The Inflation Reduction Act of 2022 (IRA), signed into law on August 16, 2022, directs new federal spending toward reducing carbon emissions, lowering healthcare costs, funding the Internal Revenue Service, and improving taxpayer compliance.
The act aims to catalyze investments in domestic manufacturing capacity, encourage procurement of critical supplies domestically or from free-trade partners, and jump-start R&D and commercialization of leading-edge technologies such as carbon capture and storage and clean hydrogen. It also allocates money directly to environmental justice priorities and requires recipients of many funding streams to demonstrate equity impacts. The Congressional Budget Office (CBO) estimates that the law will reduce budget deficits by $237 billion over the next decade.
This is the third piece of legislation passed since late 2021 that seeks to improve US economic competitiveness, innovation, and industrial productivity. The Bipartisan Infrastructure Law (BIL), the CHIPS & Science Act, and IRA have partially overlapping priorities and together introduce $2 trillion in new federal spending over the next ten years.
From an environmental perspective, the IRA extends and enhances many of the existing energy-related tax credits and incentives, including those for:
Renewable electricity investment and production
Energy storage
Carbon capture
Production of clean hydrogen
Sustainable aviation and biofuels
Electric vehicles and charging infrastructure
Advanced domestic manufacturing
Greenhouse gas reductions
The IRA also supports social policies, tying many credit amounts to the satisfaction of prevailing wage and apprenticeship requirements, as well as incentivizing investment in certain low-income and energy communities.
Additionally, the IRA targets job creation in the U.S., providing tax credits for domestic manufacturing, allowing tax-exempt entities to take advantage of the tax benefits associated with clean energy investments and providing incentives for the use of domestic content. Overall, the act modifies many of the current energy-related tax credits and introduces significant new credits and structures intended to facilitate long-term sustainable investment.
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