Inflation Reduction Act (IRA)

On August 7th, 2022 the US Senate passed the Inflation Reduction Act (IRA). This comprehensive legislation includes major investments for the production of clean energy to address climate change. The $370 billion in federal funding and tax incentives targeting decarbonization in the IRA is the largest action on climate change ever passed by Congress and is expected to accelerate the national transition to clean energy, manufacturing, and vehicles.

While the approximately $750 billion of the IRA also includes provisions for healthcare, conservation, and corporate taxes, HEPF will be tracking the components of the bill that are focused on clean energy. We are still reviewing the bill, as more details are identified and reviewed the page will be updated accordingly.

Below is a brief summary of programs associated with clean energy and energy policy:

Clean Energy Direct Investment

The IRA makes direct investment to programs across several agencies including the U.S. Environmental Protection Agency (EPA), U.S. Department of Agriculture (USDA), U.S. Department of the Interior (DOI) and U.S. Department of Energy (DOE) to improve air quality, invest in climate-smart and resilient infrastructure, and advance domestic energy and transportation technologies.

Department of Energy (DOE) Funding

Program Description: To encourage domestic production and sales of efficient hybrid and advanced diesel vehicles and components of those vehicles.

Funding Mechanism: Grants and loan guarantees, grants will require at least a 50 percent cost-share with DOE.

Recipients: Automobile manufacturers and suppliers and hybrid component manufacturers.

Eligible Uses: The refurbishment or retooling of manufacturing facilities that have recently ceased operation or will cease operation in the near future.

Next Program Milestone: TBD

Program Description: A new program within the Office of Clean Energy
Demonstrations (OCED) to invest in projects aimed at reducing emissions from energy intensive
industries.

Funding Mechanism: Grant, 50% cost share.

Recipients: Domestic, non-federal, non-power industrial or manufacturing facilities, including producers of iron, steel, steel mill products, aluminum, cement, concrete, glass, pulp, paper, ceramics, and other energy intensive production facilities.

Eligible Uses: To purchase, install or implement advanced industrial technology. Retrofit, upgrade or operationalize improvements to install or implement advanced industrial technology. Engineering studies and other work needed to prepare an eligible facility

Next Program Milestone: TBD.

Program Description: Additional commitment authority for eligible projects under the
Title XVII through Sept. 30, 2026. This new commitment authority will be applied across existing
eligible projects and the Infrastructure Investment and Jobs Act (IIJA) expansion of eligibility for
Title XVII for projects that increase the domestic supply of critical minerals through production,
processing, manufacturing, recycling or fabrication of mineral alternatives.

Funding Mechanism: $3.6 billion in credit subsidy cost is provided through Sept. 30, 2026. The
impact of this provision means that the credit subsidy cost due at close (or sometimes included
in the interest rate) may now be covered by this funding.

Recipients: Eligible projects employ new or significantly improved technologies to avoid, reduce, or sequester anthropogenic emission of greenhouse gasses.

Eligible Uses: Uses are dependent on the eligible project.

Next Program Milestone: TBD.

Program Description: An additional $3 billion to support the manufacture of eligible light-duty vehicles and qualifying components under the Advanced Technology Vehicles Manufacturing Loan Program (ATVM)

Funding Mechanism: Grant, 50% cost share

Recipients: Manufacturers of advanced technology vehicles that achieve defined fuel economy targets, and manufacturers of components or materials that support eligible vehicles’ fuel economy performance.

Eligible Uses: Varies by eligible borrower, but companies can use the ATVM program to bring innovative energy technologies from demonstration to commercialization.

Next Program Milestone: TBD.

Program Description: A new program under LPO entitled, “Energy Infrastructure Reinvestment
Financing,” to projects that retool, repower, repurpose or replace energy infrastructure that has ceased operations.

Funding Mechanism: Provide $5 billion through Sept. 30, 2026 to be leveraged for up to $250 billion
in commitment authority for loan guarantees (including refinancing) of eligible projects.

Recipients: Eligible projects are projects that: 1) retool, repower, repurpose or replace energy
infrastructure that has ceased operations; or 2) enable operating energy infrastructure to
avoid, reduce, utilize or sequester air pollutants or anthropogenic emissions of GHG.

Eligible Uses: Energy infrastructure is defined as a facility, and associated equipment, used for 1) the
generation or transmission of electric energy; or 2) the production, processing and
delivery of fossil fuels, fuels derived from petroleum, or petrochemical feedstocks.

Next Program Milestone: TBD.

Program Description: Provide direct loans to non-federal borrowers for the purpose of constructing new high-capacity transmission lines and for upgrading interties between the various interconnections.

Funding Mechanism: Direct Loans

Recipients: Transmission Developers

Eligible Uses: To facilitate eligible projects, the Secretary may– (A) enter into a capacity contract with respect to an eligible project with the objective of reselling that capacity once the financial viability of the project has been established; (B) issue a loan to an eligible entity for the costs of carrying out an eligible project; or (C) participate with an eligible entity in designing, developing, constructing, operating, maintaining, or owning an eligible project.

Next Program Milestone: Anticipated additional Notice of Intent and Request for Information in Q1 2023

Program Description: To perform transmission planning, modeling, and analyses regarding the development of interregional and offshore wind transmission projects and to convene stakeholders to address the development of such transmission projects

Funding Mechanism: TBD

Recipients: TBD

Eligible Uses: Areas of interest include:

  • clean energy integration into the electric grid, including the identification of renewable energy zones
  • the effects of changes in weather due to climate change on the reliability and resilience of the electric grid
  • cost allocation methodologies that facilitate the expansion of the bulk power system
  • the benefits of coordination between generator interconnection processes and transmission planning processes
  • the effect of increased electrification on the electric grid
  • power flow modeling
  • the benefits of increased interconnections or interties between or among the Western
  • Interconnection, the Eastern Interconnection, the Electric Reliability Council of Texas, and other interconnections, as applicable
  • the co-optimization of transmission and generation, including variable energy resources, energy storage and demand-side management
  • the opportunities for use of non-transmission alternatives, energy storage and grid enhancing technologies
  • economic development opportunities for communities arising from development of interregional electricity transmission and transmission of electricity that is generated by offshore wind
  • evaluation of existing rights-of-way and the need for additional transmission corridors; and a planned national transmission grid, which would include a networked transmission system to optimize the existing grid for interconnection of offshore wind farms

Next Program Milestone: TBD

Program Description: To award state energy offices to develop and implement a HOMES program, offering rebates for whole-house energy savings retrofits.

Funding Mechanism: DOE awards state energy offices.

Recipients: Single family/Multi-family homes.

Eligible Uses: Rebates for whole-house energy saving retrofits.

Next Program Milestone: TBD

Program Description: To create electrification rebate programs for homeowners and multifamily building
owners.

Funding Mechanism: Grants to state energy offices and tribes

Recipients: Single family/Multi-family homes.

Eligible Uses: Rebate amounts may total up to $14,000 for new construction purchases, replacement of
nonelectric appliances, or first-time purchase of the appliance

Next Program Milestone: TBD

Program Description: Assistance to states to develop and
implement programs to train and educate contracts on installation of home energy efficiency
and electrification improvements

Funding Mechanism: Grants to state energy offices.

Recipients: State energy offices.

Eligible Uses: Funds may be used to reduce training costs for employees, to
provide testing and certification, or to partner with nonprofits

Next Program Milestone: TBD

U.S. Environmental Protection Agency (EPA) Funding

Program Description: Establish a new Greenhouse Gas Reduction Fund to invest in
nonprofit, state and local financing institutions designed to rapidly deploy low- and zero-emission technologies by leveraging investment from the private sector.

Funding Mechanism: TBD

Recipients: Nonprofit, state and local financing institutions.

Eligible Uses: IRA requires at least 40 percent of benefits flow to low-income and disadvantaged
communities to deploy or benefit from zero-emission technologies, including distributed
technologies on residential rooftops, and direct investments are prioritized for projects that
would otherwise lack access to financing, and that can ensure continued operability by
monetizing repayments and revenues for other financial assistance.

Next Program Milestone: TBD

Program Description: Establish a program to make awards of grants and rebates to
states, local governments and nonprofit school transportation associations to replace Class 6
and Class 7 heavy-duty vehicles with zero-emission vehicles.

Funding Mechanism: Grants and rebates states, local governments and nonprofit school transportation associations.

Recipients: States, local governments and nonprofit school transportation associations.

Eligible Uses: to replace Class 6 and Class 7 heavy-duty vehicles with zero-emission vehicles, or to purchase, install, operate and maintain the infrastructure needed to charge, fuel or maintain zero-emission vehicles; for the workforce development and training to support the maintenance, charging, fueling and operation of the zero-emission vehicles; or to plan and provide technical assistance to support of zero-emission vehicle adoption and deployment.

Next Program Milestone: TBD

Program Description: To establish a program to award grants and rebates for the
purchase and installation of zero-emission equipment and technology at ports, as well as the
development of climate action plans at ports

Funding Mechanism: Grants and rebates

Recipients: A port authority; a state, regional, local or tribal agency with
authority over a port authority; or an air pollution control agency. Private entities may apply in
partnership with the aforementioned eligible recipients

Eligible Uses: The purchase and installation of zero-emission equipment and technology at ports, as well as the development of climate action plans at ports.

Next Program Milestone: TBD

Program Description: To carry out Clean Air Act (CAA) Section 137.

Funding Mechanism: Grants

Recipients: State, air pollution control agency, municipality, or Indian tribe

Eligible Uses: Section 137 grants for the costs of developing plans to reduce GHG air pollution, and directs the EPA to make such a grant to at least one state, air pollution control agency, municipality, or Indian tribe in each state. Each plan must include programs, policies, measures and projects that will achieve GHG air pollution reduction.

Next Program Milestone: TBD

Program Description: The Carbon Reduction Program will provide formula grants to States to reduce transportation emissions or the development of carbon reduction strategies.

Funding Mechanism: Grants, rebates, contracts, and loans.

Recipients: Industry

Eligible Uses: to monitor and reduce methane emissions from petroleum and natural gas systems, mitigate legacy air pollution. Funding can also be used to provide support to communities for improving climate resiliency by employing industrial equipment that reduces methane emissions.

Next Program Milestone: TBD

Program Description: To establish a program to provide grants invest in community-led projects in disadvantaged communities and community capacity building centers to address disproportionate environmental and public health harms related to pollution and climate change.

Funding Mechanism: Grants

Recipients: Community-based nonprofit organizations.

Eligible Uses: Climate resiliency and adaptation, air-pollution monitoring, investments in low-emission technology.

Next Program Milestone: TBD

U.S Department of Agriculture (USDA)

Program Description: The IRA will provide $1 billion in loan subsidy under Section 317 of the Rural Electrification Act with forgiveness authority up to 50 percent of loan amount.

Funding Mechanism: Loan Subsidies

Recipients: TBD

Eligible Uses: TBD

Next Program Milestone: TBD

Program Description: The program provides guaranteed loan financing and grant funding to agricultural producers and rural small businesses for renewable energy systems or to make energy efficiency improvements.

Funding Mechanism: Loan financing and grant funding.

Recipients: Agricultural producers with at least 50 percent of their gross income coming from agricultural operations, and small businesses in eligible rural areas.

Eligible Uses: Renewable energy systems, such as: biomass, geothermal, hydropower, hydrogen, wind, and tidal generation.

Next Program Milestone: TBD

Program Description: for infrastructure improvements for blending, storing, supplying or distributing biofuels.

Funding Mechanism: Grants with a 25% match requirement.

Recipients: TBD

Eligible Uses: installation, retrofitting or upgrading fuel dispensers for higher ethanol and biodiesel blends (E15 or greater); or for construction and retrofitting home heating oil distribution centers to accommodate ethanol and biodiesel blends.

Next Program Milestone: TBD

Program Description: Funding to electric cooperatives to deploy renewable energy and carbon capture systems.

Funding Mechanism: Loans and grants.

Recipients: Electric cooperatives.

Eligible Uses: Purchase renewable energy, renewable energy systems, zero-emission systems, and carbon capture and storage systems, to deploy such systems or make energy efficiency improvements to generation and transmission assets.

Next Program Milestone: TBD

Native Communities

The IRA provides unprecedented funding for Native Communities. The total package provides $272.5 million to Native communities for climate resilience and adaptation, including;

Provides funding to the Office of Native Hawaiian Relations (ONHR) for financial and technical assistance, direct expenditure, grants, contracts, and cooperative agreements for climate resilience and adaptation activities that serve the Native Hawaiian Community.

Funding to the Bureau of Reclamation for near-term drought relief actions to mitigate drought impacts for Tribes impacted by the operation of a Bureau of Reclamation water project, including through direct financial assistance to address drinking water shortages and to mitigate the loss of Tribal trust resources.

Funding for the Bureau of Indian Affairs fish hatchery operations and maintenance programs.

Funding via grants for tribes to develop and implement high efficiency electric home rebate programs.

The IRA increases investments for the Tribal Energy Loan Guarantee Program and increases loan guarantees for Tribal energy development from $2 billion to $20 billion.

Tax Credits and Incentives

  • Amends the tax code to incentivize the deployment of clean energy technologies by expanding existing tax credits and creating several new ones. The provisions will cost approximately $68 billion over 10 years. 
  • Additional incentives for renewables deployed in “low-income” communities. 
  • Taxpayers have the option to monetize these new tax credits by transferring them to other parties.
  • Extends the carbon sequestration credit for facilities built before 2033.
  • Additional credit for Direct Air Capture of carbon as well as lowered capture requirements for qualification.
  • Production and investment credits for clean hydrogen (60 cents per kilogram of qualified clean hydrogen)
  • $1.25 per gallon credit for the sale or mixture of Sustainable Aviation Fuel, and a supplemental credit amount of 1 cent per gallon for each percentage point by which the lifecycle GHG reduction percentage for the fuel exceeds 50 percent (with a maximum supplemental credit of 50 cents/gallon, totaling $1.75/gallon)
  • Extension of the biodiesel, renewable diesel, alternative fuels, alternative fuels mixtures and second generation fuels tax credits through 2024.
  • $500 million for grants for infrastructure improvements for blending, storing, supplying or distributing biofuels
  • The nonbusiness energy property credit will be extended through 2032 and increase from 10 percent to 30 percent, with a $1200 annual credit limitation 
  • Additional credits are available for heat pumps and biomass stoves (up to $2,000).
  • Residential clean energy credits are extended through 2034, which allows taxpayers to claim a credit for qualified residential energy efficient property purchases. 
  • $7,500 Clean Vehicle Credit for the purchase of new electric vehicles and a $4,000 credit for the purchase of used electric vehicles.

Microgrids are groups of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island-mode. The IRA will reduce the costs of microgrids by:

  • Up to 50% investment tax credit for microgrid components, including battery storage, solar panels, microgrid controllers, microturbines, linear generators, fuel cells, and transmission upgrades.
  • Qualified microgrids must produce between 4 kilowatts – 20 megawatts of electricity.
  • Ability for investors to sell tax credits to third parties, decreasing the costs to finance new microgrid projects.

Sources & Additional Resources:

President Biden Op-Ed: 3 things everyone should know about the Inflation Reduction Act

Inflation Reduction Act of 2022: Provisions Supporting Tribes and Native Communities

Summary: The Inflation Reduction Act of 2022

Upcoming Webinars:

TBD

Last Updated: 8/25/2022