Inflation Reduction Act Targets Domestic Clean Energy, EV Manufacturing

September 01, 2022 by Shannon Cuthrell

The Inflation Reduction Act pours $370 billion into domestic renewable energy, EV manufacturing and other climate-related areas. Here’s a brief overview.

The Inflation Reduction Act (IRA), a $739 billion package signed earlier this month, introduces a number of tax credits, incentives and grants/loans aimed at spurring clean energy manufacturing and deployment nationwide. With $369 billion earmarked for renewable energy and electric transportation programs, the legislation marks the U.S.’s largest-ever clean energy investment.


Energy Infrastructure, Clean Energy and Vehicle Manufacturing

Notably, the package drastically increases the volume of available funding for loan guarantees through the Department of Energy’s Loan Programs Office (LPO), which finances large-scale infrastructure projects. The office currently has $42 billion in available loan authority, according to its 2021 portfolio status report, but the IRA unlocks an additional $70 billion to administer financing for energy infrastructure and vehicle manufacturing. 

The LPO is a key financing tool for subsidizing private-sector renewable energy projects, so the hike in loan guarantee authority would mean a significant increase in deployment over the coming years. For perspective: Over its entire history since 2009, the LPO has issued $35 billion in loans and guarantees to over 30 projects.

More broadly, the IRA allocates over $60 billion to boost on-shore clean energy manufacturing. This includes $30 billion in production tax credits for manufacturing solar panels, wind turbines, batteries and critical minerals processing; a $10 billion investment tax credit for facilities making EVs, wind turbines and solar panels; and $20 billion in loans for new EV manufacturing facilities, plus another $2 billion in grants to transform existing auto plants into EV facilities.

An additional tens of billions of dollars will be spent on other emissions-reduction efforts, including $30 billion in grants and loans for states’ transition to renewable electricity, and another $27 billion for a cleantech accelerator. The IRA also doles out grants and tax credits to incentivize emissions-reduction projects among industrial manufacturers, including $6 billion for the largest emitters, such as chemical, steel and cement plants. Another $9 billion is set aside for federal procurement of American-made clean energy products, including a new electric fleet for the U.S. Postal Service.

For consumers, the IRA provides $9 billion in home energy rebates for electrified home appliances and 10 years of tax credits for energy-efficiency upgrades such as heat pumps, rooftop solar and electric HVAC units.

The legislation also extends the existing $7,500 tax credit for purchasing new electric cars and plug-in hybrids through 2032, while adding a new $4,000 credit for used EVs.


IRA to Slash Emissions, Influence Broader Market Dynamics

The investments mentioned above and other climate-related provisions are expected to reduce emissions by about 40% before 2030, close to the U.S.’s current goal of cutting emissions 50% below 2005 levels.

Further, the Department of Energy’s analysis of the clean energy programs in the IRA and the Bipartisan Infrastructure Law found that both packages would reduce emissions by about 1,000 million metric tons in 2030. That almost covers the total amount of residential emissions in 2021, 922 million metric tons.


An analysis from the REPEAT Project projects the expected impact of the Inflation Reduction Act on greenhouse gas emissions. Image used courtesy of the REPEAT Project


Overall, the Inflation Reduction Act unlocks a series of new funding channels for manufacturers to secure their domestic supply chains and add new capacity in the coming years. Likewise, the new and expanded consumer tax credits will impact the demand for EVs and home energy-efficiency upgrades.

There are still reasons for skepticism when it comes to some portions of the legislation. As EE Power reported, one passage of bureaucratic fine print in the IRA could chill development in the offshore wind industry.


Feature image used courtesy of Adobe Stock