The Department of the Treasury outlined how the Inflation Reduction Act’s tax incentives will support the building of an equitable clean energy economy.
In a fact sheet issued October 26, 2022, the Treasury Department highlighted four key areas the tax policy built on the Inflation Reduction Act will drive clean energy:
- the IRA will provide targeted incentives to drive investment and create opportunity in communities across the country;
- the IRA will encourage clean energy project developers to meet strong labor standards, so that the benefits of building a clean energy economy are felt by workers making it happen;
- the IRA will lower the costs of energy-saving property improvements and rooftop solar installation, saving working families and small businesses money on their monthly utility bills and empowering families and businesses to shield themselves from volatile fossil energy prices; and
- The IRA allows state, local, and Tribal governments, as well as non-profit organizations and other tax-exempt entities, such as rural electric co-operatives, to receive certain tax credits as payments, expanding the range of actors that will have a direct incentive to invest in their communities.
According to the fact sheet, the law will “provide bonuses for investing in low-income communities, as well as in communities that have historically depended on the energy sector for jobs and economic activity.”
To help incentivize this, the IRA modifies and extends the clean energy Investment Tax Credit “to provide a 30 percent credit for qualifying investments in wind, solar, energy storage, and other renewable energy projects that meet prevailing wage standards and employ a sufficient portion of qualified apprentices from registered apprenticeship programs.”
It also modifies and extends the Renewable Energy Production Tax Credit “to provide a credit of 2.5 cents per kilowatt-hour in 2021 dollars (adjusted for inflation annually) of electricity generated from qualified renewable energy sources.”
Other tax credits extended and/or expanded include the Energy Efficient Home Improvement Credit, the Residential Clean Energy Credit, and the Energy Efficient Commercial Buildings Deduction.
These incentives were discussed as part of an October 26, 2022, virtual roundtable hosted by Treasury Secretary Janet Yellen, during which she “emphasized that the Inflation Reduction Act provides long-term clarity and certainty for the clean energy sector, and underscored Treasury’s commitment to work expeditiously to provide guidance so that investments can move forward and our climate and economy can realize the benefits of the law as quickly as possible.”