top of page

How the Inflation Reduction Act Changes the Game for Economic Developers



Paired with the Creating Helpful Incentives to Produce Semiconductors for America (CHIPS) and the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA) represents a historic investment in developing cleantech industry clusters around the United States. A recent RMI webinar shared concrete steps leaders can take to make the most of this momentum, especially around regional economic development and the accelerating clean energy transition. Below are some key takeaways.


Background

The IRA, CHIPS, Science Act, and IIJA make up a $500 billion federal investment in clean energy – three times current funding levels. This increased funding, coupled with lower costs for manufacturing and deploying clean energy technologies, has created a market for adoption of these technologies on a large scale. Wind and solar energy are already at a cost-competitive point, while batteries essential to clean energy production are becoming increasingly less expensive to produce. These changes in the renewable energy sector can be visualized by the fact that wind and solar energy sources provided 67% of new domestic electrical generating capacity in the first half of 2022.



Battery Manufacturing

Battery manufacturing is a particular focus of this new federal funding. Because wind and solar require energy storage to function efficiently, batteries are critical to the clean energy sector. By increasing the availability of energy storage in the form of batteries, wind and solar can become more cost-effective at varying scales.


Additionally, specific IRA investments in the manufacturing industry are intended to result in onshoring battery production and further incentivize solar and wind energy production. The tax credits will cover mining battery minerals, refining minerals, assembling battery cells, and manufacturing modules like battery packs. While the tax credit remains the same dollar amount each year, as the cost of manufacturing the battery component decreases, the percentage of the price of the battery component that these tax credits cover will increase.


In addition, federal tax credits for electric vehicles (EVs) will further increase the need for battery manufacturing. This is projected to incentivize the domestic production of battery components, especially as the percentage of each element needing to be produced domestically or sourced from free trade partners increases over the following decades. EV battery manufacturing plant announcements have made headlines: Hyundai’s new battery plant is the largest economic development project in Georgia history and expected to create 8,100 jobs as a result of the $5.5 billion investment in the project,, and Panasonic’s new battery plant is expected to create up to 4,000 new jobs and result in an investment of up to $4 billion – the largest economic development project in Kansas history.


Many IRA tax incentives for battery production also contain domestic production or domestic-procurement requirements. Currently, the United States only processes a few key minerals needed for battery production and does not produce large quantities of battery components. Thus, these tax incentives are designed to increase the domestic production of battery components essential to increased solar and wind energy production and adaptation.


Despite these promising developments, the clean energy sector still has barriers to overcome to encourage adoption at scale. For instance, electricity transmission presents a significant constraint for realizing the benefits of clean energy investment within the IRA. Permitting, citing, and coordinating community involvement in electricity transmission have challenged larger energy investments. Nevertheless, there have been promising case studies that show state transmission authorities or utilities joining to form transmission operators eases the way for energy decarbonization at the local level.


These changes in the renewable energy sector can be visualized by the fact that wind and solar energy sources provided 67% of new domestic electrical generating capacity in the first half of 2022.



Green Jobs

Green jobs like manufacturing, construction, and utilities will see an increasing number of jobs as IRA funding starts, and there are an estimated 9 million energy jobs to be created over the next decade. Beginning in January 2023, production tax credits for manufacturing solar, wind, and batteries become available, and there could be an uptick in green jobs as early as spring 2023, with the highest estimates for job creation in the areas of electricity programs and manufacturing programs at 573,000 and 106,000 jobs annually, respectively.. Additionally, $9 billion in tax credits, rebates, and other investments would provide workforce training in building more energy-efficient homes.



Considerations for Equitable Development

In addition to creating jobs, the IRA has provisions for prevailing wages, workforce development, and apprenticeships. The provisions will help create a more diverse workforce and allow increased access to good-paying jobs. With a prevailing wage requirement, firms receiving credits must not allow competition to drive down wages when competing for contracts. As for apprenticeships, employers must provide a set number of hours on projects for registered apprentices, specifically for the construction of qualified clean energy facilities, property, projects, or equipment. By creating these policies for prevailing wages and workforce development, more people will be able to enter clean energy jobs and receive living wages.


The IRA also has provisions to address environmental justice issues. Communities most affected by energy insecurity tend to be predominantly Native American, Black, and/or low-income. These communities have historically been over-exposed to toxic pollutants, lived in homes with poor insulation, and relied primarily on fossil fuels for heating. To address these issues, the IRA provides tax credits, rebates, and other investments for building and upgrading existing buildings to be energy efficient. The IRA provides payments that families can use immediately, eliminating the need for them to request tax credits at the end of the year and shifting the burden of upfront costs for low-income families who would not otherwise be able to afford the upgrade to energy-efficient technology. Increased funding for households earning less than 150% of the area median income (AMI), make upgrades even more accessible. The IRA also provides community benefits like pollution monitoring and reduction, monitoring of environmental disparities, clean energy investments in marginalized communities, and engagement in environmental and community development improvements, all of which have the potential to promote equitable development through climate-conscious initiatives.


Powerful new Tools for Regional Economic Developers

The comprehensive package of federal investment, tax credits, and onshoring incentives in the IRA give regional economic developers powerful new tools for transitioning to a clean energy economy.


 

Do you have questions about utilizing increased federal funding to transition your region to a clean energy economy? The team at Fourth Economy is ready to help you optimize powerful new tools for regional economic development and prioritize equitable economic development and environmental justice considerations throughout the process. Contact us at [email protected]. In the meantime, take a look at our projects, here.

Comments


bottom of page