What Energy and Climate Provisions are in the Inflation Reduction Act of 2022?

Democrats in the United States Senate have agreed on the provisions of the Inflation Reduction Act of 2022 (“The Act”). The Act provides $369 billion to combat climate change. It includes consumer tax credits and rebates to encourage people to switch to clean energy technologies, tax incentives to encourage the domestic manufacturing of clean energy technologies like wind and solar, tax incentives for renewable energy sources and energy storage, billions of dollars for environmental justice projects, and additional billions for investments in climate-smart agricultural technologies. Millions of consumers and companies are expected to take advantage of the tax credits and the clean energy technology incentives. That will help create new job opportunities and reduce energy costs. The Act will also help the U.S. reduce its greenhouse gas emissions by approximately 40% by 2030, which will bring the U.S. close to President Biden’s goal of reducing our emissions by 50% by the end of this decade.

Consumer Tax Credits and Rebates 

The Act includes incredibly important consumer tax benefits and rebates that will help speed the U.S. transition to clean energy, including the following:

• Provides 10 years of tax credits to encourage consumers to install many types of clean energy residential technologies.     
• Provides $9 billion in rebates to encourage low-income Americans to switch to electric appliances and adopt more energy-efficient practices.      
• Provides a $7,500 tax credit to encourage consumers to buy a new electric vehicle (EV)

Domestic Manufacturing of Clean Energy Technologies

The Act provides more than $60 billion for the domestic manufacturing of clean energy technologies, including EVs and solar panels.  Of that amount, $500 million is allocated for heat pump manufacturing and mineral processing. The ultimate goal is to use clean energy technologies to create completely electric homes that can be powered by renewable resources instead of gas furnaces or stoves.

Renewable Energy Sources and Storage 

When fully implemented, the Act will significantly reduce the emissions caused by power generation, transportation, industrial manufacturing, buildings, and agriculture. To hasten the switch to clean power, the Act includes tax incentives for renewable energy sources and energy storage, as well as more than $30 billion in specialized grant and loan programs for states and electric companies. It also includes various grants and tax breaks to reduce emissions from industrial production processes, including approximately $6 billion for a brand-new Advanced Industrial Facilities Deployment Program (AIFDP). The AIFDP will reduce emissions from the largest industrial emitters, including chemical, steel, and cement factories and plants.

Environmental Justice

The Act includes nearly $60 billion for environmental justice investments in underserved communities. In order to address the disproportionate environmental and public health impacts caused by pollution and climate change, the Environmental and Climate Justice Block Grants, budgeted at $3 billion, will invest in community-led projects in underserved communities as well as community capacity development centers.

Climate-Smart Agricultural Technologies

The Act makes unprecedented investments in climate-smart agricultural technologies, guaranteeing that rural areas are at the forefront of climate solutions. By making investments in climate-smart agriculture, forest restoration, and land protection, the Act confirms the crucial role that agricultural producers and forest landowners play in U.S. efforts to combat climate change and global warming. The Act also makes large investments to help develop sustainable energy in rural areas. More than $20 billion will be used to finance climate-smart agricultural methods, along with another $5 billion in funding to promote the conservation of forests, the planting of urban trees, and healthy, fire-resistant, woodlands. The Act will create a cleaner future for millions of Americans. But how much and how fast that happens depends on how quickly people are willing to adapt to and adopt its changes, especially its emphasis on clean energy technologies. It is extremely difficult to convince people to switch from technologies that use fossil fuels to those that use clean energy. The tax credits and incentives in the Act will help convince people to make that switch. The U.S. has the largest economy in the world, the second-largest carbon footprint, and the most powerful military. Global efforts to combat climate change have so far been limited by our inability to take significant action. This law might prove to be a “historic turning point” in that regard, in the words of former U.S. Vice President Al Gore.