The Inflation Reduction Act of 2022 (IRA) represents the most significant climate legislation in U.S. history. It supports some $369 billion of investment in energy security and climate change efforts, which will in turn benefit clean energy generation, storage and manufacturing solutions. For investors, the IRA generates five major themes: a boom in clean hydrogen production, an acceleration of green manufacturing, revitalization of investments in renewable energy, support for advanced clean technology and the development of low-carbon fuel.
In order to accelerate the energy transition toward more sustainable production, the IRA, which was signed into law in August 2022, modifies and/or extends existing energy tax credits and creates new ones. It also directs funding to the Department of Energy for programmatic efforts addressing energy rebates, energy efficiency in buildings, electric transmission and more. Clean energy production makes up the highest portion of spend, with $66 billion for clean energy infrastructure and $92 billion for clean energy production.
For most clean technologies, the IRA starts in 2023 and applies through the end of 2032 or longer, which will provide upwards of eight years of visibility — far more consistency than the U.S. has known for solar and wind to date. The wind producer tax credit, or PTC, boom-and bust-cycles that had just a single year of visibility hampered the development of wind power in the 2000s, for example.
Tech-neutral PTCs for nuclear power will kick off in 2024 while PTC and tech-neutral investment tax credits (ITC) for new clean electricity such as solar, wind and battery mineral components will start in 2025. Credits for advanced manufacturing will only apply through the end of 2028, phasing out entirely by 2032, and will only apply to sustainable aviation fuels from 2023 through the end of 2026.
Existing renewable electricity PTCs and ITCs have had their legislation extended to the end of 2024, with tech-neutral, emissions-based credits starting in 2025, as have biofuels, though that will overlap with the application of the IRA starting in 2023. Existing legislation for residential clean energy credits, meanwhile, will remain in place until 2032, at which point it will start to fade out entirely.
Policy approaches that incentivize increased production, transmission and storage of clean energy — and that incentivize reduced energy costs — include financial and non-financial support levers. And with incentives for both existing and emerging renewables, investors and developers alike are being given the long-term certainty needed to build out clean electricity and transmission in the U.S.
The Act is largely technology-neutral for zero-greenhouse-gas energy production. Spending is determined by market demand. And starting in 2025, its tech-neutral producer tax credits (PTC) and investment tax credits (ITC) become tech-neutral, which means that tax credits can be received for any energy sources that generate clean energy and have zero-greenhouse emissions, regardless of source. Subsidies have also been made available for land and technology that support the energy transition.
The IRA offers tax credits for renewable energy sources that make them more cost-effective and commercially viable in the long term, increasing their commercial attractiveness while only modestly hampering oil and gas production with increased taxes and emissions requirements.
To learn more about the Inflation Reduction Act and the strategic implications for the clean technology sector, please download our analysis.
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