On August 16, President Biden signed into law the much-anticipated Inflation Reduction Act. The Act includes numerous clean energy, decarbonization, and climate-related provisions. While these provisions are less ambitious than those of Build Back Better, the Act is still projected to significantly reduce greenhouse gas emissions by the end of the decade. The Act also seeks to promote environmental justice and equity. A summary of some of the Act's major environment and energy-related provisions is provided below.
Clean energy tax credits and financial assistance
The Act's many clean energy provisions seek to accelerate the transition to lower-carbon options. On the production tax credit (PTC) side, the Act extends the current Section 45 PTC for certain qualified renewable energy projects through 2024 and, beginning in 2025 and through 2032, replaces it with a technology-neutral Clean Electricity Production Tax Credit (Section 45Y). Section 45Y creates a per-kilowatt hour credit for net-zero-emission facilities, with a 10% bonus for facilities located in certain "energy communities" (brownfield sites or where at least 5% of employment is in the oil and gas sector) and a 10% bonus for facilities constructed with domestic steel, iron, or manufactured products. The Act also extends through 2024 the PTCs for wind and geothermal facilities and biofuels, and revives through 2024 the solar facility PTC that expired in 2006.
The Act also rolls out several new PTCs over the next couple years:
- Beginning January 1, 2023: PTCs for hydrogen, commercial clean vehicles, and domestic clean energy components
- Beginning January 1, 2024: PTC for nuclear power
- Beginning January 1, 2025: PTC for clean fuels
Like with the Section 45Y credits, these credits last through 2032 (except for the clean fuels credit, which applies to fuels sold through 2027).
On the investment tax credit (ITC) side, the Act extends the current clean energy ITC through 2024 and replaces it with a technology-neutral ITC (Section 48D) beginning in 2025 and phasing out in 2032. Like with the Section 45Y PTC, a 10% bonus is added for facilities in energy communities or that use domestic steel, iron, or manufactured products. Certain wind and solar facilities in environmental justice communities are eligible for an increased credit based on an enhanced energy percentage for the property. The Act also extends the Section 48C Advanced Energy Project Credit and provides additional assistance for constructing and re-equipping manufacturing facilities to produce clean energy technologies.
The Act's other clean energy incentives include funds to reduce industrial emissions. The Act allocates over $5.8 billion for an Advanced Industrial Facilities Deployment Program, which will provide financial assistance on a competitive basis to industrial facilities to retrofit, upgrade, or install industrial technologies that reduce greenhouse gas emissions. Eligible entities – which include non-power industrial or manufacturing facilities engaged in energy-intensive processes – will be able to apply to the Department of Energy for these funds through 2026.
Environmental justice and community support
Consistent with the Biden administration's other efforts, the Act maintains a focus on environmental justice. The Act allocates $10 billion toward environmental and transportation justice initiatives, including:
- An Environmental and Climate Justice Block Grant Program for government and community organization partnerships to encourage community involvement in addressing pollution and climate change risks
- A Neighborhood Access and Equity Grant Program for governments, transportation authorities, and metropolitan planning organizations to reduce transportation barriers and increase affordable transportation options
- Grants to Reduce Air Pollution at Ports for governments and public-private partnerships
- Monies for encouraging environmentally friendly agricultural practices and coastal habitat conservation and restoration
Consumer energy efficiency and tax incentives
The Act establishes multiple grant programs for states to establish energy-related consumer rebate programs, including:
- $4.3 billion for state energy agencies to implement Home Owner Managing Energy Savings (HOMES) rebate programs, which will provide rebates to homeowners for whole-house energy savings retrofits
- $4.5 billion for states and tribes to implement high-efficiency electric home rebate programs for electrification projects, such as appliance and electrical systems upgrades
- $200 million for states to train contractors on home efficiency and electrification upgrades
The Act also establishes multiple individual clean-energy tax incentives, including:
- A 30% individual tax credit against the sum of qualified energy efficiency improvements and residential property expenditures to incentivize upgrades to windows, doors, and HVAC systems in homes
- Up to $4,000 in tax credits for low- and middle-income taxpayers to purchase used clean vehicles
- Up to $7,500 in tax credits to purchase new clean vehicles
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The Inflation Reduction Act presents numerous opportunities to take advantage of new and existing tax credits and new funding opportunities. Our attorneys are well equipped to assist in designing and implementing projects that can maximize production and investment tax credits and in accessing grant financing. Venable will continue to follow implementation of these programs and alert members when funding opportunities become available.