What $369 billion buys you. 8 things to know about the U.S. Inflation Reduction Act.
Updated: Aug 22
With a reach benefiting manufacturing, energy, transport, and education, in addition to start-ups and consumers, we take a look at the latest climate change provisions marking a year of massive sustainability investment in the US.
Last week President Biden signed into law the Inflation Reduction Act, a sweeping investment package which includes nearly $370 billion in tax incentives and spending to advance clean energy, reduce emissions, and combat climate change. This package completes a trifecta of commitments made in the last 12 months to bolster US climate initiatives, including:
$280 billion for the CHIPS and Science Act (signed 9 August 2022), which authorized substantial investments into domestic semiconductor manufacturing (thus minimizing transport carbons) along with strategic energy storage and carbon sequestration research initiatives, and
$1.2 trillion Infrastructure Investment and Jobs Act (signed 15 November 2021), which allocated over $150 billion in funding for a myriad of climate initiatives such as: decarbonizing energy systems, updating water infrastructure systems, repurposing old brownfield sites, abandoned mines and old oil wells, investment for electric car charging stations and electric school buses.
Add to this the sustainable procurement initiatives (materials and decarbonization resources) used in support of the high-profile $174 billion investment to upgrade roads, bridges, airports and public transport systems nationally. (US Congress H R 3684)
Key environmental provisions included in the package:
In addition to a cleaner planet, manufacturing industries, STEM innovators, and small businesses owners will all benefit.
1. GHG Emissions and a New Federal Tax on Pollution
Focusing hard on the target to be Net Zero by 2040, and recognizing the gargantuan expense of decarbonizing petrol and implementing clean energy, the act's Methane Emissions Reduction Program allocates up to $1.55 billion in grants, rebates, and loans to help reduce emissions from petroleum and natural gas systems while simultaneously introducing the first federal emissions tax. The tax applies only to specific facilities that today are obligated to report Scope 1 GHG emissions such as:
offshore and onshore production facilities
underground and liquefied storage facilities
The new tax starts from 2024 at $900 per ton of methane and increases each year thereafter.
2. Clean Energy Programs
Manufacturing will receive a boost with up to $10 billion in tax credits to go toward e-vehicles, wind turbines, and solar power plus another $30 billion for accelerating the domestic manufacturing of solar panels, wind turbines, batteries, and minerals processing plants. A further $22 billion in loans are allocated for clean energy vehicle manufacturing and upgrades to existing car manufacturing sites to enable production of clean energy vehicles.
The act additionally provides $35 billion across the agriculture and energy industries to reduce air pollution in processing and production facilities along with incentives for federal purchase of American-made green technologies and zero-emission vehicles for the U.S. postal service.
Photo credit: U.S. Postal Van: Evannex
3. Research & Development
Attracting scientists, inventors and start-ups, this part of the act commits $27 billion to accelerate and deploy clean energy technologies with a further $2 billion granted for innovative energy research in government labs.
4. Small-Business Tax Credits
Separate to the climate change portion of the act, but thematic with the R&D support throughout, start-ups and small businesses win-out for innovation here, too.
Current law permits start-ups and small businesses to utilize a tax credit against qualified research expenses (up to $250,000 per year) applied towards their social security payroll tax liability. To qualify, the small business must have less than $5 million of gross receipts and be less than 5 years old. Details of the existing credit are here.
Under this new act, small businesses are extended an additional credit of up to $250,000 to be applied against the Medicare payroll tax for tax years beginning after December 31, 2022.
5. Protecting Natural Resources
Adding to the commitments made under the 2021 Infrastructure Investment and Jobs Act, this new law provides $7.6 billion in grants to:
protect forests & forest conservation
promote urban tree planting and sustainability, and
restore and conserve coastal habitats
6. State-Level Funding for Clean Energy
Considered one of the most impactful parts of the act, $30 billion has been set aside specifically in grant and loan programs for state utilities to fast-track transitions to clean energy.
This segment of the act also includes $5 billion in competitive grants to states, tribes, municipalities, and non-profits to:
invest in air monitoring technologies
mitigate pollution risks from heater/wood burner emissions
develop GHG emission reduction programs in disadvantaged communities
A further impressive $37.5 million of this segment goes to grants to monitor and reduce emissions at schools in low-income and disadvantaged communities plus $12.5 million to provide green technologies to help schools address environmental issues.
7. Environmental Justice Programs
Activists and lawyers alike have praised the new law for it's investment reach to environmental justice matters which among other funding, notably provides for:
$10.8 billion for communities facing environmental justice issues
$33 million to the Council on Environmental Quality (CEQ) to collect data and track the disproportionate impact on environmental justice communities plus a further $3 million in grants to deploy, integrate and operate air quality sensors in low-income and disadvantaged communities.
8. Consumer Tax Credits for e-Vehicles
Advancing the e-vehicle market, the act provides a $7,500 tax credit for individuals to buy a new e-vehicle or $4,000 to buy a used one.
This benefit is extended to lower and middle-income buyers.
All said, these are big numbers.
It's fair to say the US are taking their Net Zero promises seriously and are working hard to make up for lost time on their commitment to the Paris Climate Treaty after rejoining the Climate Accord in early 2021.
Kelli Wilks is Management Consultant at Spring CPO where she advises clients on procurement transformation, negotiation strategies, supplier performance and ESG priorities.