What You Need to Know About the Inflation Reduction Act of 2022

What You Need to Know

The Inflation Reduction Act (IRA) of 2022 is the most sweeping climate change legislation ever enacted into federal law.  The IRA, together with the Infrastructure Investment and Jobs Act (Infrastructure Act) of 2021, is expected to result in $444 billion in direct federal support and $1.2 trillion in private investment, resulting in at least $2.8 trillion in new economic activity. The resulting impact to Maine, New Hampshire, and the national economy will be profound, affecting the energy, tax, and business landscape while creating new opportunities for businesses, non-profits, and municipalities. [1]

Bernstein Shur’s multidisciplinary Climate Change Team is carefully monitoring and evaluating the IRA, particularly in the context of existing and new federal and state programs. The summary below highlights some of the ways our clients can take advantage of this important but complex federal law.

Renewable Energy

Among its most significant provisions, the IRA modifies and extends critical federal tax incentives for clean and renewable properties. Specifically, the IRA:

• Extends the Investment Tax Credit (ITC) for qualified energy property, including wind, solar, and—for the first time—storage projects, through 2024. The base credit is six percent and there is a substantial bonus credit for projects meeting prevailing wage and apprenticeship requirements. Solar and wind projects developed in low-income communities are eligible for a full 30 percent credit.
• Extends the Production Tax Credit (PTC) through 2024 for qualified energy facilities with a new PTC for clean hydrogen production and creates a second new PTC for nuclear energy through 2032.
• Creates a broadly applicable tax credit for clean energy technologies, based on carbon emissions generated, for years 2025 to 2032. The credit equals a PTC credit of 2.5 cents per kWh or an ITC credit of 30% of investment. There are prevailing wage and apprenticeship requirements for the full value of this credit.
• Establishes multiple additional tax credits for clean energy sources, including clean fuels and commercial clean vehicles.
• Funds numerous tax incentives for clean energy production and manufacturing with domestic content, as discussed further below.

The tax incentives outlined above will also affect how renewable projects are valued and assessed for local property tax and economic development purposes. For questions about these effects, reach out to our Property Tax and Valuation Team.

Building Efficiency and Commercial and Residential Building Emissions

The IRA also provides significant incentives for more efficient building practices and reductions in building emissions. Specifically, the IRA:

• Extends tax credits at 30% through 2034 for residential property owners installing solar, geothermal, and fuel cells. The credit phases down to 26% in 2033 and 22% in 2034.
• Provides more than $8.6 billion in residential efficiency and electrification grant funds and credits, which are typically funded through state energy offices.
• Creates new energy efficient home credits up to $2,500 for homes meeting ENERGY STAR requirements, and up to $5,000 for homes meeting zero energy and prevailing wage requirements.
• Appropriates $500 million for efficiency, resiliency, and renewable energy improvements for public and nonprofit buildings.
• Offers an expansion of the maximum deduction to commercial building owners for efficiency projects with a qualified retrofit plan.

Sources of Revenue to Fund Credits and Incentives

To fund its credits and programs, the IRA seeks to raise funds by:

• Creating a 1% excise tax on stock buybacks by public companies.
• Keeping the 21% corporate tax rate adopted in 2017 but creating a new 15% book minimum tax (alternative minimum tax) on large companies.
• Allocating $80 billion to the IRS over ten years for auditors and enhanced enforcement, which is projected to result in tax payments of $124 billion.
• Pairing fees on producers generating excess methane emissions with grants and loans to offered to reduce oil/gas emissions.

Coastal & Rural Communities

The IRA includes a wealth of funding sources for local and state governments, including:

• $20 billion to support climate smart agricultural practices.
• $5 billion to support forest resiliency programs, conservation, and urban tree planting.
• $2 billion for USDA’s Rural Energy for America Program for energy efficiency and renewable energy for agricultural producers and rural small businesses.
• $9.7 billion to USDA for rural electric cooperatives for renewable systems and efficiency improvements.
• $2.6 billion for conservation and restoration of coastal habitats.

Our Climate Change Team is tracking and evaluating the details and logistics of accessing these funds and will publish updates as information becomes available.

Consumer Benefits

The IRA also directly benefits individual consumers. Specifically, the IRA:

• Modifies the current $7,500 electric vehicle (EV) consumer tax credit to incentivize domestic critical minerals mining and domestic battery component requirements. The goal is to strongly encourage development of EV and mining capacity in U.S. and allied countries.
• Creates a new refundable tax credit for used EV purchases up to $4,000 or 30% of the sales price, whichever is less. Both EV credits phase out for individuals with a gross income above $150,000 and joint filers with a gross income above $300,000.
• Enacts a new commercial EV credit up to 30% of the vehicle cost.
• Directly reduces consumer costs through incentives to buy efficient and electric appliances and vehicles, install rooftop solar, and improve home energy efficiency. These incentives include: $9 billion for consumer home energy rebate programs; 10 years of consumer tax credits for energy efficient homes and clean energy; and $1 billion grant program for energy efficient affordable housing.

U.S. Manufacturing and Supply Chain Security

The IRA will enhance and expand a variety of tax credits and programs to ensure security to the domestic manufacturing and supply chains. While further guidance will be forthcoming, the IRA:

• Creates multiple bonus clean energy tax credits for manufactured projects using domestically produced, manufactured, or mined content. These credits are for 45% for projects before 2025, increasing to 55% domestic content after 2026.
• Improves offshore wind development through by requiring domestic purchases of 20% for projects beginning construction before 2025, 27.5% for projects beginning in 2025, 35% for projects beginning in 2026, and 45% for projects beginning after 2026.
• Funds a new advanced manufacturing production tax credit for solar, wind, battery and critical mineral supply chain components, including for wind blades, nacelles, towers, offshore platforms, battery cells and components, solar and critical minerals components.
• Revives the Manufacturing Investment Tax credit with a $10 billion investment tax credit to build clean energy manufacturing facilities.
• Grants more than $40 billion in new loan authority and $3.6 billion for guarantees to the U.S. Department of Energy (DOE) Loan Program Office.
• Implements new tax credits to build infrastructure for sustainable clean aviation fuel and other biofuels.
• Dedicates $2 billion to domestic manufacturing conversion for plug-in EVs, hybrids, and hydrogen fuel vehicles and components.
• Appropriates substantial resources for other initiatives, including: heat pumps and critical minerals exploration/development; a new Advanced Industrial Facilities Deployment Program; federal clean energy procurements; and $27 billion for a clean energy technology accelerator.

Electrical Transmission Lines

The IRA broadly supports transmission development to harden the nation’s electric infrastructure and bring renewables to market by:

• Providing $2 billion to support DOE loans for new high-capacity transmission and intertie facilities.
• Granting $760 million to assist state, local, and Tribal siting authorities on transmission impacts, alternative corridors, host negotiations, and to undertake economic development in impacted communities.
• Funding $100 million to assist the DOE’s transmission and offshore wind transmission planning, modeling and analysis.

Environmental Justice and Low-Income Communities

The IRA grants $60 billion for environmental and climate justice block grants, neighborhood access and equity grants, and Ports Air Pollution Reduction grants. More specifically, $1 billion will help fund clean heavy-duty duty vehicles and other programs focused on low-income communities; and $3 million is dedicated to assistance with air pollution monitoring in low-income communities.

For questions about the many benefits that the newly-enacted IRA has on your business, municipality, or organization, please reach out to our multidisciplinary Climate Change Team.

[1]  Advanced Energy Economy, Economic Impact of Advanced Energy Investment from the Infrastructure Investment and Jobs Act and Inflation Reduction Act (August 11, 2022).