- The Inflation Control Act funds billions of clean energy credits to promote the development and advancement of green technology
- The goal is to reduce inflation and carbon emissions while increasing domestic clean energy production
- IRA clean energy credits provide a huge boon to green energy investors – if you know where to deposit your money
On August 16, 2022, President Joe Biden signed the long-awaited Inflation Reduction Act (IRA) into law. The legislation allocates billions of dollars to fight inflation, cut health care costs, increase IRS funding, and fund green energy technologies.
Climate’s share of the bill is $369 billion in climate good news. The goal: to make financing and development of green technology easier and faster, reduce energy costs and increase the pace of decarbonization.
The IRA does not aim to achieve these goals by offering direct payments or creating a new “green technology” agency. Instead, the bill’s main motivation lies in its clean energy credit potential.
Here’s what you need to know.
How the IRA hopes to combat climate change
Think of the Inflation Reduction Act as a giant green energy stimulus. The legislation allocated $369 billion to various energy security and climate change initiatives. From this funding, the Biden administration hopes to achieve several climate and health-related goals, including:
- Reduce energy bills by up to $1,000 annually
- Creating Millions of Domestic Clean Manufacturing Jobs
- Reduce US emissions by 40% from 2005 levels, equivalent to 1 billion metric tons
- Prevent 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 a billion solar panels for domestic energy production. (Including private production, such as neighborhood rooftops.) In addition, the IRA includes sufficient incentives to build up to 2,300 grid battery plants.
Somewhat unusual, the Inflation Reduction Act does not plan to enact changes by industries strong in compliance. Instead of carbon taxes or carbon pricing, they rely on clean energy credit incentives. These credits run the gamut 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 a few new credits to the mix, the administration hopes to encourage 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, which translates into increased savings for energy consumers.
According to the ICF Climate Center, an IRA can reduce the "standard cost of energy" for:
- 20-35% solar energy
- Wind power by 38-49%
- Building lithium-ion battery facilities on a grid scale of 18-20%
- Hydrogen energy at 52-67%
- 20-23% carbon capture and storage
As the costs of these technologies improve, the cost of purchasing and using energy will also decrease. While that may lead to a slight increase in energy consumption, more of it will be obtained from clean technology, encouraging a move away from dirtier sources over time.
A sneak peek at the IRA's clean energy credit incentives
An IRA increases the number of clean energy credits available while making it easier to qualify for them. This two-pronged approach increases the likelihood that consumers and businesses will take advantage of these initiatives to achieve the bill's long-term goals.
Carbon sequestration credits
One of the biggest changes in the IRA is the surge in the value of credits to fund carbon capture, use and sequestration projects. At the same time, the bill lowers the threshold for getting credit by 100 times while offering the money as direct payments rather than tax deductions. Under this structure, the IRA hopes to promote the development and use of this previously cumbersome technology.
Renewable energy technology and production credits
Another fundamental change includes tax credits that finance renewable energy sources such as solar, electric and wind energy.
The law allocates $10 billion to build clean technology manufacturing 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, you will fund a special set of credits:
- Payment of prevailing wages to clean tech workers
- Using Registered Apprenticeships to Encourage CleanTech Job Growth
- Meet local content requirements for steel, iron or manufacturing projects
- Building utilities in low-income, tribal, or dirty energy communities
- Forest conservation, tree planting and firefighting projects
Each of these credits spans a full 10 years, removing fears that they will expire 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 country's electricity grid.
Clean Energy Credits to Consumers
The Inflation Control Act also expands $9 billion in home energy deductions for consumers to help neighborhoods switch green. These tax credits cover everything from installing solar panels and efficient water heaters to buying new and used electric vehicles. Homeowner discounts also reward purchases from US manufacturers to boost the economy and add more clean energy jobs nationwide.
2025 investment tax credits
Finally, the IRA will launch a series of technology-neutral investment tax credits (ITC) to account for the changing landscape.
Currently, ITC qualification requires projects to be related to approved renewable technologies such as solar or wind power. The new ITCs will not target specific technologies, instead only requiring that the project result in zero emissions.
These credits unlock funding for external technologies such as hydrogen, batteries, and developments that have yet to be discovered.
How clean energy credits affect you
Some economists estimate that the global economy could shrink by 18% over the next three decades due to climate change alone. But by switching to low-carbon economies, countries can help stave off these impacts — and make a profit in the process.
In particular, renewables are expected to play a huge role in the low-carbon transition. This is where experts believe the money lies for energy investors.
If you're looking to jump on the "green revolution" that the IRA has promised, some of the technologies and industries you'll benefit from include:
- Green or clean building projects
- Green energy factories, such as companies that manufacture solar panels
- Clean energy production companies, such as solar and wind farm companies
- Electric vehicles, including the production, charging and maintenance of batteries and vehicles
- Hydrogen production companies
- Carbon sequestration projects and companies
Of course, some of these industries are relatively new, and there may not yet be many public companies that would make a difference. Investors who aren't interested in roaming the world of scamming IPOs, angel investing, and venture capital may wonder where to make 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 the various energy boxes to provide a wider exposure within an eco-friendly package.
Get ready to invest in the clean energy credit revolution
However, investing in stocks or individual funds requires a lot of scrutiny and research. More than that, the clean energy space is a growing industry filled with uncertainty, volatility, and plenty of potential for failure.
If you want to cut hours of worrying about the "right" green investments, Q.ai's CleanTech Toolkit may be just what you're looking for. While we cannot guarantee the success of every investment, we Can We promise that our intelligent AI works tirelessly to identify and capitalize on the most promising investments in the industry.
Investors looking to jump into the clean energy revolution with the power of artificial intelligence at their back couldn't ask for much more.
Download Q.ai today To access investment strategies backed by artificial intelligence. When you deposit $100, we will add an additional $50 to your account.