THIS WEEK IN SOLAR, RENEWABLE AND SUSTAINABLE NEWS.
In this week’s solar news, we look at how the Inflation Reduction Act of 2022 is going to affect many different sectors of the economy.
Today, President Biden signed the Inflation Reduction Act into law.
It has been dubbed the most important climate legislation in the history of the United States. It will significantly affect the environment and the energy sector, but also local governments, the way we drive, and our health choices. But the $764 billion law, which includes language about everything from mineral processing for batteries to prescription drug pricing for Medicare recipients, has left folks scrambling to understand how it will affect different segments of the economy.
Here’s a rundown of reactions from several sectors.
Where It’s Coming From And Where It’s Going
The New York Times has a clear and concise breakdown of the overall numbers for this breakthrough deal.
First, the increased taxes
According to the Times, $222 billion in new revenue comes from a 15% minimum corporate tax. For some large corporations, loopholes and deductions have kept their taxes well below that rate. That law requires corporations with over $1 billion income to pay the “minimum book” tax, which is the profit they report to their shareholders.
Revised drug policies combine for nearly $300 billion more. Increased IRS enforcement for high-income brackets is expected to gross another $124 billion. Revisions to the stock buyback and active loss tax make up most of the remaining $764 billion package. As written, the legislation would end up cash-positive, reducing the deficit by around $300 billion over its lifetime.
Second, the spending
Topline spending is a little more spread out. A few highlights are:
- $62.7 billion toward clean electricity credits
- $64.1 billion for Affordable Care Act subsidies
- $51.1 billion for wind and solar subsidies
- $37.4 billion for clean manufacturing
There are other smaller buckets including agricultural conservation, nuclear energy credits, and a “green bank.” All in all, the IRA has been described as an “all of the above” approach to climate change.
Storage Is Set To Play A Big Role
Energy Storage News has a great interview with Morten Lund, a lawyer with Stoel Rives specializing in energy policy. He points out that many of the developers his firm works with have signed speculative lease options for land adjacent to electric substations. He expects a cascade of commitments once the law is formalized.
“We’re still struggling to get the storage industry really off the ground in the United States. But this bill would almost certainly do it,” Lunds says.
Although incentives can raise the reimbursement rate as high as 60%, Lund points out that the language around some programs is so complex that it may take years to understand the rules. “Doubtlessly, many projects will just proceed ahead. A 30% ITC is very, very nice. But many projects will be stuck in a holding pattern until we get clarity on what those rules are,” he told Energy Storage News.
The Timeline Makes A Big Difference
Reuters predicts a gold rush in the renewables field, emphasizing the importance of the act’s length. With many infrastructure and manufacturing projects requiring multi-year plans, the two-to-three-year horizon for most past climate legislation has hampered commitment and growth. Rapid growth is likely with at least a decade of climate policy stability. “This is going to be a golden period of 10 years, at least,” said Keith Martin, an attorney with Norton Rose Fulbright who works on financing renewable energy projects. “That is a long horizon for people to plan and really get this transition to clean energy into high gear.”
Coupled with this summer’s earlier directives, IRA 2022 has positioned solar panel manufacturing in the U.S. to skyrocket in the coming years.
Bringing It All Back Home
It’s often been said that all politics are local, and the Inflation Reduction Act is a political bill. And even as it looks to spend over $400 billion, it is also local. Smart Cities Dive looks into the many grant and subsidy programs available for municipalities.
Three billion dollars are set aside to address the disproportionate effect of climate change on disadvantaged communities. Another $3 billion is included for transportation, equity, and safety in underserved neighborhoods. They also highlight another $9 billion for homeowners to update their appliances and systems to higher efficiency, electrified units.
Who doesn’t love electric cars?
Car and Driver looks at how IRA 2022 can boost EV adoption. On the upside for the EV market, the law will eliminate the 200,000 car per manufacturer limit that has disqualified Toyota, GM, and Tesla buyers from cashing in on incentives while extending the existing $7500 credit until 2033.
Although most of the act offers incentives, it does impose some rules for manufacturers to participate. It adds requirements for where vehicles are manufactured and materials are sourced. With its emphasis on long-term energy independence, the law will require a percentage of certain minerals in each vehicle to be extracted and refined in the U.S. or one of its strategic partners. That percentage will escalate until it caps out at 80% in 2026. Sourcing and refining of lithium in the U.S. are expected to see a lot of investment over the next decade. Another improvement to the program is that the credit can be claimed at purchase time, which can immediately be applied to any financed balance.
The used EV market is also getting in on the action. EVs older than two years will earn their buyers a 30% tax credit, up to $4,000.
Both new and used credits have income limits for their buyers. Buyers of new EVs can earn $150,000 filing single, and $300,000 filing married, and those numbers halve for used vehicles.
With a decent-sized good chunk of the recently passed infrastructure bill dedicated to EV chargers, the American car fleet will look much different in ten years.
And For The Tree-Huggers In All Of Us…
The IRA 2022 legislation also includes $1.5 billion for Forestry Service’s Urban and Community Tree Program, according to E & E News. The initiative to plant and maintain more trees throughout America’s urban landscape is not a purely aesthetic one. Urban areas have nearly 35 percent tree cover, and those urban forests reduce heating and cooling costs by about 7 percent. Of course, trees capture carbon, reduce runoff, and provide street-level shade. All this is according to North Carolina State University.
For an agency that has managed an average annual budget of $30 million, IRA 2022 will be transformative.
The Weekly Sun Song
We’re feeling kind of joyful with the passage of this landmark legislation. There’s a lot of joyful music in the world, but as the kids say, this one is a banger.