The Inflation Reduction Act: One Year Later
The Inflation Reduction Act (IRA) is a crucial player in driving emission reductions and enforcing action to combat climate change, and has the potential to get us closer to the United States’ goals to cut emissions in half by 2030.
This August 16, 2023 marks the one year anniversary since the IRA was passed by Congress and signed into law by President Biden. The signing of the IRA came at the end of a long, hard-fought effort that tackled everything from inflation, to reducing prescription drug prices for seniors, and, shrinking the country’s carbon emissions. The IRA accounts for a projected 2.7 million jobs, adding $700 billion to the economy, while also avoiding $1.7 trillion in climate damages by 2030.
IRA PRESENTS MANY OPPORTUNITIES
INCREASED REGULATORY ACTIONS
The IRA defines greenhouse gasses, including carbon, as industrial pollutants. This reinforces the Environmental Protection Agency’s (EPA) authority to regulate carbon emissions under the Clean Air Act.
These clarifications in the IRA have paved the way for regulatory action aimed at carbon emissions reductions, most notably in the EPA proposed ruling announced in May 2023 that addresses carbon pollution in both new and existing power plants, which are widely known as the second most polluting activities (behind transportation). Read more about that proposed rule here.
CLEAN ENERGY BOOM
New clean energy projects have popped up across the US as a result of the IRA incentives. Since the signing of the IRA in August 2022, over 170,000 jobs have been created across 44 states and spread throughout the 272 new clean energy projects that have been announced, Climate Power reported. These new projects account for an estimated $278 Billion in new investments. These projects are largely a result of tax incentive programs from the IRA and are designed to spur the clean energy transition. A full list of the IRA provisions related to renewable energy are summarized by the EPA here.
LEADING THE WAY IN HYDROGEN
For Hydrogen, the IRA has positioned the U.S. to be a leader in this emerging technology, which has the potential to transform the energy sector. The clean energy subsidies in the IRA resulted in a Norwegian manufacturer choosing Michigan to do their business in, rather than Europe, as the site of a nearly $500 million factory that will produce the equipment needed to extract hydrogen from water. This one project will create 500 new jobs and is just the beginning. As more companies take advantage of these incentives such as a $3-per-kilogram subsidy for green hydrogen, tens of billions of dollars in loans and other incentives for international investors to put money into the industry.
As the conversion to hydrogen continues, It is important we keep a watchful eye on community safety. Many see hydrogen as an offramp for natural gas that will harm communities. There is an opportunity for green hydrogen to meet the needs of the energy transition while avoiding harm to people and the planet if the technology is scaled in a meaningful and thoughtful way. This is in an industry in very early stages and could benefit from more support but needs to be done carefully and always through the lens of community and environmental justice. Additionally,the forthcoming guidance from the Treasury Department on hydrogen will have implications for the growth of this industry domestically.
The Rural Energy for America Program (REAP) will expand through the IRA to include $2B in additional funding through 2031. This program allows farmers and small businesses to transition to using solar energy, thus becoming more energy independent. The expansion of this program will allow for grants to cover up to 50% of the costs for farmers and small business owners who make the switch to solar. More information about the specifics of the grants can be found using this guidance from Solar United Neighbors.
POLLUTION PREVENTION PROGRAM
The P2, or pollution prevention, program currently comprises 5 grants totaling about $40 Million over two years. These funds are to be used to assist businesses in developing or expanding source reduction practices (practices that will prevent pollution). The programs include research, development, and technical assistance for new technologies including carbon labels. Read more about carbon labels here.
The IRA includes programs that substantially increase support for Sustainable Agriculture such as, the Funds for Financially Distressed Borrowers and Funds for Producers Facing Discrimination loan programs. $3.1 billion was allocated for the US Department of Agriculture (USDA) to provide expedited relief to borrowers whose agricultural operations are at risk. So far, as of April 2023, $1.5 billion of these funds have been distributed.
The IRA recognizes the long documented history of discrimination at the USDA and has dedicated $2.2 billion in financial assistance to farmers who have experienced discrimination from USDA’s farm lending programs. The loans are being administered by nongovernmental program administrators, who are working closely with community-based organizations, including ASBN’s member The Rural Coalition. The application period is open until October 31, 2023.
IRA CHALLENGES ALONG WITH VAST OPPORTUNITY The landmark investments are monumental, especially in regard to clean energy. However, the funding set out in the IRA now has been and will continue to go through a long process, where each agency is tasked with creating programs and guidelines for how funding will be allocated. This process presents a few challenges, but with much opportunity as we’ve already outlined above.
CLEAN VEHICLE CREDIT
One of the first actions taken to further clarify the provisions set in the IRA was the New Clean Vehicle Credit proposed ruling. The US Treasury Department issued domestic sourcing requirements to access the EV tax credits mentioned above. These credits were strong incentives to bring battery manufacturing to the US.
A prominent challenge made clear by the proposed sourcing requirements Is the ongoing shortage of domestic content materials needed to support the domestic supply chain requirements for incentives. These requirements are meant to bolster domestic production and lessen US reliance on international markets. However, the industry is not nearly large enough to support increasing demand.
During the drafting of the IRA, there were prominent concerns from environmental justice advocates that frontline communities would not see the benefits and potentially could be harmed more by certain aspects of the IRA. The IRA supports frontline communities through programs including Environmental Justice Block Grants, federal funding for the National Environmental Protection Act (NEPA), and the Greenhouse Gas Reduction Fund. These programs are just a few examples of the commitments made by the IRA to support environmental justice through promoting legacy pollution reduction, affordable and accessible clean energy, better quality of life and good jobs.
However, the compromises added to appease those who had not been supportive of the IRA draft have been called out as potentially harmful to communities. Among these concerns, is the potential for negative effects resulting from the continued leasing of federal land for oil and gas development and subsidies for carbon capture storage (CCS). These leases and subsidies may extend the life of fossil fuel systems and therefore will prolong the impacts of the pollution that results from the fossil fuel industry. These facilities are known to disproportionally affect the frontline communities that live, work, and play near them.
About $50 Billion that has been allocated for environmental justice in the IRA is a great accomplishment. As we know, there is still a long way to go before all of these funds will be distributed, and therefore there are concerns about the way distribution will benefit the communities at risk. There are calls for initiatives to ensure that the process upholds equity and justice, which in the past has failed these communities. The IRA removes direct pay provisions for renewable energy projects (while they remain for hydrogen and carbon capture), and as a result, the program incentives are made up of entirely tax credits.
This system of distributing incentives often reproduces economic inequality, rather than reducing the strain. Therefore, the tax credit programs mentioned above are important steps forward to address the threats to the environment due to greenhouse gas emissions, but may fall short in their ability to spur economic well-being for communities.
REFORMING THE PERMITTING PROCESS
A lingering question in all of this is: how will the recent attention and focus on permitting reform affect IRA funding? The main conversation revolves around the National Environmental Policy Act (NEPA), which is one of the earliest environmental protection laws in the U.S. and mandates that the environmental impact of any major federal project be assessed before decisions are made. Some clean energy advocates are calling for reforms to the permitting process, so that the approval of new clean energy projects designed to enable the industry to grow will move faster and the IRA’s full potential can be realized.
At the 2021 26th U.N. Conference of The Parties (COP), the United States committed to cutting its greenhouse gas (GHG) emissions to 50-52 percent below 2005 levels by 2030. The Biden Administration took an aggressive step toward meeting those goals when the Inflation Reduction Act (IRA) was signed into law. When fully implemented, it is projected to bring emissions reductions to about 40% by 2030. This leaves a gap of about 10-12% in reductions that will not be covered by the full implementation of the IRA. Read more about the emissions gap here.
The one-year anniversary of the IRA is just the beginning for much of the great opportunity that will come from this landmark legislation. ASBN will continue to track and update on relevant funding as it becomes available and share ways to engage with states as a conduit for collective action.
Even though these accomplishments are worth celebrating, we will continue to push for more. The fight against climate change is a marathon, not a sprint. Great strides have been made, but the race has just started.