- The Inflation Reduction Act funds billions in clean energy credits to promote the development and advancement of green tech
- The goal is to reduce inflation and carbon emissions while increasing domestic clean energy production
- The IRA’s clean energy credits provide a tremendous boon for green energy investors – if you know where to park your dollars
On 16 August 2022, President Joe Biden signed the long-awaited Inflation Reduction Act (IRA) into law. The legislation earmarks billions of dollars to fight inflation, lower healthcare costs, raise IRS funding and fund green energy technologies.
The climate portion of the bill amounts to $369 billion worth of good news for the climate. The goal: to make it easier and faster to fund and develop green tech, reduce energy costs and increase the pace of decarbonization.
The IRA doesn’t aim to meet these goals by offering direct payments or creating a new “green tech” agency. Instead, the bill’s major impetus lies with its clean energy credit potential.
Here’s what to know.
How the IRA hopes to combat climate change
Think of the Inflation Reduction Act as a giant stimulus for green energy. The legislation sets aside $369 billion for various energy security and climate change initiatives. Out of this funding, the Biden administration hopes to achieve several climate- and health-related goals, including:
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- Reducing energy bills by up to $1,000 annually
- Creating millions of domestic clean manufacturing jobs
- Slashing U.S. emissions 40% from 2005’s levels, equal to 1 billion metric tons
- Preventing thousands of asthma attacks and premature deaths by reducing fossil fuel pollution
To do so, the IRA aims to add 120,000 wind turbines and nearly 1 billion solar panels to domestic energy production. (Including private production, such as neighborhood rooftops.) Additionally, the IRA includes enough incentives to build up to 2,300 grid scaled battery plants.
Somewhat unusually, the Inflation Reduction Act doesn’t plan to enact changes by strong-arming industries into compliance. Instead of carbon taxes or carbon pricing, it relies on clean energy credit incentives. These credits run the gamut from funding solar and wind energy farms to carbon capture and hydrogen production projects to zero-emission nuclear power plants.
By expanding existing credits and adding a few new ones to the mix, the administration hopes to encourage the growth of the green energy sector on multiple fronts. More than that, the IRA is projected to substantially lower the cost of new and existing renewable energy technologies, which translates to increased savings for energy consumers.
According to the ICF Climate Center, the IRA could reduce the “levelized cost of energy” of:
- Solar energy by 20-35%
- Wind energy by 38-49%
- Building grid scale lithium-ion battery facilities by 18-20%
- Hydrogen energy by 52-67%
- Carbon capture and storage by 20-23%
As the costs of these technologies improves, the cost to buy and use energy will decrease, as well. While that may provoke a slight increase in energy consumption, more of it will be sourced from clean tech, encouraging a move away from dirtier sources over time.
A peek at the IRA’s clean energy credit incentives
The IRA increases the number of available clean energy credits while making it easier to qualify for them. This dual-pronged approach increases the likelihood that consumers and companies will take advantage of these initiatives to meet the bill’s long-term goals.
Carbon capture credits
One of the IRA’s biggest changes is a drastic surge in the value of credits to fund carbon capture, use and sequestration projects. At the same time, the bill lowers the threshold to receive the credit 100-fold while offering funds as direct payments instead of tax write-offs. Under this structure, the IRA hopes to advance the development and use of this previously prohibitively burdensome technology.
Renewable energy tech and production credits
Another substantial change involves the tax credits that fund renewables like solar, electric and wind power.
The law earmarks $10 billion to build clean tech manufacturing facilities for solar panels, electric vehicles, wind turbines and the like. The IRA also extends, enhances or adds new credits to produce clean hydrogen, electricity and fuels, as well as zero-emissions nuclear power.
Additionally, a special selection of credits will fund:
- Paying clean tech workers prevailing wages
- Using registered apprenticeships to encourage clean tech job growth
- Meeting 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 resistance projects
Each of these credits extends a full 10 years, eliminating concerns that they will lapse before these technologies can be exploited. There are also incentives to encourage smaller energy projects to enrich local communities and lower the cost of connecting to the nation’s power grid.
Consumer clean energy credits
The Inflation Reduction Act also extends $9 billion in consumer home energy rebates to help neighborhoods go green. These tax rebates cover everything from installing solar panels and efficient water heaters to buying used and new EVs. Homeowner rebates also reward buying from American manufacturers to bolster the economy and add more clean energy jobs nationwide.
2025 investment tax credits
Lastly, the IRA will launch a series of technology-neutral investment tax credits (ITCs) to account for the changing landscape.
Currently, qualifying for ITCs requires projects to be related to approved renewable technologies like solar or wind. The new ITCs won’t target specific technologies, instead requiring only that the project produces zero emissions.
These credits open funding for outside technologies like hydrogen, batteries and advancements that have yet to be discovered.
How these clean energy credits impact you
Some economists estimate that the global economy could shrink by 18% over the next three decades due to climate change alone. But by transitioning to lower-carbon economies, countries can help stave off these impacts – and profit in the process.
In particularly, renewable energy sources are predicted to play an enormous role in the low-carbon transition. And that’s where experts believe the money lies for energy investors.
If you’re looking to jump on the “green revolution” promised by the IRA, some of the technologies and industries that stand to benefit include:
- Green or clean construction projects
- Green energy manufacturing plants, such as companies that make solar panels
- Clean energy production companies, such as solar and wind farm companies
- Electric cars, including battery, vehicle and charge production and servicing
- Hydrogen energy production firms
- Carbon capture projects and companies
Of course, some of these industries are relatively new, and many of the public companies that may make a difference may not exist yet. Investors who aren’t interested in navigating the tricky world of IPOs, angel investing and venture capitalism might be wondering where to park their dollars.
For some investors, individual green energy stocks might do the trick – stocks like Tesla, First Solar or Plug Power, for example. Others may prefer diversified energy funds to provide broader exposure within an environmentally friendly package.
Prepare to invest in the clean energy credit revolution
However, investing in individual stocks or funds requires tons of vetting and research. More than that, the clean energy space is a growing industry rife with uncertainty, volatility and plenty of potential for failure.
If you want to cut out hours of fretting over the “right” green investments, Q.ai’s Clean Tech Kit might be what you’re looking for. While we can’t guarantee every investment will be a success, we can promise that our savvy AI works tirelessly to locate and capitalize on the most promising investments in the industry.
Investors looking to hop into the clean energy revolution with the power of AI at their back can’t ask much more than that.
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