Driving energy equity and sustainability with the IRA

The Inflation Reduction Act's commitment to cleaner energy and cleaner communities

Sustainability-related tax provisions incentivize clean energy deployment and cleaner communities
David Yaros and Jaime Park

As highlighted in the recent Deloitte report, Advancing Energy Security: Sustainability-related tax provisions in the Inflation Reduction Act, a significant goal of the Inflation Reduction Act of 2022 (IRA) is to expand renewable energy investment tax credits and incentives. With hundreds of billions of dollars of incentives anticipated to be claimed over the next 10 years, the IRA clearly intends to accelerate the clean energy transition. At the same time, the IRA aims to amplify the benefits to society by incentivizing investments that address what some supporters say are historic and emerging inequities.

Deloitte Tax LLP’s Credit & Incentives team and its Tax Sustainability, Climate & Equity practice are collaborating to unpack how the IRA and other provisions leverage tax policy to drive to a cleaner climate and cleaner communities. One example of how businesses may use IRA climate provisions in their efforts to be more purposeful is by investing in electric vehicle charging stations that must be located in certain census tracts, generally in low-income or non-urban areas. In another example, a business placing a solar project into service may capitalize on the renewable energy investment tax credit and could see its IRA tax credit increase from 6% to 30% if laborers’ and mechanics’ earnings meet prevailing wage requirements and other apprenticeship requirements.

The wage and apprenticeship example noted above provides an increased credit amount for eligible projects under section 48C. Additionally, out of the total $10 billion credit amount, $4 billion is earmarked for projects located in census tracts where a coal mine closed after 1999 or where a coal-fired electric-generating unit was retired after 2009. With this special allotment of $4 billion and the emphasis on the workforce and community engagement, the IRA aims to support federal investments that benefit coal communities to support a smooth and speedy clean energy transition.

Section 48E provides another example of the extent to which the IRA strives to impact both environmental policy and targeted communities. Like section 48C, section 48E requires solar and wind project owners to apply for an allocation of community-enhancement tax credits, entitling them, if awarded, to an additional 10% or 20% of investment tax credits. Interested applicants should consider constructing a solar or wind facility in a low-income community, or on Indian land, or is installed on a low-income residential building whereby such residents receive financial benefits of the new renewable energy generation. With this renewable energy investment tax credit, IRA sponsors hope to leverage IRA climate provisions to support energy equity and accelerate the clean energy transition in disadvantaged communities.

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