How will the Inflation Reduction Act impact your organization?
The Inflation Reduction Act (IRA) is many things: an experiment in large-scale, incentive-based systems change; a job creator; and a fount of market stability and investor confidence for the clean energy economy.
But it can only create change to the scale that it is utilized. As the largest-ever investment in climate action, the IRA puts plenty of money on the table via tax credits, deductions, and rebates. Yet it is complex enough that individuals and organizational leaders need to seek out what incentives apply in their unique situations.
In a recent presentation to the Regenerative Leadership Community, I aimed to jumpstart that process by sharing major takeaways around building efficiencies, renewable energy, and clean transportation. Afterward, members shared which actions they would pursue – exploring home electrification, advocating for greater efficiencies in a planned building project, and simply sharing this information with their networks – a reflection of the fact that there is something here for nearly everyone.
What should organizations know about the IRA?
The IRA expands existing federal income tax benefits known as the Investment Tax Credit (ITC) and Production Tax Credit (PTC). These changes further incentivise commercial and residential solar and will accelerate utilities’ abilities to reduce greenhouse gas emissions.
These tax credits significantly incentivize the use of apprenticeship programs and prevailing wages, meaning that organizations that meet certain requirements can earn larger credits. Furthermore, options for direct pay and transferability of tax credits will simplify access, helping tax-exempt agencies and nonprofits take advantage. Bipartisan Policy Center studies show that direct pay incentivizes up to twice as much clean energy development as traditional credits.
The IRA is also likely to boost demand for electric vehicles. The law discounts up to 30% of costs for new EV fleets – up to $7,500 per light-duty vehicle and up to $40,000 per heavy-duty vehicle. Additionally, organizations that install EV chargers in low-income or rural communities could earn as much as a 30% tax credit in some scenarios.
What should individuals know about the IRA?
Individuals can also earn tax credits for switching to EVs. Americans will be eligible for up to $7,500 for purchasing a new EV and up to $4,000 for purchasing a used one. It will likely take a couple years for U.S. manufactucturing to catch up to the new demand, likely making it more cost-effective to delay purchases until there is more supply.
Homeowners can reap the benefits of the IRA, too. There are a range of discounts and other incentives that could also lower home energy costs as a result. Some Americans will be eligible for savings on upgrades such as heat pumps, electric stoves, and basic weatherization, although it may take several months to set up the infrastructure to distribute these rebates.
Meanwhile, individual tax credits should be available by the time 2023 taxes are being filed. While higher-income individuals may not be eligible for rebates, they could receive credits for upgrades such as home electrification, solar installations, home EV chargers, and heat pumps. These credits are capped annually, so homeowners may choose to spread upgrades over several years. Use Rewiring America’s calculator to learn more about household incentives.
What are the other important outcomes?
It’s clear that the IRA will have wide-reaching implications. Notably, the law sets aside $40–$60 billion for environmental justice programs in communities disproportionately affected by climate change. This important step is a reflection of the community leaders involved in the IRA’s development, who elevated the interconnectedness of climate action and environmental justice.
The IRA could also create millions of jobs. In addition to boosting apprenticeship programs and prevailing wages, the IRA invests in and incentivizes the use of clean technology such as for batteries and solar panels that are manufactured in North America.
Perhaps most importantly, the IRA is expected to lower U.S. greenhouse gas emissions by 40% by 2030. That level of progress would close two-thirds of the emissions gap and put us in reach of the nation’s goal to reduce emissions (from our 2005 baseline) by 50% by 2030.
The remaining 10% gap is a call to action for all of us to keep pushing forward. As organizations and individuals begin to experience the outcomes of the IRA, I’m hopeful that these incentives and investments could become a self-reinforcing positive feedback loop that spurs even more aggressive climate action.
Watch my full presentation with the Regenerative Leadership Community here: