The Inflation Reduction Act (IRA) became law on August 16, 2022 after it was signed by President Biden. The Act could have the ability to drastically reshape and expand tax credit incentives for a larger range of carbon neutral energy resources and could transform the tax equity market for renewable energy. 

There are key points in the IRA text that are different from previous efforts to boost renewable energy inside the U.S. 

• More liquidity in the tax credit market - This Act allows some governmental/ non-profit organizations to receive cash for some incentives in lieu of tax credits, and it makes the transfer of tax credits much simpler and easier, unlocking financial incentives for more organizations. 

• Manufacturing and supply chain policy for clean energy technology - The Act includes broad and substantial manufacturing incentives for clean energy technologies and for electrifying transportation through Production Tax Credits (PTC) and grant programs. Furthermore, multi-layered incentives can be unlocked for products that meet certain minimum requirements for sourcing within the U.S./North America.

Below are some of the key provisions regarding clean energy: 

• $100 billion dollars for clean electricity and transmission

• $60 billion for clean energy and transportation-related manufacturing

• $26 billion for clean and electrified transportation (e.g. electric vehicle fleets, EV charging infrastructure, biodiesel, sustainable aviation fuel, other clean fuels)

• $77 billion dollars for building energy efficiency and electrification

• $26 billion dollars for the greenhouse gas reduction fund, which can be used by state, local, nonprofit, and other government entities for emissions-reducing or avoiding projects, including the rapid deployment of low- and zero-emissions technologies, such as solar

The tax component of this Act is possibly the one that will have the greatest effect on the Energy Sector. 

• The Investment Tax Credit (ITC) receives a ten year extension. In order to receive the ITC for up to 30 percent of the cost of installed equipment for ten years, construction must begin before January 1, 2025.

• For projects entering service as of January 1, 2025, the Clean Electricity Investment Tax Credit (CEITC) becomes effective and available for projects that produce or store electricity with a greenhouse gas emissions rate of zero. 

• The Production Tax Credit (PTC) is extended to wind, solar, geothermal, biomass, and hydropower when construction begins before January 1, 2025. 

• The Clean Electricity Production Tax Credit (CEPTC) may be claimed by a facility placed in service after December 31, 2024 where it produces electricity and has a greenhouse gas emissions rate of zero. 

• Both the CEITC and the CEPTC establish ‘tech neutral’ status which means, among other things, as new technologies are developed, they will be eligible for these tax credits as long as they can demonstrate the electricity generation involved will produce zero emissions. 

• Both the CEITC and the CEPTC have size requirements that must be met in order for projects 1MW or greater to receive the full value of their respective incentives.

To finance much of the plan, the Act institutes a new 15% minimum corporate levy that would apply to the companies’ book income. That provision is estimated to raise $124 billion over a decade.

Homeowners would also be able to access significant tax credits to help finance energy efficiency upgrades, distributed generation resources, rooftop solar and geothermal fuel cells. In addition, the IRA also increases the energy credit for solar facilities placed in service in connection with low-income communities. This measure would create an investment incentive for wind and solar facilities in those specific locations, as well as in Native American building projects. 

The Inflation Reduction Act of 2022 institutes a step change for emissions reduction measures with its much broader scope and program accessibility. Given pending climate risk disclosure requirements from the U.S. Securities and Exchange Commission and local emissions reductions laws in the works, the pressure on organizations to address greenhouse gas emissions is only increasing. The Inflation Reduction Act gives organizations more tools to make meaningful progress on their energy transition.