Key learning points
- The Inflation Reduction Act Funds Billions in Clean Energy Loans to Advance Green Technology Development and Advancement
- The goal is to reduce inflation and carbon emissions while increasing domestic clean energy production
- The IRA’s clean energy credits are a huge boon for green energy investors — if you know where to park your dollars
On August 16, 2022, President Joe Biden signed the much anticipated Inflation Reduction Act (IRA) into law. The legislation earmarks billions of dollars to fight inflation, lower health care costs, raise IRS funding and fund green energy technologies.
The climate portion of the bill is $369 billion in good news for the climate. The goal: to make it easier and faster to finance and develop green technology, reduce energy costs and increase the rate of decarbonisation.
The IRA is not intended to achieve these goals by offering instant payments or creating a new “green tech” agency. Instead, the bill’s main impetus lies in clean energy credit potential.
Here’s what you need to know.
How the IRA hopes to fight climate change
Think of the Inflation Act as a gigantic incentive for green energy. The legislation earmarks $369 billion for various energy security and climate change initiatives. With this funding, the Biden administration hopes to achieve several climate and health-related goals, including:
- Annual energy bill reduction by up to $1,000
- Creating millions of domestic clean manufacturing jobs
- Reduce US emissions by 40% from 2005 levels, equivalent to 1 billion metric tons
- Preventing thousands of asthma attacks and premature deaths by reducing fossil fuel pollution
To do this, the IRA aims to add 120,000 wind turbines and nearly 1 billion solar panels to domestic energy production. (Including private production, such as nearby rooftops.) In addition, the IRA contains sufficient incentives to build up to 2,300 grid-scale battery plants.
Somewhat unusually, the Inflation Reduction Act does not intend to implement changes in compliance by highly armed industries. Instead of carbon taxes or carbon prices, it relies on incentives for clean energy credits. These credits range from financing solar and wind farms to carbon capture and hydrogen production projects to zero-emission nuclear power plants.
By expanding existing credits and adding some new ones to the mix, the board hopes to boost the growth of the green energy sector on multiple fronts. More so, the IRA is expected to significantly reduce the cost of new and existing renewable energy technologies, translating into greater savings for energy consumers.
According to the ICF Climate Center, the IRA could lower the “levelized cost of energy” from:
- Solar energy by 20-35%
- Wind energy by 38-49%
- Build grid-scale lithium-ion battery facilities at 18-20%
- Hydrogen energy by 52-67%
- Carbon capture and storage by 20-23%
As the cost of these technologies increases, so will the cost of purchasing and using energy. While that may cause a slight increase in energy consumption, more of it will come from clean technology, which over time will encourage a move away from dirtier sources.
A Look at the IRA’s Clean Energy Credit Incentives
The IRA increases the number of available clean energy credits and makes it easier to qualify for it. This two-pronged approach increases the likelihood that consumers and businesses will benefit from these initiatives to meet the bill’s long-term goals.
Carbon Capture Credits
One of the IRA’s biggest changes is a dramatic increase in the value of credits to fund carbon capture, use and capture projects. At the same time, the bill lowers the threshold to receive the credit 100-fold and offers the money as direct payment instead of tax write-offs. Under this structure, the IRA hopes to promote the development and use of this previously unaffordable technology.
Renewable Energy Technology and Production Credit
Another substantial change concerns the tax credits that finance renewable energy sources such as solar, electric and wind energy.
The law allocates $10 billion for the construction of clean-tech production facilities for solar panels, electric vehicles, wind turbines and the like. The IRA is also expanding, enhancing or adding new credits to produce clean hydrogen, electricity and fuels, as well as zero-emission nuclear power.
In addition, a special selection of credits funds:
- Paying the prevailing wages for clean tech workers
- Using Registered Apprenticeships to Drive Job Growth in Clean Technology
- Meet domestic content requirements for steel, iron or manufacturing projects
- Building facilities in low-income, tribal or dirty energy communities
- Forest conservation, tree planting and fire protection projects
Each of these credits extends a full 10 years, eliminating the worry that they will expire before these technologies can be exploited. There are also incentives to encourage smaller energy projects to enrich local communities and reduce the cost of connecting to the country’s electricity grid.
Consumer credit for clean energy
The Inflation Reduction Act is also expanding $9 billion in energy rebates for consumers at home to make neighborhoods greener. These tax credits cover everything from installing solar panels and efficient water heaters to buying used and new EVs. Rebates for homeowners also reward buying from U.S. manufacturers to bolster the economy and add more clean energy jobs across the country.
2025 investment deduction
Finally, the IRA will launch a series of technology-neutral investment tax credits (ITCs) to account for the changing landscape.
Currently, qualification for ITCs requires projects related to approved renewable technologies such as solar or wind. The new ITCs do not target specific technologies, but only require the project to produce zero emissions.
These credits open up funding for external technologies such as hydrogen, batteries and developments yet to be discovered.
How These Clean Energy Credits Affect You
Some economists estimate that the global economy could shrink by 18% in the next three decades due to climate change alone. But by moving to a lower-carbon economy, countries can help avoid these effects — and make a profit.
In particular, renewables are predicted to play a huge role in the low-carbon transition. And that’s where experts believe the money lies for energy investors.
If you want to jump on the “green revolution” promised by the IRA, some of the technologies and industries that could benefit include:
- Green or clean construction projects
- Factories for the production of green energy, such as companies that make solar panels
- Clean energy producers, such as solar and wind farms
- Electric cars, including production and maintenance of batteries, vehicles and loads
- Hydrogen energy production companies
- CO2 capture projects and companies
Of course, some of these industries are relatively new, and many of the public companies that can make a difference may not yet exist. Investors not interested in navigating the tricky world of IPOs, angel investing and venture capitalism may be wondering where to park their dollars.
For some investors, individual green energy stocks may be sufficient – stocks such as Tesla, First Solar or Plug Power, for example. Others may prefer diversified energy funds to provide broader exposure within an eco-friendly package.
Get ready to invest in the clean energy credit revolution
However, investing in individual stocks or funds requires a lot of vetting and research. More than that, the clean energy space is a growing industry full of uncertainty, volatility and a lot of potential for failure.
If you want to save hours of worrying about the “right” green investments, Q.ai’s Clean Tech Kit might be what you’re looking for. While we cannot guarantee that every investment will be a success, can promise that our smart AI will work tirelessly to locate and take advantage of the industry’s most promising investments.
Investors looking to step into the clean energy revolution with the power of AI at their backs can’t ask for much more than that.
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