Five Things to Know About the Inflation Reduction Act

Updated August 9, 2022 | Annabelle Swift, Associate, CEBN

After nearly two years of negotiations, on July 27 Senators Schumer and Manchin announced a deal on climate and clean energy provisions within a reconciliation package, called the Inflation Reduction Act. The U.S. Senate approved the package on August 7 by a 51-50 vote (with Vice President Kamala Harris serving as the tiebreaker), and the House of Representatives is expected to vote on the legislation August 12. CEBN has summarized five things to know about the bill relating to energy and climate, and how you can engage. 

1. The IRA was crafted to alleviate inflationary pressures by cutting costs for consumers and reducing the deficit.

The Inflation Reduction Act of 2022 would bring in more revenue than it spends and reduce the federal deficit by over $300 billion. The IRA raises $739 billion in revenue through a 15% minimum corporate tax rate on large firms, prescription drug pricing reform, and enhanced IRS enforcement.  

In addition to provisions that lower healthcare costs, the bill provides $369 billion in spending for clean energy, which lower costs rather than contributing to inflation. Analysis from the Rhodium Group shows that the IRA would lower residential electricity bills, home heating costs, and the price of gas and diesel, which would reduce household energy costs by an estimated $730 to $1,135 per year. Other independent analysis concludes that “enacting the Inflation Reduction Act would lower annual U.S. energy expenditures by at least 4% in 2030, a savings of nearly $50 billion per year for households, businesses and industry.” 

2. If enacted, it would be the most ambitious climate action taken by the United States.

Early analyses suggest IRA would enable the U.S. to cut GHGs relative to 2005 levels by roughly 40% (estimates include 31-44%, 37-41%, and 42%). Provisions support decarbonization in every sector of the U.S. economy. The legislation represents a truly unprecedented investment from the U.S. Government into clean energy. For reference, the American Recovery and Reinvestment Act of 2009 provided a record $90 billion for clean energy; IRA will inject four times that amount into cleantech deployment, including $60 billion directly intended for environmental justice.

3. It would expand and extend clean energy tax credits, then create a tech-neutral credit system beginning in 2025.

The $369 billion in the IRA for energy security and addressing climate change includes the following major tax credit wins: extension of the Investment and Production Tax Credits (ITC/PTC) through the end of 2024; solar eligibility for the PTC; extension of the EV tax credit and removal of the manufacturer cap; ITC eligibility for energy storage; and extension and expansion of the carbon capture and sequestration credit. The IRA embeds incentives within some of these credits that encourage prevailing wages and apprenticeships (i.e., “base” and “bonus” credits according to whether or not the project meets these standards) and additional bonuses for domestic sourcing and manufacturing of cleantech. The EV credit includes income thresholds for higher-earning consumers as well as caps on the MSRP of eligible vehicles.  

The bill also provides direct pay (the ability to claim the value of a credit as an upfront payment rather than retroactive tax incentive) to non tax-paying entities like government agencies and nonprofits, and additional eligibility for for-profits for certain technologies (hydrogen, CCS, and advanced manufacturing). Tax credits are now eligible for transferabilityto unrelated third-parties, which open more options for tax equity financing to be used to construct projects.   

Access CEBN’s Latest Policy Memo for a Detailed Summary of IRA


4. It isn’t JUST tax credits.

As previously mentioned, IRA includes $60 billion in funding for environmental justice programs. Some of this spending will come through $27 billion in the creation of a new, national green bank. In addition, funding in IRA for the federal procurement of electric vehicles and pollution reduction provisions would have a visible effect on reducing levels of pollution exposure that disproportionately impact lower-income communities. 

The IRA creates a new fee on methane emissions that rises to $1,500/ton by 2026 and provides $750 million for the oil and gas sector to monitor and reduce emissions. The bill also includes grants, loan authority, direct federal procurement, and other support for cleantech. 

While the process for advancing the bill was carried out through a partisan process—using a complex vehicle known as “budget reconciliation”) with solely Democratic support—many of the provisions included were from bipartisan bills.

5. The IRA is about to be signed into law. 

The Senate passed the package on August 7, 2022, and the House of Representatives voted on August 12 to send the bill President’s desk for signature. CEBN has made it easy for small businesses to engage and make your voice heard. We invite you to: