On August 16, 2022—one year ago today—President Biden signed the Inflation Reduction Act (“IRA”), the most significant clean energy and climate law in U.S. history. As we described in a series last summer, the IRA created durable tax credits and other fiscal programs to revitalize domestic manufacturing and incentivize clean energy solutions in nearly every sector of the economy. The IRA’s one year anniversary is a key opportunity to take stock of what the law has propelled and what is expected around the corner.
The IRA has already spurred significant investment in key sectors of the economy. The pace of this investment has led some forecasters to believe the IRA will now spur over $1 trillion in fiscal spending—far more than the $369 billion initially contemplated upon the IRA’s enactment. The American Clean Power Association reports that, over the last year, the private sector has announced investments of over $270 billion in domestic utility-scale clean energy—surpassing the total investment in U.S. clean power projects for the prior eight years. The Solar Energy Industries Association counts over $100 billion in solar investments, and notes that solar manufacturing facilities announced in the last year will employ more than 20,000 workers. The White House has tracked private investments of more than $70 billion in U.S. manufacturing facilities to support the electric vehicle supply chain. In spurring this investment, the law is structured to reward strong labor and environmental justice commitments.
Not only are the IRA’s benefits flowing to many sectors, but they are also distributed all across the country. Politico reports that, of the 200 project locations announced through July, more than 60 percent are in Republican-held districts, even though no Republicans in Congress voted for the law.
The IRA’s climate benefits are equally notable. The Department of Energy estimates that IRA and the Bipartisan Infrastructure Law will cut U.S. greenhouse gas emissions by up to 41 percent below 2005 levels by 2030—reductions that are critical to meeting the Paris Agreement’s target of a 50 to 52 percent reduction.
The Administration has been hard at work implementing the law. Last October, the Department of Treasury and the Internal Revenue Service (IRS) issued initial requests for comments regarding the IRA’s tax credits for clean vehicles, energy security, energy investment and production, elective payment and transfer of credits, and prevailing wage, domestic content, and energy communities requirements. Since then, Treasury and IRS have provided some key implementation details, including:
- Proposed regulations on the requirements for critical mineral and battery components for the Section 30D tax credit for clean vehicles (released in April)
- Initial guidance for the domestic content requirements for owners of wind, solar, and energy storage projects (released in May), with a proposed rule to follow
- Guidance on IRA Sections 6417 and 6418, concerning elective payment and transfer of credits (released in June)
- Final regulations providing guidance on solar and wind facilities in low-income communities (released last week)
Treasury and IRS will provide further implementation details in coming months. Guidance or a rulemaking on Section 45V, the clean hydrogen production credit, was expected by August 16, though it now appears delayed. Guidance on Section 45Z, the clean fuel production credit, is also forthcoming. And agencies will continue to implement grant programs across a range of sectors, from carbon capture to building materials.
EPA is also involved in implementation, as it oversees the $27 billion Greenhouse Gas Reduction Fund. In June, EPA first announced a $7 billion Solar for All grant competition to expand solar investment in disadvantaged communities, and in July, it followed up by announcing a $14 billion National Clean Investment Fund program and a $6 billion Clean Communities Investment Accelerator program. EPA must disburse the entire fund by September 30, 2024.
While both policy and market challenges remain—particularly to accelerate improving the power grid with additional transmission and interconnection nodes and to develop markets for transferable tax credits—the trajectory of the IRA remains transformational. Thus far, Congressional efforts to repeal IRA’s provisions have failed, and the law’s footprint in both red and blue states could make a full-scale repeal unlikely even in a future Administration.
Recognizing the IRA as a game-changer and lure for foreign green investment, the EU responded to the IRA by launching its own Green Deal Industrial Plan for the Net Zero Age. This unified U.S. and EU commitment to decarbonization will undergird calls for China and others to increase and accelerate their decarbonization commitments at COP 28.
We are tracking key developments as the Administration continues to implement this landmark law that has already inspired transformational changes in the global economy.