As the single largest clean energy investment in American history, the Inflation Reduction Act (IRA) is poised to trigger a decade of heightened investment, production and innovation that could transform the energy sector, according to multiple analysts.
The IRA includes $370 billion of climate and clean energy investments which are geared to cut U.S. greenhouse gas (GHG) emissions by as much as 43 percent below 2005 levels by 2030. Among the dozens of new programs and funding mechanisms, industry experts point to the IRA’s revision of investment and production tax credits as the legislation’s most potent tool for fostering public-private partnerships and unleashing a new wave of private sector investment in clean energy projects. The bill extends those credits for wind and solar energy through 2024 then transitions to a technology-neutral, clean energy tax credit that will remain in effect until 2032 or until electric sector emissions fall to 75 percent of 2022 levels, whichever is later.
“We have never before had a 10-year window like this,” said Lisa Jacobson, President of the Business Council for Sustainable Energy (BCSE). “Previously, different renewable energy technologies have not had even policy treatment at the federal level and their tax credits have been turned on and off at shorter intervals. It is very important to have long-term policy so that businesses, states, local governments and end users can plan. When you have longer term tax credits, you see steady, year over year growth. It is extremely significant.”
As Congress debated the IRA this summer, the American Clean Power Association released an analysis of its likely impact. It projected the IRA will trigger $550-600 billion in capital investment between 2022 and 2030, and deliver 525 to 550 gigawatts of new, utility-scale, clean power by 2030. Construction of those projects would generate over $900 billion in economic activity and add nearly $500 billion to the U.S. GDP. That investment would also steadily increase annual clean energy installations across America from 28 GW in 2022 to 97 GW in 2030.
“For comparison, the average industry forecasts under [pre-IRA] business-as-usual conditions anticipate 335 GW of new clean power additions [by 2030], with the most prolific year clocking just 50 GW installed. Passage of the IRA would shift American clean power growth into overdrive,” the American Clean Power analysis stated.
Additionally, the IRA is designed to incentivize the completion of new types of clean energy projects. For the first time ever, the legislation creates a federal tax credit for energy storage.
“Having a stand-alone storage credit is really important because it supports much more opportunity for investment and innovation, for developing new storage technologies, and for combining storage with solar and other renewable energy installations,” Jacobson said.
In company C-suites, the IRA tax provisions are enabling executives and innovators to more confidently plan long-term investments and assess new ventures or product offerings, she added. “It allows for creative thinking. It allows companies to develop new, compelling offerings to their customers and consider projects that may not have seemed economical previously.”
The IRA also provides more than $60 billion to establish more clean energy manufacturing facilities in the U.S. Those incentives include:
- $30 billion in production tax credits to accelerate U.S. production of solar panels, wind turbines, batteries and critical minerals processing;
- $10 billion of investment tax credits to build new clean energy manufacturing facilities for electric vehicles, wind turbines, solar panels and other products;
- $2 billion of grants to retool existing auto manufacturing plants to manufacture clean vehicles;
- Up to $20 billion in loans to build new clean vehicle manufacturing facilities; and
- $500 million through the Defense Production Act to manufacture heat pumps and conduct critical minerals processing.
In early September, the New York Times reported that the U.S. had seen a surge in clean energy manufacturing project announcements since the passage of the IRA. Those include multi-billion-dollar investments by both Toyota and Honda to build new battery plants for electric and hybrid vehicles in addition to investments by other companies in a new lithium processing plant and solar panel factory.
Other provisions within the IRA provide numerous opportunities to implement clean energy, energy efficiency and climate solutions projects. Those include:
- $27 billion for clean energy technology accelerators to support the deployment of technologies to reduce emissions, especially in disadvantaged communities;
- $9 billion in federal procurement of American-made clean technologies, including $3 billion to purchase zero emissions vehicles for the U.S. Postal Service;
- $9 billion in consumer home energy rebate programs to electrify home appliances and complete energy efficient retrofits;
- $6 billion in grants and tax credits to reduce emissions from industrial manufacturing processes, such as chemical, steel and cement plants;
- $3 billion in Environmental and Climate Justice Block Grants for projects in disadvantaged communities that experience disproportionate environmental and public health harms related to pollution and climate change;
- $3 billion to support the purchase and installation of zero-emission equipment at ports; and
- $2.6 billion in grants to conserve and restore coastal habitats.
“We are just at the beginning of the implementation of the IRA so we don’t know what this will all add up to yet, but it is very encouraging,” Jacobson said.
Noting that small businesses are primed to carry out much of the clean energy work described in the IRA, Clean Energy Business Network (CEBN) President Lynn Abramson said, “The Inflation Reduction Act marks the start of a new era for deploying cleantech at an unprecedented scale to drive down energy costs, cut emissions and boost our energy security.”