President Joe Biden has touted it as the “largest investment ever in combating the existential crisis of climate change,” and praised it for “making the wealthiest corporations finally pay their fair share.”
The measure passed on a party-line 51-50 vote, with all Democrats and Democratic-leaning independents supporting the bill, all Republicans opposing, and Vice President Kamala Harris casting the tie-breaking vote.
Inflation Reduction Act: A Clean Energy Game-Changer
The White House has set aside a $700 billion package that will address inflation by lowering energy and health care costs for families and by helping to bring down the deficit.
The Inflation Reduction Act will extend a number of tax credits already available for renewable energy and also create new incentives for investment in clean energy technology or energy generation. For the first time ever, would-be investors in clean energy have assurances in the form of a decade of subsidies from the federal government.
Over the past decade or so, generous tax credits for wind and solar projects have triggered explosive growth in U.S. installations. Unfortunately, these credits often have short time horizons, spooking risk-averse investors and leaving project developers scrambling to meet looming deadlines.
The IRA offers long-term tax credit commitments for wind and solar, wrapped up in a $430 billion bill and including new credits for energy storage, biogas, and hydrogen.
Solar and wind project developers will also get more support if they build their projects in poorer areas or use U.S.-made equipment. The bill also includes incentives for companies to manufacture more green tech needed to accomplish this.
"This is going to be a golden period of 10 years, at least. That is a long horizon for people to plan and really get this transition to clean energy into high gear," Keith Martin, an attorney with Norton Rose Fulbright who works on financing renewable energy projects, has told Reuters.
"Before this bill, we were looking at one- and two-year extensions on the tax credit while trying to finance projects that take three to five years to build. For the first time, this gives the industry and investors certainty for what the financing environment will look through 2034," Tom Buttgenbach, CEO of U.S. solar developer 8minute Solar Energy, has told Reuters.
The bill also offers home improvement credits that will allow households to deduct 30% of the cost of improvements like heat pumps or insulation from their taxes as well as a further deduction of 30% of the cost of solar panels and battery storage.
People looking to replace their gasoline and diesel cars with electric vehicles will also benefit from tax credits. Couples with a combined annual income of less than $300,000 and individuals on less than $150,000 will be eligible for $7,500 credit on new EVs and $4,000 for used ones.
Rewiring America, an energy efficiency awareness non-profit, projects that combined with the new tax credits and other efforts to improve efficiency, Americans could save some $1,800 a year, per household.
Shawn Kravetz, president of solar-focused hedge fund Esplanade Capital, has told Reuters that his fund will change tack after the new bill and focus more on the U.S. market instead of Europe.
"Our tactics have changed because we're seeing more opportunity in the U.S. The magnitude and scope of the opportunity have just grown," Kravetz has said.
The top U.S. utility trade group says the bill will encourage many members to eliminate carbon emissions from their systems by 2050 because it creates subsidies for technologies beyond just wind and solar.
