Carving Out Funds for Clean Energy

The Inflation Reduction Act (IRA) was signed into law on August 16, 2022. The Act is designed to push money towards clean energy and clean transportation and to supercharge these issues at the state and local level. Here is a breakdown of some of its major goals along with the current status.

Electric vehicles (and flying broomsticks) should become more affordable. Car purchasers can get tax credits for new, used, and leased electric vehicles, under sections 13401 and 13402. To be eligible for the credit, the vehicle’s battery components have to be produced in the United States. Starting in January 2023, the minerals used to make the vehicle have to be from either the U.S. or a country that has a free trade agreement with the U.S. The credit will be available at the point of sale in 2024, and there is an income limit. Plug In America has an explainer with all the details, including an FAQ. The IRS will be issuing further guidance about the program soon. The NY Times published an explainer for other savings people can get for upgrades in their homes; EDF also published a similar resource about how the Act can save consumers money.

Charging stations will become much more plentiful. The Act provides tax credits for businesses installing electric vehicle charging stations in low-income or non-urban areas under section 13404. Resources provided through the Infrastructure Investment and Jobs Act, passed last year, will support states installing EV charging stations on their highways as well, as explained in a recent release from the Department of Transportation. The opposite of double double, toil and trouble.

Green financing will bubble over. Federal funding is going towards projects that reduce greenhouse gas emissions. Section 134 gave EPA $27 billion to award in competitive grants for projects to reduce greenhouse gasses, with $7 billion earmarked specifically for grants towards projects in low-income and disadvantaged communities. EPA just announced a process for submitting comments on implementation of this new fund. EPA will hold two listening sessions, on November 1st and 9th. At a meeting earlier this month, the agency gave its Environmental Financial Advisory Board a set of questions to answer as part of that process. (The questions and agenda for EPA’s meeting are available here.) EPA must begin making grants soon: February 2023.

Methane emissions should go down. “Say what you want! Just don’t breathe [methane] on me!” Companies will have an incentive to cut emissions because they’ll have to either pay a fee or comply with EPA regulations requiring cuts. Section 136(c) of the law requires oil and gas facilities that emit a certain amount of methane per year to pay a fee on those emissions. Figure 2 in this Congressional Research Service report provides a handy image of which facilities are covered. Facilities that are “subject to and in compliance” with EPA regulations restricting those emissions are exempt from the fee.

Clean energy investments will surge. Renewables this way come! There are tax credits, deductions, bonus credits, and increased credits available to help fund a slew of clean energy investments and improve worker protections. Projects that comply with prevailing wage and apprenticement requirements receive additional credits. And there are other bonuses for complying with domestic content requirements and for investing in an “energy community,” defined generally as a community that has relied on fossil fuel production. There are no upper limits on these credits, as John Kerry recently explained, meaning the more projects are built the more credits will be available. There are penalties for noncompliance. For example, section 13101, which provides credits for renewable resources, lays out a penalty for failure to comply with the prevailing wage and apprenticeship requirements under sub-section (f). The IRS is seeking comment right now on several questions related to those credits, including the documentation that should be required to prove compliance with prevailing wage requirements and how to correct a deficiency.

There are provisions in the bill, including ones that promote new oil and gas leases, that have caused significant concern among environmental justice activists, as John Beard, founder, president, and executive director of the Port Arthur Community Action Network, summarized in an op-ed. The Department of Interior recently proposed leases under those provisions and a ten-AG coalition weighed in on the oil and gas plan explaining that new oil and gas leasing will get in the way of their state climate goals and should be avoided like hocus pocus.

Implementing the Act’s credits is happening now. This is the time to engage.