Getting to Know the Inflation Reduction Act

The Inflation Reduction Act (IRA), signed into law on August 16, 2022, is a budget reconciliation bill aimed at addressing climate change, lowering energy costs, and investing in America’s energy security. It is the most comprehensive climate and energy bill ever passed in the United States, with $50 billion in clean energy, climate, and decarbonization provisions for states.

Why is the IRA important to Alabama?

With the right state and local action, $490 million of this funding could end up in Alabama, and Energy Alabama wants to make sure that the entities that are eligible are prepared to receive it.

Who can receive funding through the IRA?
  • State and local governments
  • Federally Recognized Tribes
  • Nonprofits
  • Electric cooperatives
  • Qualifying individuals and homeowners

If you are wondering if you or your community might be eligible, Contact Us!

Check out our general overview below of some of the programs within the Inflation Reduction Act! You can also download the presentation.

For additional information on the programs described above, you can check out selected listings in the IRA Guidebook.

Looking for other information related to the IRA? Reach out to our team!

Defining Terms in the the Inflation Reduction Act

Adders refer to stackable tax credit incentives within the IRA and are most often associated with energy communities and low-income communities. The base ITC/PTC tax credit is increased by 10 percent if an IRA-funded project is built in either of these areas. If a project is built in an area that is both an energy and a low-income community, the credits can be stacked for a total tax credit increase of 20 percent.

Also known as “elective pay“, this new mechanism makes certain clean energy tax credits and the CHIPS manufacturing credit effectively refundable for tax-exempt entities.

Note: This IRA benefit is not to be confused with the IRS payment method.

Pre-filing with the IRS is required in order to makes this election on a tax return. Registration numbers must be included on the entity’s tax return for an elective payment or transfer election to be effective.

A community is categorized as disadvantaged by the U.S. Council on Environmental Quality if it is in a census tract that is (1) at or above the threshold for one or more environmental, climate, or other burdens, and (2) at or above the threshold for an associated socioeconomic burden. Communities within the boundaries of Federally Recognized Tribes are designated as disadvantaged.

  • Categories of burdens: Climate change, Energy, Health, Housing, Legacy pollution, Transportation, Waste and Wastewater, Workforce development

Disadvantaged communities can be identified by census tract on the Climate and Economic Justice Screening Tool

Requires IRA-funded projects to use 100% domestic steel and iron, as well as a certain percentage of domestic components. Tax credits outlined by Section 45 of the IRA will be reduced to 2 percent if the project does not meet domestic content requirements

Elective pay allows tax-exempt and governmental entities to benefit from certain clean energy investment and production credits. This mechanism – new under the IRA – makes certain clean energy tax credits and the CHIPS manufacturing credit effectively refundable (similar to a cash payment to qualifying entities). The entity can receive the full value of the credit for qualifying clean energy and manufacturing investments. 

Pre-filing with the IRS is required in order to makes this election on a tax return. Registration numbers must be included on the entity’s tax return for an elective payment or transfer election to be effective.

See also “Direct Pay” above.

Three types of geographic areas: (1) A brownfield site. (2) An area with previously significant employment related to the extraction, processing, transport, or storage of coal, oil, or natural gas. (3) Census tracts where a coal mine has closed, coal-fired generators have been retired, and adjacent census tracts.

A mission-driven institution established to provide innovative financing to accelerate the transition to clean energy and combat climate change.

Renewable tax credits extended by the IRA for projects beginning construction before 2025 and phase out in 2032. The ITC and PTC have a base tax credit rate of 30 percent but can be increased by stacking/IRA “adders”.

  • PTCs are available for producers of certain categories of renewable energy: Solar, wind, biomass, geothermal, hydropower, municipal solid waste, marine and hydrokinetic
  • Under IRA, the amount of PTC for renewables placed in service after 12/31/22 will be $27.50 per MWh, provided the “prevailing wage” and apprenticeship requirements are met.

A census tract where the poverty rate is at least 20 percent, or the median family income for the tract is less than 80 percent of the statewide (or metro area) median family income (Defined by the U.S. Treasury).

Map of Low-Income Communities (According to the U.S. Treasury definition).

(Related to “Adders”) Under Section 45 of the IRA, PTCs are available for producers of certain categories of renewable energy who have projects underway by December 31, 2024 and meet the “prevailing wage” and apprenticeship requirements; if service is placed in an “energy community” and meets domestic content requirements, these can be stacked with the initial PTC for a 20 percent adder onto the initial tax credit for renewable energy producers

Transferability allows entities that cannot use the elective pay mechanism but do qualify for an eligible clean energy or manufacturing tax credit to transfer all or a portion of the credit to a third-party buyer in exchange for cash. The buyer and seller are responsible for negotiating to terms and pricing.

Pre-filing with the IRS is required in order to makes this election on a tax return. Registration numbers must be included on the entity’s tax return for an elective payment or transfer election to be effective.

IRA Programs: Potential Uses and Applicant Types

If you think IRA funding might fit the needs of your organization or you have a specific project in mind, the U.S. Department of Agriculture’s resources might be a good place to find the program that best meets your goals.

Printable Resources

The following resources are available to view and download for free.

We will gladly ship printed copies for your group or event at no cost to you!

Please complete the form below to order your prints.

 
Would you like us to present on the IRA to your group? Let us know!
 
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