Implications of the U.S. Inflation Reduction Act

The Inflation Reduction Act passed in 2022, marks the single largest commitment of public dollars to address climate change to date. The IRA provides $369 billion in meaningful incentives for clean energy technologies such as wind, solar, storage, hydrogen, nuclear, carbon capture, and biofuels that will drive energy sector transformation and emissions reduction efforts. The act is set to provide unprecedented long-term viability for wind and solar PV projects through important provisions in the form of “uncapped” tax credits that include incentives for electric vehicles and zero-carbon electricity. Instead of a structure built on carbon trading and pricing, the IRA looks to leverage federal funding and tax policy to drive private sector clean energy investment. 

Private investment in renewables reached record highs of $10 billion in 2022, and this is expected to continue over the next 10 years as investors are attracted to the predictable returns on renewables technology backed by the IRA’s 10-year tax credits. Deloitte’s Renewable Energy Outlook for 2023 report, forecasts that the IRA will lead to up to 550 gigawatts of additional clean energy by the end of the 2020s.

Major Policies of the IRA: 

• Extension and expansion of the Investment Tax Credit (ITC)
• Extension and revitalization of the Production Tax Credit (PTC)
• A two-tiered structure, which has minimum requirements to achieve the full credit value, is now implemented for both the ITC and PTC. M
• Introduction of incentives for domestic production and manufacturing of renewable energy components. 
• Expansion of the existing $7,500 credit for electric vehicles (EVs) beyond the existing 200,000 vehicle cap per manufacturer

Importance

Credit Suisse estimates that over $800b in potential funding could be generated from this piece of legislation, going far beyond the initial $369b as there is no budget or limit written into the law dictating how much the government can spend. Cited numbers on spending totals are based on estimates of how much those tax credits will get used. Money flowing into the green-energy industry will enhance the U.S. competitive advantage in all forms of energy production, and by 2029, U.S. solar and wind could be the cheapest in the world. Additionally, IRA funds will continue to flow despite possible recessions, making investments in clean energy and the environment highly attractive for their recession-immune and risk-free business opportunities. 

We have already seen renewable costs drop significantly in the past decade and frequently outcompete fossil fuel generation when it comes to the levelized cost of producing that energy. Even without carbon taxes and penalties, fossil fuels are getting more costly as evidenced by geopolitical conflicts like the Russia-Ukraine war exposing the fragility of carbon & the risk of stranded assets, and investment opportunities in renewables and energy efficiency becoming more appealing in comparison. Now PV manufacturing could be brought to cost parity with the lowest-cost manufacturers of all energy commodities due to tax credit incentives. 

The University of Oxford in a new study shows that transitioning to 100% renewables would result in $12 trillion in energy savings by 2050 versus our current energy system. Additionally, in spite of 2022 seeing large layoffs and downturns in traditional tech firms, climate tech is still seeing a boom in new hires, capital flow, and tech advancements reaching 2.5x pre-pandemic investment levels. 

Taking Advantage of the IRA

This landmark legislation gives corporate leaders new tools for accelerating their sustainability initiatives and reaching their emissions targets. There has never been a better time for firms to invest in on-site solar and energy storage assets to help offset and reduce their greenhouse gas emissions, elevate their brands, and improve their bottom line on energy costs. Renewable procurement and installation may be part of your organization’s risk mitigation strategy- particularly when it comes to preparing for global energy security risks, local mandates capping allowable emissions, and sustainability reporting legislation on the horizon bringing further scrutiny to GHG emissions accounting and reported numbers. However, with the IRA set to dramatically level the costs of renewables at all scopes (utility providers, commercial endeavors, and residential), companies should prepare to move from risk mitigation to the mindset of opportunity capture. The economic growth of the energy transition is impossible to ignore and all industries must set themselves up for success now by capitalizing on cheap, clean, and efficient energy technologies to diversify their portfolio. 

About WatchWire

WatchWire is a sustainability and energy management software-as-a-service (EMSaaS) provider. Across the globe, WatchWire helps commercial and corporate real estate portfolios, Fortune 500 industrial/manufacturing and big-box retail, government, healthcare, and educational facilities reduce emissions, meet their sustainability and net zero goals, and reduce energy expenses while simplifying sustainability and carbon reporting.

Additionally, through advanced, automated data auditing, the WatchWire platform can catch billing errors, saving users money and helping them actualize a superior ROI.