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Inflation Reduction Act boosts clean energy incentives

The Inflation Reduction Act increases incentives for clean energy, but there is concern that it doesn't address existing regulatory flaws inhibiting clean energy tech deployment.

The Inflation Reduction Act funnels billions into incentivizing clean energy technology development and deployment in the U.S., something businesses can take advantage of.

Signed into law in August, the IRA provides $385 billion in funding for clean energy production and addressing climate risk over the next 10 years. It gives businesses tax deductions for energy-efficient commercial buildings. It extends tax credits through 2024 for producing electricity from renewable resources such as wind and for investment in energy properties such as solar.

It also aims to boost the U.S. clean energy supply chain by incentivizing domestic production of clean energy technologies and by offering tax incentives for U.S. companies to manufacture products like carbon capture systems and offshore wind components.

The bill is "all carrots, no sticks," according to Zach Friedman, director of federal policy at sustainability nonprofit Ceres. He said the bill strongly focuses on domestic clean energy manufacturing and deployment, and making sure costs for clean energy use remain at a minimum for businesses and consumers.

The IRA provides industrial decarbonization grants and financing, as well as funding for procurement from the government for clean energy products, he said.

This bill is a monumental, historic investment on both the supply and the demand side and across industries.
Zach FriedmanDirector of federal policy, Ceres

"This bill is a monumental, historic investment on both the supply and the demand side and across industries," Friedman said.

Effects of the Inflation Reduction Act

Friedman said the IRA will lead to significant growth of the domestic clean energy technology supply chain, as well as technology deployment. The bill's incentives and guarantees in certain areas of funding for 10 years will likely spur private investment in the clean energy market, he said.

Friedman added that investing in the clean energy technology supply chain is critical, particularly given the supply chain challenges highlighted by the COVID-19 pandemic and global conflicts.

"This provides stability and access to be able to provide goods to market at an affordable and constant rate," he said.

The IRA also invests in clean energy jobs, which Friedman believes will help boost support for clean energy across the country. It also increases tax credits by 10% for businesses establishing clean energy projects in communities that previously relied on extracting and processing energy sources such as coal and natural gas for employment.

Friedman said the bill is a "further signal and certainty" from the government of the size and growth trajectory of the clean energy market.

"In 10 years, because of all this investment and deployment, I think it's going to greatly accelerate investment in innovation, and we will get a lot of new technologies," Friedman said. "That's incentivized to be produced here with good-paying jobs in regions that need that investment."

Challenges remain for clean energy development, use

There will be benefits resulting from the Inflation Reduction Act, such as substantial carbon emissions reductions and R&D gains in emerging clean energy technologies, said Devin Hartman, policy director of energy and environmental policy at R Street Institute, a nonprofit public policy research organization.

However, Hartman said the IRA doesn't get to the root of the issue when it comes to challenges facing clean energy deployment -- the energy regulatory structure.

Hartman said private markets have significant appetite for clean energy and carbon reduction. But those markets are stymied due to flaws in the current regulatory structure. It takes years to get new energy processes permitted and connected to the grid, which Hartman said is one of the main reasons that private developers aren't deploying more clean energy technologies.

It's also challenging for renewables developers to replace conventional energy suppliers in a cost-effective manner due to an outdated electricity market, he said.

"They also cite excessive grid congestion as constraining growth, with fixes to our transmission system taking the better part of a decade to implement," Hartman said. "The regulatory rules that assign resources a grid reliability value are also in a state of flux, creating uncertainty on clean energy revenue streams."

Hartman said overhauling electricity transmission regulation is vital for clean energy in the long term.

"Clean energy's largest headwinds remain even with passage of the IRA," he said. "Solving them requires fixing complex regulatory systems that reduce barriers to new projects while bolstering competition and consumer choice."

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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