Getting to Know 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.

A new IRA funding format; a cash payment in the form of a federal tax refund for eligible nontaxable entities.

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

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