Inflation Reduction Act Roundtable

EPA: For many of EPA’s new programs, the process starts with extensive stakeholder engagement to inform the agency’s program design decisions. For several Inflation Reduction Act programs, we’re in the stakeholder engagement phase now. Community organizations, businesses, local and state governments, and even individuals can contribute their ideas and opinions by attending public listening sessions, responding to Requests for Information, and emailing the relevant program teams.

EPA continues to make several announcements per week related to both the Bipartisan Infrastructure Law and Inflation Reduction Act. Depending on the programs you’re most interested in, you can find them on the EPA website and often sign up for email updates with the latest news. For extensive information about EPA grants, especially if you’re new to applying for EPA funding, visit www.epa.gov/grants.

EPA: Federal agencies and the White House are working quickly to design easy-to-navigate processes to help nonprofits, small businesses, and individuals take advantage of the many benefits within the IRA. The White House recently created this “Clean Energy for All” guide to several clean energy tax credits in the IRA with information about what is available right now and what will be available early next year. Using that same link, you can sign up for ongoing email updates about federal clean energy incentives as they are announced.

JSA: One of IRA’s strategies is to go around recalcitrant states and offer support directly to utilities, municipalities, and others. And it rewards states that are cooperative.

DE: Agreed. For example, the Energy Infrastructure Reinvestment (EIR) program provides the Department of Energy authority to make up to $250 billion in loans, which can be used to refinance bad debt (e.g., uneconomic coal plants) and build new clean energy projects; this can add to utility profits while lowering consumer electric bills—an attractive proposition! But, you’re right, it won’t happen on its own. Utilities need to decide to pursue this funding. Where they don’t do so willingly, public utility commissions (PUC) can encourage or require them to do so—especially if the benefits are clear (lowering electric rates, improving utility profits / financial health, slashing emissions). Lots of environmental and climate groups engage in PUC proceedings to promote such actions, and they often have ways for you to voice your support, such as by signing letters, making phone  calls, etc. State legislators can also speed this process (such as by passing more ambitious clean electricity standards, which force utilities’ hands to pursue this funding), but their involvement isn’t necessary to make or see progress.

EPA:  No. Actually, the IRA’s Methane Emissions and Waste Reduction Incentive Program will help clean up methane emissions. The new program provides up to $1.55 billion in financial and technical assistance for monitoring and reducing methane emissions from oil and gas.  It also establishes a waste emissions charge for oil and gas facilities that exceed specific thresholds set forth in the IRA. Reporting to EPA’s Greenhouse Gas Reporting Program serves as a basis of the charge, and as part of IRA implementation, EPA will ensure that the monitoring and reporting accurately reflects methane emissions from oil and gas facilities.

JSA: As I understand it, there is a robust debate about this. CCS has garnered a great deal of private financial backing, which may be an indication of its viability – or just of its likely profitability, which is not necessarily the same thing. For myself, I see CCS as a transition technology, that is, one that will help to reduce GHGs entering the atmosphere until we find ways to avoid producing GHGs in the first place. It’s also a potential transition technology for communities and workers who are being displaced from fossil fuel production. I suspect that the IRA supports CCS because (a) it fits into the “all of the above” strategy, and (b) it widens political support for the bill.

DE: Agreed. We generally recommend that utility regulators exercise a high level of caution around CCS technologies, since they’ve struggled to get built, meet their performance targets, and remain operational, which could mean a bad deal for both consumers (paying the electric bills) and climate (if the CCS technology is inadequate). We also find wind, solar, and battery storage to be much cheaper. A review of electricity sector modeling studies that have been released since the IRA’s introduction show that these models built almost exclusively wind/solar/storage, with marginal or no CCS. These studies build economically optimal resource portfolios, so they don’t necessarily reflect what will happen in the real world, but they do suggest utilities should be pursuing all possible renewable and storage resources (which are proven techs) before moving to riskier and costlier CCS. All that said, we may need some CCS or direct air capture (DAC) to decarbonize certain industrial processes and help offset the last bit of emissions that are toughest to eliminate, but CCS might not be necessary in the electricity sector.

JSA: I think that the “carrots” approach will ultimately need to be supplemented by “sticks” in the form of prescriptive limitations of GHG emissions. And when that time comes, deploying the sticks may be easier than we expect because, thanks to the incentives in the IRA, our economy already may have moved significantly beyond fossil fuels.

DE: Ideally, we would have something like a federal clean electricity standard to help bring the laggards along and ensure the U.S. achieves certain %s by certain years (which, to John’s point, would effectively involve sticks). But, that’s hard to do without getting 60 votes in the Senate or getting rid of the filibuster. The permitting bill from Sen. Manchin has good stuff on making it easier to build new transmission, but as it stands now, it includes lots of fossil infrastructure provisions as well, with both emissions and environmental justice concerns. Ideally we’d see a bill with just the transmission provisions, ensuring that even those details don’t inadvertently cause harm. I’m only commenting on one piece of one sector, but one of Energy Innovation’s books (which exists for free entirely online) goes into much more detail for those interested.

DE: This article by the director of our electrification program may help.

EPA: IRA extended and increased income tax credits for making energy efficiency improvements to your primary residence.  For 2022, you can claim 10% or up to $500 for insulation and sealing.  Starting next year it will be 30% up to $1,200.  There are also grant programs under IRA that will allow states to offer additional rebates that include sealing and insulation. For more information on tax credits for energy efficiency improvements, visit: https://www.energystar.gov/about/federal_tax_credits

EPA: EPA recognizes that local governments, tribes, and community partners often face challenges with limited staff capacity and resources. As we get started on designing new programs under the Inflation Reduction Act, we are first prioritizing stakeholder outreach and engagement.  We want to hear firsthand from the groups who will be applying for these funds and delivering projects.

EPA will also prioritize technical assistance to help ease the load on applicants – using both longstanding approaches and trying new ideas. For example, EPA has announced a new Environmental Justice Thriving Communities Technical Assistance Centers Program that is open for applications now in partnership with the Department of Energy.  The program has total funding of up to $100 million for the establishment of 5 – 10 technical assistance centers across the nation serving communities with environmental justice concerns and their partners. We also continue to look at lessons learned from past grant programs to identify best practices for reducing reporting burdens, expanding technical assistance, and allowing recipients to use funds to build internal capacity.

These are just a few example of ways that EPA will be scaling up its outreach, engagement, and technical assistance as we design and launch historic new climate investments. We look forward to hearing your ideas on how we can work with you to reduce administrative burdens and the types of technical assistance that would be most helpful both during the application phase and after grant funds are awarded.

JSA: See my answer to #6.

JSA: The IRA’s predecessors, the bipartisan Infrastructure Investment and Jobs Act and the CHIPS Act, include quite a bit of support for nuclear power, including advanced nuclear technologies, fuel sources, and continuing the operations of existing plants. The IRA continues that support. The IRA as a whole includes two kinds of tax incentives: production tax credits (PTC) which incent the continued generation of energy, and investment tax credits (ITC) which incent things like construction of new or renovated facilities. For nuclear, the main incentive is a production tax credit, which was not (I think) part of the processor acts. The PTC is supposed to make it cheaper to generate electricity from nuclear, thus offsetting the high costs of operating nuclear power plants, with the aim of encouraging utilities to keep their nuclear plants in operation longer than they otherwise would. The nuclear PTC is capped a specific energy price, so that it in effect acts as a price guarantee for nuclear power plants. The nuclear industry can also take advantage of ITCs for zero-carbon power plants and hydrogen production.

DE: I think John covered it, but my take is that the IRA money basically helps keep our existing fleet of nukes online through at least 2032. It essentially pays them just what they should need to stay afloat. This helps ensure that new renewables replace fossil generation instead of nuclear generation, which today consists of half of all our carbon-free electricity. Today’s nukes have struggled of late due to pressures from new low-cost renewables and (until recently) low natural gas prices, but it’d still be more expensive to replace them than give them a boost to keep them online. I’m less familiar with provisions that support new nukes, other than John’s note that new nukes should be able to qualify for a new investment tax credit that, starting in 2025, is available to any zero-emission technology. Hard to say if this will be enough to actually bring new nukes online; like CCS, models tend to build little-to-no new nukes this decade (maybe partly because of how long they take to build).

EPA: Earlier this year the White House launched a program guide and integrated schedule of funding opportunities for the Bipartisan Infrastructure Law at Build.gov. The Administration plans to make an equally concerted push to make the Inflation Reduction Act programs easy to navigate and will have more to announce soon. In the meantime, I would encourage you to anticipate multiple funding opportunities coming available in 2023.

JSA: See the statement by former D and R Secretaries of the Treasury, Aug. 3:

“As former Treasury Secretaries of both Democratic and Republican Administrations, we support the Inflation Reduction Act  which is financed by prudent tax policy that will collect more from top-earners and large corporations. Taxes due or paid will not increase for any family making less than $400,000/year. And the extra taxes levied on corporations do not reflect increases in the corporate tax rate, but rather the reclaiming of revenue lost to tax avoidance and provisions benefitting the most affluent. The selective presentation by some of the distributional effects of this bill neglects benefits to middle-class families from reducing deficits, from bringing down prescription drug prices, and from more affordable energy. This legislation will help increase American competitiveness, address our climate crisis, lower costs for families, and fight inflation—and should be passed immediately by Congress.”

—Timothy F. Geithner, Jacob J. Lew, Henry M. Paulson Jr., Robert E. Rubin and Lawrence H. Summers

      See also Secretary Yellen’s statement to the same effect: https://home.treasury.gov/news/press-releases/jy0911

DE: John covered it. For reference, here’s a one-pager that includes how all IRA revenue is raised. Further, here’s a letter from a long list of economists noting that the IRA’s revenue raisers are well-targeted and that they expect the law to actually reduce inflation. One quote: “These investments would be fully paid for. The revenue raised to finance them would come exclusively from wealthy individuals and corporations. Further, the revenue stems from enhanced tax enforcement and closing some of the most distortionary loopholes in the tax code. […] it does so while putting downward pressure on inflation.”

JSA: The IRA’s investment in EJ is enormous, unprecedented, and part of the larger government-wide commitment in the White House Justice40 initiative. In the IRA, the support is mostly in the form of supporting affected communities’ ability to monitor pollution sources, to analyze the impact on their communities, and to participate effectively in the decision making process.

It is notable that the IRA supports primarily the procedural side of EJ, in that it focuses on gathering information and funding participation in environmental decisions, and on better enforcement of generally applicable standards. Many EJ advocates see this is a weaker approach than trying to define what is a substantively fair and just distribution of environmental burdens and benefits. However, the substantive approach has to date been largely unsuccessful in effectuating change, despite efforts under the Clinton and Obama administrations, and the Biden administration seems to want to pursue the procedural route in this bill.

JSA: Because it acquired the term “carbon tax” early in its incarnation, and US politicians are allergic to the term “tax.” (I date this to President Reagan.) This is a shame, because economists tend to favor a carbon price (nicer word), and the evidence is pretty good that they are right: carbon pricing does seem to work when it’s been tried.

JSA: This will indeed be a major challenge. The IRA addresses it, but it’s not clear that it will be enough.

DE: Agree, it’ll be very tough. But, climate change is on a spectrum—the faster we go, the more damages and risks we avoid. Just need to push as fast as we can, aiming for those end-states that keep us under 1.5 degrees C if possible (e.g., 100% clean electricity in the U.S. by 2035).

JSA: Since the most effective, currently feasible way to change the planet’s temperature is to reduce GHGs, that is what we have to tackle. While one can characterize GHG reduction is a “means to an end,” it is more accurate to think of it as attacking the source of the problem, rather than trying to remedy its consequences after the fact. Going to the source is usually, and certainly in this case, the less expensive and more effective route to addressing a problem.

    I am also extremely skeptical of this cost analysis. First, given the global diffusion of GHG emissions and consequences, it does not seem meaningful to me to try to tie increments of reduction to increments of temperature reduction. Second, trying to do so based on an asserted temperature change 80 years hence, especially in our highly dynamic atmospheric system, just isn’t plausible.

DE: Agree with John. No single policy will ever look like (or be) enough on its own. But, this $370B will have impacts beyond 2030 (as our investments continue to pay dividends for decades thereafter and set us up for much faster transitions in transportation / buildings / industry), beyond the U.S. (as our actions inspire other countries to go further, as our exports become increasingly clean, and as the new technology we develop gets taken up elsewhere), and beyond climate (in slashing air pollution, reducing electricity bills and transportation costs, creating new and sustainable jobs, etc.). Tackling climate change is necessary in its own right to preserve a livable planet, but it also helps usher in a better world in many other respects (again, cleaner air, lower costs, higher-performing vehicles and appliances, etc.). All studies to date show the IRA’s benefits outweigh is costs.

JSA: Many of these tax credits and so on operate as subsidies for certain industries in the US, e.g., electricity storage, solar panels, electric cars. I’ve read that the EU countries are watching the impact of this support with great interest, and indeed are considering subsidy programs of their own to counter the expected positive impact on US green industries. In other words, one of the big domestic selling points of IRA is that it supports and grows US-based clean-energy industries, and this will undoubtedly have a competitive effect on overseas-based industries.

JSA: Many of these tax credits and so on operate as subsidies for certain industries in the US, e.g., electricity storage, solar panels, electric cars. I’ve read that the EU countries are watching the impact of this support with great interest, and indeed are considering subsidy programs of their own to counter the expected positive impact on US green industries. In other words, one of the big domestic selling points of IRA is that it supports and grows US-based clean-energy industries, and this will undoubtedly have a competitive effect on overseas-based industries.

EPA: EPA is doing everything within our abilities to simplify the funding application process and increase the amount of technical assistance available. Earlier this year we ran a rebate competition for the Clean School Bus program that will award nearly $1 billion in funding to local school districts to purchase electric buses. For the first time we used a digital application that had the equivalent of one page of questions. We look forward to making similar investments in easy-to-access programs. We are also making major investments in technical assistance and appreciate that Congress has provided over $200 million specifically for technical assistance support, which we are moving quickly to make available.