it will create tens of thousands of new federal jobs and modernize our outdated tax system.

The $60 billion dollar investment in clean technology manufacturing will create new employers in nearly every single state. That’s real economic benefits.

6) This is just the beginning

The climate movement is proficient and powerful, and getting the Inflation Reduction Act passed by the senate demonstrates that. As with every significant legislation, there will be compromises, and there will be critics, but we are excited about the amount of good this bill could do for people, businesses, and the planet. Now, we just need to get this bill across the finish line to drive this bold climate agenda.

How Green Places fits in

We’ll be monitoring the IRA bill, and looking for opportunities for businesses to reduce their carbon footprint and hopefully achieve tax benefits for doing so.

For more reading, our friends at Climate Tech VC have developed a helpful tracker noting all funding, and tax benefits related to the IRA bill.