By Ivy Main and Jamie DeMarco
The writers are, respectively, a lawyer and a longtime volunteer with the Sierra Club’s Virginia chapter and the federal policy director for the Chesapeake Climate Action Network’s Action Fund.
On Aug. 7 the U.S. Senate passed the historic climate legislation package hammered out between Senate Majority Leader Chuck Schumer and West Virginia Senator Joe Manchin. The House followed suit on Friday, giving President Biden a huge win on one of his administration’s priorities and finally making good on his pledge to tackle climate change.
The bill is titled the Inflation Reduction Act (IRA), apparently because the senators think inflation is the only thing most Americans care about right now. But whether it reduces inflation is beside the point. The IRA marks the federal government’s most significant investment in clean energy and transportation ever. Its $370 billion of climate spending will cut U.S. emissions roughly 42% below 2005 levels by 2030, only slightly less than the reductions that would have been achieved through Biden’s signature Build Back Better bill.
This is a huge piece of legislation, though, and some of the compromises Schumer was forced to make are not climate-friendly. Manchin, after all, is a coal baron representing a state so dominated by the extraction industries that it has lost sight of any other future. Climate hawks have to hold their noses (beaks?) to accept some noxious provisions, such as the bill’s requirement for new offshore drilling lease sales. No doubt that one will cheer motorists who wrongly assume the government could lower gasoline prices just by turning on a spigot, if only it wanted to.
Hang in there, people. The pipeline deal isn’t actually part of the IRA, and Manchin knows better than anyone that a promise of some second bill to be voted on in the future is a castle in the air. Maybe he’ll get it, maybe he won’t. Meanwhile, the IRA’s incentives for renewable energy, energy storage, energy efficiency, building electrification and electric vehicles are overwhelmingly more impactful than provisions designed to increase oil and gas production. The business case for new pipelines will only get worse.
Three recurring themes stand out in the IRA. One is the attention paid to ensuring benefits flow to low- and moderate-income residents and communities impacted by fossil fuel extraction. A second is the effort to incentivize manufacturing and supply chain companies to bring operations back to the U.S., using tax credits for manufacturing and requirements for U.S.-made components. The third is job creation and training for career jobs that pay well. The combined effect is that the law will benefit former coal workers in Western Maryland looking for employment at least as much as Montgomery County suburbanites jonesing for Teslas.
Every state will see clean energy investments soar if the bill becomes law, but Maryland is especially well positioned. Though we have modest-but-rising amounts of solar and wind in our energy mix today, we have huge potential for both, a strong tech sector and a well-educated workforce.
Just as important, laws passed by the General Assembly in the past few years already provide the framework for our energy transition. The Maryland Clean Energy Jobs Act and participation in the Regional Greenhouse Gas Initiative are driving fossil fuels out of our power sector and rapidly replacing them with clean, renewable energy. The Climate Solutions Now Act is pushing our entire economy to decarbonize, largely through broad electrification, and has set the most ambitious 2031 greenhouse gas reduction goal in the country.
The GRID Act will help ensure we can build the renewable capacity we need to make this transition, and the Consideration of Climate and Labor Act will help make sure that clean energy is built with family-supporting union jobs and will help stop new fossil fuel infrastructure in Maryland. For all of these policies, the IRA’s incentives make compliance easier and less expensive for both utilities and customers.
Renewable energy tax credits with an emphasis on equity and jobs
The IRA is a big bill with a lot of fine print detailing incentives for a wide range of technologies, mostly clean but with a few clunkers. (Hydrogen made from fracked gas, anyone?) Still, the largest share of the renewable energy tax credits will go to companies involved in the wind and solar industries. The credits will remain fixed for 10 years before ramping down, finally providing the business certainty and long planning window that clean tech companies have been begging for.
The more utilities take advantage of the law to install renewable energy, the greater the benefit to electricity customers. Renewable energy helps stabilize electricity costs, dampening the impact of high fossil fuel prices. The IRA’s tax credits will lower the cost of building wind and solar, saving money for Maryland customers as our utilities meet the Clean Energy Jobs Act’s targets for solar and wind. (So, yes, the Inflation Reduction Act will live up to its name when it comes to electricity prices.)
For utility-scale projects like solar farms and offshore wind, obtaining the maximum tax credit requires that a steadily increasing percentage of the equipment used be American made. Credits available to manufacturers are intended to draw the supply chain back to the U.S. and will help those parts be cost-competitive. New prevailing wage and apprenticeship program requirements favor union labor and middle-class incomes for careers in green energy.
While large renewable energy facilities will contribute most to decarbonizing the grid, the most generous incentives in the IRA are reserved for distributed generation facilities under 1,000 kilowatts AC (1,300 kW DC), a category that includes most rooftop solar. For these projects, the investment tax credit will return to 30% for the next 10 years, with adders available if the facility is located on a brownfield or in an “energy community” (10%), uses domestic content (10%) or serves low-income residents (10-20%). The credits can be combined, making it entirely possible for a solar project on low-income housing in coalfields, built using American-made equipment, to qualify for tax credits of up to 70% of the cost.
Not only that, but taxpayers will be allowed to sell the credits, so people with no tax liability can still take advantage of the discounts. This feature will make solar affordable for homeowners who don’t owe enough in federal taxes to use the tax credits themselves. It will also make it possible for installers to discount the upfront cost of a solar array by the amount of the tax credit so customers don’t have to wait months for a tax refund.
A final feature is that the tax credits will now also be available as direct payments to tax-exempt entities like local governments, schools and churches. Direct pay will have the biggest impact in states that don’t allow third-party power purchase agreements, but it’s a great option anywhere.
The “adder” for brownfields will be of interest to many Maryland localities that want to find ways to safely use closed landfills and old industrial sites, while Maryland’s government has already identified brownfields as a great opportunity for solar.
.The 10-year time horizon of the tax credits is an added benefit of the IRA to both customers and developers of renewable energy because it allows for long-range planning and multi-year projects. The IRA will make an already strong solar market in Maryland even stronger, as the higher tax credits will push down prices and the transferability of the credits will make it easier to attract more investors to solar. At the same time, a provision of the Maryland Clean Energy Jobs Act requires Maryland utilities to acquire solar renewable energy credits (SRECs) has created a strong market for these credits, helping to finance projects and making solar even more affordable for institutional customers that sell their SRECs.
Energy storage will stand on its own
We will need a lot more battery storage to meet the ambitious goals set in the Climate Solutions Now Act, but current federal law offers tax credits for energy storage only when it is part of a renewable energy project. The limitation has led to the proliferation of solar-plus-batteries projects around the country. It’s an ideal combination because it allows solar energy to be used when it is needed, unshackled from the time of day that it’s produced.
But uncoupling storage from renewable energy projects is a more efficient way to manage the grid, said Steve Donches, a Loudoun County, Va., attorney who represents battery storage companies and recently served on the Virginia Energy Storage Task Force.
“In many instances, the best location for storage supporting the grid is not where the renewables are located but rather near grid choke points or inside load pockets,” he said. “Moreover, site selection flexibility can often be important from a zoning permitting perspective. The new approach allows developers to be more nimble and locate where it is most useful and cost efficient.”
Recognizing this, the IRA provides a tax credit of up to 30% for energy storage whether or not it is part of a renewable energy facility.
This will make grid storage less expensive and easier for our utilities to install, and it will also benefit customers who want to put batteries in their buildings for back-up power. Customers sometimes can’t afford to include a battery at the time they install solar, and the IRA will let them take the tax credit for storage even if they buy the battery later. This is especially important for resilience in low-income neighborhoods, where adding a battery to a solar-powered church or community center allows it to “island” during a power outage and provide a refuge for neighbors.
Homeowners will see huge benefits from building electrification
A cleaner electricity grid makes it possible to decarbonize other sectors of the economy by substituting electricity for fossil fuels in transportation and buildings; hence the climate advocates’ mantra “Electrify everything.” Yet while new electric appliances have become more energy efficient and attractive to consumers than the ones they replace, the switch comes with a price tag.
Under the new law, price will no longer be a barrier. The IRA offers rebates to residents to upgrade their homes with new electric technology such as heat pumps for heating and cooling (up to $8,000), electric induction stoves ($840), heat pump water heaters ($1,750) and upgrades to home electrical systems to support all the new load ($4,000). The rebates phase out for higher-income earners. Lower-income families replacing old and inefficient appliances will see the greatest energy savings as well as the highest rebates.
The federal rebates are a fantastic complement to existing Maryland programs for low-income energy efficiency upgrades. The Regional Greenhouse Gas Initiative generates millions of dollars every year to invest in low-income efficiency programs such as EMPOWER. Coordinating the state programs with the new federal rebates should be an urgent priority to ensure the broadest possible benefits to low-income Marylanders.
Meanwhile, gas utilities had better start planning for the end of their business. There is no longer any reason to expand and upgrade gas distribution pipelines, because – from here on in – their customer base will be shrinking, not growing, resulting in stranded assets. The Maryland General Assembly even commissioned a study on how best to begin electrifying all new buildings in the state. Gas utilities better start looking for a new game.
Electric vehicles aren’t just for the rich anymore
The IRA provides a $7,500 EV tax credit for new vehicles, including those made by manufacturers like Tesla and Toyota that had reached volume caps in previous law. Restrictions apply, including income limits, vehicle price caps and supply chain sourcing rules. The act also now adds a credit of up to $4,000 for used electric vehicles, making ownership possible for more people at all income levels.
Speeding up the transition to EVs will create ripple effects requiring careful planning. Electricity demand will increase and do so unevenly, requiring load management programs and upgrades to parts of the distribution grid.
Charging all these vehicles will also be an issue. Many would-be EV customers lack the ability to charge at home, either because they don’t own the space where they park or because their homes aren’t wired for easy installation of a charger. The problem is especially acute for people who rent apartments in buildings that lack charging stations.
No matter how generous the credits, people won’t buy EVs if they can’t charge them. Maryland must require multifamily buildings to include enough charging stations for all the residents who want them, ensure public charging stations are plentiful and convenient in low-income neighborhoods and improve its residential housing code to ensure new homes are wired to facilitate installation of chargers.
For best results, lean in
Maryland law requires the Maryland Department of the Environment (MDE) to create a plan for how to meet our greenhouse gas reduction targets, MDE is currently in the process of re-writing this plan to accommodate the 60%-by-2031 and 100%-by-2045 GHG reduction goals the legislature adopted in 2022.
Governor Hogan hasn’t shown much enthusiasm for Maryland’s energy transition to date, but he is heading out of office, and Wes Moore, if elected, would have a plan to meet these goals. With the IRA making so many incentives available for clean energy and electric vehicles, leaning into the energy transition now will allow the state to reap huge rewards in the form of economic development, job growth, cleaner air and lower energy bills.
The opportunities for Maryland are enormous. The governor and legislature should make the most of them.