Congress passed and the president signed a monumental climate bill, ushering us into a new era of adding speed and scale to how we will decarbonize our economy.
The Inflation Reduction Act is a game-changing opportunity for transforming our energy system to one that is equitable, resilient, and carbon-free. Whether we succeed while meeting the urgency required depends on how we engage people and communities across the country on implementation.
Marking the signing of the law, GPI President and CEO Rolf Nordstrom stated:
“GPI applauds the Inflation Reduction Act for reasserting American leadership on the technologies that will shape this century and adding crucial speed and scale to the market momentum we already see toward US and global decarbonization. This includes tax incentives and other provisions accelerating clean energy component and electric heat pump manufacturing, electric vehicle adoption and charging station deployment, consumer energy efficiency, power and industrial sector emission reductions, clean fuels development and better utilizing farming and forestry lands. It also makes a substantial investment in environmental justice and equity, including clean energy expansion in disadvantaged communities. We look forward to getting to work right away with our stakeholders, tribal nations, states, and community partners and leaders on thoughtful implementation.”
Momentum to achieve an equitable, net-zero carbon economy
The Inflation Reduction Act will enable GPI to pursue all our goals for achieving an equitable and net-zero carbon economy. The law will help decarbonize and make five major sectors of the economy more resilient and future-proof: electricity, transportation, buildings, industry, and agriculture/forestry.
It will transform our homes and communities by reducing harmful emissions, saving consumers money, increasing our energy independence, making the price of energy more predictable, and increasing our resilience in the face of a changing climate. From helping people make their homes more efficient to enabling a switch to an electric car that reduces vehicle ownership costs, the new law will drive investments that improve people’s lives.
Some of the investments will likely shape multiple sectors as the law gets implemented:
- $27 billion to accelerate the deployment of clean energy technologies, especially in disadvantaged communities
- $30 billion in production tax credits for US manufacturing of solar panels, wind turbines, batteries, and critical minerals processing
- $10 billion investment tax credit to build facilities manufacturing electric vehicles, wind turbines, solar panels, and other clean technologies
- $2 billion for national laboratories to accelerate breakthrough energy research
- $13 billion to catalyze a new hydrogen energy sector, using clean wind, solar, carbon capture and storage, and existing nuclear to decarbonize agriculture, transportation, industry, and building energy use. Hydrogen, like electricity, must be produced using some primary form of energy.
Many states have taken the initiative to develop clean energy plans or legislation, and many local governments have done the same. The lnflation Reduction Act will help those states and communities to implement their plans through direct support of emissions reduction programs, as well as helping these and other states and communities to develop plans for additional economy-wide reductions.
Inflation Reduction Act to deliver game-changing benefits across US
While GPI’s experts continue to dig into the details and potential impact of the massive new federal investment, they have started to break down some of the major provisions by sector:
POWER
Domestic solar and wind: The single largest incentive in the bill is $128 billion for the 10-year extension of the production and investment tax credits to build solar, wind, and supporting battery storage energy projects (from rooftop solar to utility-scale renewables). The new form of the tax credits is designed to accelerate US manufacturing of solar panels and wind turbines and ensure economic opportunity for US workers. The incentives will accelerate deployment of renewable energy to meet near-term decarbonization goals in the power sector and those of businesses, cities, and states.
Nuclear: A production tax credit for existing nuclear power plants, complementing credits that have been initiated in several states for their nuclear facilities. In many states, nuclear power is the largest source of greenhouse gas emission-free power and can be a clean energy source that serves as a bridge until the build-out of renewable and other clean energy is more advanced.
Stationary energy storage: Creates separate production tax credits for battery deployment (noted above) and encourages domestic battery production and processing of critical minerals in the battery supply chain, including recycling.
Transmission: Assistance in the siting of interstate transmission lines, which will be essential in the build-out of the renewable resources needed to help drive down emissions.
TRANSPORTATION/FUELS
Electric vehicle charging. Complementing the $7.5 billion for a nationwide electric vehicle charging network funded through a bipartisan infrastructure plan signed by President Biden last year, the Inflation Reduction Act extends the 30C alternative fuel refueling property credit, allowing more businesses and individuals to install electric vehicle charging stations. It also raises the cap to support higher capacity fast charging investments.
Consumer electric vehicles. The act includes a wealth of incentives for electric vehicle (EV) consumers and manufacturers. It expands the $7,500 tax credit for purchasing a new EV. It lifts a 200,000-unit cap that had limited customers purchasing vehicles made by Tesla, GM, and other automakers from receiving that tax credit. It also includes a new $4,000 used electric vehicle purchasing credit, which will make financial incentives for EVs more accessible for low- and middle-income households. It is unclear how the domestic content requirements for critical minerals and batteries in new EVs will impact the implementation of the tax credits.
Commercial electric vehicles. Roughly $3.5 billion—up to $40,000 per vehicle for larger vehicles—for tax credits for qualified commercial EVs.
Zero-emission heavy-duty vehicles. States, tribes, municipalities, and school transportation associations will receive rebates to cover the incremental costs of replacing heavy-duty vehicles like school and transit buses and garbage trucks with zero-emission vehicles.
Federal electric vehicles. More than $9 billion is included for federal government procurement of US-made clean technologies, including $3 billion for the US Postal Service to purchase zero-emission vehicles.
Clean fuel deployment. Commercial deployment of low-carbon fuels is supported through tax credits and grants, including for low-carbon biofuels, aviation fuels, and hydrogen. A performance-based sustainable aviation fuel tax credit starts at $1.25 per gallon, with more credit awarded to fuel producers with lower greenhouse gas emissions. The act also provides grants for biofuel infrastructure investments.
Clean vehicle manufacturing. Includes $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles; up to $20 billion in loans to build new clean vehicle manufacturing facilities across the country; and funding for facilities that produce EV batteries.
BUILDINGS
Green financing. Includes $27 billion for federal and state green banks, which will make new financing for energy efficiency and clean energy building improvements available to consumers.
Building electrification and efficiency. Consumer tax credits for heat pumps, rooftop solar, electric HVAC, and water heaters over the next decade; $9 billion focused on income-qualified consumer home energy rebate programs to electrify home appliances and for energy efficient retrofits; and a $1 billion grant program to make affordable housing more energy efficient, which reduces lifetime operating costs. The law also provides funds for states to develop, adopt, and implement green building codes, which will further drive down emissions in the building sector.
INDUSTRY
Carbon capture and direct air capture. Includes significant enhancements to the 45Q tax credit, which provides an incentive for technologies that capture and utilize or permanently store carbon emissions from industrial and power facilities, as well as direct air capture technologies.
These enhancements include a multi-year extension of the commence construction window. This extension establishes a crucially needed investment horizon to give carbon management projects the necessary time to reach the critical mass to meet midcentury climate goals.
Additionally, a direct pay mechanism is available to project developers for the first five years after the carbon capture equipment is placed in service. Nonprofit organizations and co-ops can receive direct pay for all 12 years of the credit.
The law also increases 45Q credit values for any direct capture equipment placed in service after 2022 and significantly lowers the per ton capture thresholds required to claim the tax credits, significantly expanding the number of industry and power facilities that could claim the tax credit.
Paired with the investments in carbon management made by the bipartisan infrastructure law, it is estimated that this portfolio of complementary policies included in the package will deliver an estimated 13-fold scale-up of domestic carbon management capacity and 210-250 million metric tons in annual emissions reductions by 2035.
The Carbon Capture Coalition, a diverse group of stakeholders convened by GPI, has laid out in more detail what the bill would do to propel carbon management through 45Q.
Heavy industries. The Industrial Innovation Initiative (I3), a diverse group convened by GPI and the World Resources Institute, has an overview of the new law’s potential impact on emissions from heavy industries.
Manufacturing. The Inflation Reduction Act also offers grants and tax credits to reduce emissions from industrial manufacturing processes, including almost $6 billion for a new Advanced Industrial Facilities Deployment Program to reduce emissions from the largest industrial emitters like chemical, steel, and cement plants. There is also a program aimed at reducing methane emissions resulting from leaks from the production and distribution of natural gas.
AGRICULTURE/FORESTRY
Methane, carbon dioxide, and other pollution reduction on farms. Includes $20 billion for federal conservation program investments that assist agricultural producers in directly improving soil carbon and reducing nitrogen losses or reducing, capturing, avoiding, or sequestering carbon dioxide, methane, or nitrous oxide emissions associated with ag production. There is also $300 million to improve the quantification of carbon dioxide sequestration and emissions of carbon dioxide, methane, and nitrous oxide.
Forests. Includes $5 billion in grants to support fire-resilient forests, forest conservation, and urban tree planting; and $1.8 billion for hazardous fuels reduction projects and other initiatives that can enhance natural carbon removal from forests.
FRONTLINE COMMUNITIES
In addition to the above sectoral examples, there are important investments in creating opportunity for those left out of (and often disproportionately harmed by) previous waves of energy innovation. While these should make up an even larger share of the bill, they are important nonetheless.
Environmental and Climate Justice Block Grants. Includes $2.8 million to the US Environmental Protection Agency for grants and $200 million for technical assistance to address a wide range of topics, including air pollution monitoring, extreme heat risk mitigation, resiliency and adaptation, indoor pollution reduction, and community engagement. The 3-year grants are open to tribes, local governments, and universities in partnership with community-based non-governmental organizations (NGOs), in addition to community-based NGOs.
Neighborhood Access and Equity Grants. Includes $3 billion to the Federal Housing Administration for grants to improve transportation access and mitigate negative impacts in underserved communities. Grants can go toward reducing air pollution and greenhouse gases, mitigating urban heat islands, and managing stormwater, urban forestry, and more. The grants are available to tribal, state, and local governments and US territories. The share covered by the federal government may be up to 100 percent in an underserved or disadvantaged community.
Air quality. In addition, the new law provides for measures to help detect and remove pollution in low-income and other disadvantaged communities through funds for increased air monitoring, air quality sensors, and pollution reduction in and near schools.
While this new law is not everything that will need to be done to achieve an equitable net-zero carbon economy, it can help catalyze an “all of society” approach to transforming how we power modern life.
Media contact:
Darren Goode
[email protected]
(202) 550-6619
