One year ago to the day, the Inflation Reduction Act – often shortened to the IRA – was signed into law by President Biden. Let’s break down what the IRA is, its impacts over the last year, and what we can expect to see from Aunt IRA over the next few years.
What is the Inflation Reduction Act?
The IRA is the most significant clean energy or climate legislation ever enacted in the United States. Signed into law on August 16, 2022, the bill was designed to address climate change, lower energy costs, and invest in national energy security.
Sometimes referred to as ‘the Climate Deal’, the Inflation Reduction Act earmarked $369 billion in funding for energy security and climate change programs. The Act is part of the Biden Administration’s effort to address the climate crisis and bolstering America’s clean energy industry.
In just a year, the IRA has made a huge impact through a combination of tax incentives and manufacturing credits benefitting clean energy manufacturers, small business owners, and American families. Let’s take a look.
A Year of Impact
Gregory Wetstone’s words are true. The IRA is a champion of the American clean energy industry. In the last year, $278 billion in capital investment has been announced across more than 80 new or expanded manufacturing projects. Historically, the costs of manufacturing in the US have been beaten out by options abroad. But investment and production tax credits that incentivize domestic clean energy manufacturing are renewing the viability and profitability of American production.
Bringing clean energy manufacturing back home is not only essential to our energy security, it also supports national climate goals that will drive the American economy.
In one year, this piece of legislation has created more than 170,600 jobs and 272 clean energy projects. And it is living up to its name. At the time the Inflation Reduction Act was signed into law, national inflation was at 9%. Since then, the act has helped drop the inflation rate to just around 3%.
By extending and expanding clean energy incentives, such as direct payments to non-taxable entities like churches and schools, individual tax credits, and upfront rebates, the IRA is making it possible for groups and individuals previously unable to take part in the clean energy economy.
How does the IRA benefit Alabama?
Alabama is expected to receive approximately $490 million of investment in large-scale clean energy generation and storage projects. To take full advantage of Uncle Sam’s money to lower customer bills, Alabama’s utilities must come on board and prioritize clean energy. Even with obstruction from Alabama Power and other utilities, Alabama still has a lot to gain from the IRA.
Manufacturing & Good-Paying Jobs
At the time the bill became law, there were more than 42,000 Alabamians employed in clean energy jobs. Investments from the IRA are bringing new manufacturers, like FirstSolar to the state, which will boost this number even further. FirstSolar’s $1.1 billion photovoltaic solar module manufacturing facility is slated to open later next year in Lawrence County and will add approximately 700 jobs to Alabama’s clean energy workforce. Tax credits bolstering the clean energy industry in Alabama include bonuses for businesses meeting prevailing wage and apprenticeship guidelines. While supporting a clean energy future, Alabama workers will be earning paychecks that support them and their families.
Small Businesses & Rural Development
Small businesses make up the heart of the state’s economy. Alabama is home to more than 408,000 small businesses, which represent 99.4% of all businesses statewide. The Energy Efficient Commercial Buildings Deduction provides up to $5 per square foot for commercial building owners to make energy efficient upgrades.
The IRA expanded the Rural Energy for America Program (REAP), providing grants and guaranteed loan financing for rural small businesses, agricultural producers, and eligible electric cooperatives. REAP supports Alabama’s 38,500 farms by providing funding to purchase and install energy-efficient agricultural equipment and systems. If they take advantage of REAP loans and direct pay tax credits, Alabama’s electric cooperatives can access financial incentives to install renewable energy systems. Making these investments boosts resiliency, reliability, and affordability for the nearly 575,000 Alabama households and businesses powered by cooperatives. Rural small businesses and agricultural producers interested in applying for REAP grants can contact us for more information!
Programs for Homeowners & Individuals
For homeowners looking to do their part in transition to clean energy, the Inflation Reduction Act offers a variety of tax credits and rebates:
- The Residential Clean Energy Credit is available for clean energy installations within the home. Homeowner’s can receive a tax credit of up to 30% on qualifying purchases such solar electric property, including solar panels and battery storage.
- The Energy Efficiency Home Improvement Tax Credit offers a credit of 30% of the cost for the purchase and installation of energy efficient services and equipment. Investing in energy efficiency is one of the most significant ways to lower those ever-increasing energy bills.
Check out Energy Alabama’s breakdown of these programs for Alabamians.
A companion “rebate” program will be available for homeowners who cannot use (or do not want to claim) federal income tax credits and individuals who do not qualify to receive the above tax credits, such as renters. The Home Efficiency Rebates Program, which will bring over $145 million in home energy rebates, will be administered by the Alabama State Energy Office and should be available later this year or by early 2024, but we await further details.
Alabama is among the top five states in the manufacture of cars and light trucks, and electric vehicles (EVs) are a growing piece in that production. To encourage the adoption of these vehicles, the IRA offers “clean vehicle” tax credits. The Act also extended a program known as the Alternative Fuel Refueling Property Credit that includes a tax credit of 30% or up to $1,000 for the purchase and installation of residential EV charging equipment.
The IRA came out of the gates swinging last August, and it puts the country on track to reduce emissions up to 40% over the next decade, which is the anticipated lifespan of most of the Act’s programs. This is exciting news, but there is still more work to be done – especially in Alabama, where utilities’ favor for expensive and outdated fossil fuels quite literally overpowers solar installations across the state.
Seventy-one percent of Americans say they know little or nothing about this mammoth piece of legislation, despite the significant impact of the IRA in just the last year. And even among those who know some about the IRA, there’s still many who say they are in the dark about the climate incentives within the act.
To learn more about the IRA and what it means for Alabama, visit Energy Alabama’s IRA Resources webpage. To dive into the specifics of the act and all of its programs, check out the Inflation Reduction Act Guidebook.