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Inflation Reduction Act Signed Into Law, Committing $370 Billion to Action on Climate and Energy

By District Energy posted 08-17-2022 13:07


The National Law Review


On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. The IRA includes a host of programs aimed at addressing climate change and energy production. These include, for example, major new or expanded funding to reduce emissions of greenhouses gases (GHGs) such as methane and hydrofluorocarbons (HFCs), to encourage a domestic supply chain for electric vehicles and energy storage systems, to promote agricultural practices that capture carbon dioxide in soils, to expand offshore production of energy (both fossil and wind), and to provide federal support for energy efficiency. The IRA also includes dozens of new and extended tax credits for renewable energy, electric vehicles, electric transmission, and related industries. The IRA is by far the most significant federal initiative to address climate change.

Changes to the Section 48 investment tax credit (ITC). The IRA extends the sunset dates to encompass most projects that begin construction by January 1, 2025. Groundwater-sourced heat pumps and cooling systems are eligible for longer. As with the PTC, the full tax credits are now provided only for technologies that meet prevailing wage and apprenticeship requirements. (Otherwise the tax credits are substantially lower.) And as with the PTC, energy properties that meet specified domestic content requirements receive a bonus credit (2-10%), and further bonus credits are available for energy projects in the same “energy communities” discussed with the PTC. Other technologies that had previously only been eligible for a 10% ITC are now eligible for the standard 30% ITC, including geothermal, energy storage systems, microgrids, combined heat and power systems, small wind systems, certain fuel cells, facilities that convert biomass into methane for commercial use, building heating and cooling systems that store thermal energy, and others. The ITC can also be used for interconnection facilities, not just the relevant energy projects

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