This article discusses the Inflation Reduction Act, the single largest investment in clean energy in the nation’s history, and its implications for North Carolina. This far-reaching legislation was signed into law by the President in August after a long series of negotiations in the US Senate. NCSEA celebrates the news and outlines below how this funding will impact ratepayers and clean energy providers alike in the state.
The passage of the Inflation Reduction Act (IRA) marks the most significant clean energy investment in US history, amounting to approximately $370 billion over the next decade. It also provides the market signals and certainty necessary to spur further renewable energy investments and innovation that will increase accessibility, affordability, and jobs across the clean energy industry in NC. The IRA, however, is just the starting point on the road towards achieving significant emissions reductions and a thriving, low-carbon future. Success will require cross-sectoral participation on the national, state, and local levels. Proactive policy will also be integral in supporting the sweeping impacts of these record investments.
A Context of Clean Energy Investments in the US
Prior to the IRA, the last major clean energy investment from the federal government occurred in 2009 to help spur a quick recovery from one of the largest economic downturns in US history. The administration at the time invested $90 billion in a sweeping clean energy stimulus package. This funding helped revolutionize the electronic vehicle (EV) industry, most notably with a $465 million loan from the US Department of Energy (DOE) to a little-known company at the time called Tesla Motors. Even further, approximately one million homes were weatherized as a result, creating clean energy jobs and more resilient communities.
The IRA invests nearly four times as much as this previous stimulus package and comes at a time when the renewable energy and energy efficiency industries are no longer nascent. This means that the measures included in this bill have the potential to dwarf the positive impacts seen across the nation over a decade ago, leading to an even faster proliferation of renewables across the grid.
For the first time, the US is set to experience at least a decade of market certainty for clean energy thanks to an extension of the renewable energy investment tax credits. This will provide industry, business, and consumer confidence for the future of renewables.
Provisions in the IRA and NC-Specific Implications
The IRA, evolving from the administration's Build Back Better Plan, began as a major social spending bill and through a series of negotiations became more narrowly focused on clean energy and healthcare. As a result, the IRA is set to provide widespread clean energy and EV tax credits, jumpstart clean energy manufacturing and innovation, and help consumers transition to an electrified and lower-cost future. Notable provisions and benefits in the IRA include:
- Expansion and Extension of Federal Tax Credits - With the previous iteration of the Federal Renewable Energy Investment Tax Credits (ITC) set to drop to 22% in 2023 and sunset in 2024, the IRA expands and extends the ITC to provide stability and certainty for the market moving forward. The IRA increases tax credits back to the original 30% level and extends the window for an additional ten years. Furthermore, the bill expands the credit beyond just wind and solar, and will now also include stand-alone storage. The extension of this tax credit is a significant boost for both industry and consumers alike.
- Tax Credits, Energy Efficiency Incentives, and Weatherization Projects - The IRA will enable more families to save money on their utility bills by making solar and energy efficient appliances more affordable, while greatly expanding weatherization efforts. It will do so by providing:
- Tax credits covering 30% of costs to install solar and battery systems. This is estimated to prompt over 170,000 additional households across the state to install solar.
- Rebates of up to 50-100% for new, energy-efficient appliances, as well as funding weatherization projects across the state.
- Eligibility of rebates and weatherization projects to millions of low- to moderate- income (LMI) households in NC to help confront the energy burden challenge.
- Transportation Electrification - EVs are anticipated to become more affordable and accessible because of the bill. To note, the IRA creates a $7,500 tax credit for new vehicles and $4,000 for used EVs. These tax credits are set to kick in starting January 1, 2023 and will apply to vehicles manufactured in the US. This is coupled with existing funding from the Bipartisan Infrastructure Bill (IIJA) currently being allocated to create a nationwide EV charging network for readily available public charging stations. With the support of these bills, NC can make significant progress breaking down barriers to address its transportation sector, the largest emitter in the state. IRA and IIJA funding will also move the state closer to the targets laid out by Governor Cooper’s EO246: NC's Transformation to a Clean, Equitable Economy— getting 1.25 million EVs on the roads by 2030 and 50% of new vehicle sales as EVs by the same date.
- Investments in Renewable Energy Generation and Transmission - A significant part of the bill’s focus is placed on transitioning electric generation from high-emitting fossil fuels to clean energy. As mentioned, the ten-year extension of the ITC and Production Tax Credit (PTC) sets the stage for major growth in solar, wind, and storage manufacturing. Other levers include:
- The DOE Loan Programs Office allocates over $40 billion to bolster domestic energy infrastructure. These IRA credits incentivize domestic manufacturing and deployment of clean energy with a 10% bonus for clean electricity projects that meet certain criteria. Consumer-side incentives also exist to encourage the purchase of vehicles that meet domestic supply chain requirements.
- Further, the bill invests $60 billion in clean manufacturing jobs and seeks to quadruple the current number of solar panels to 950 million, add 120,000 new wind turbines, and build 2,300 grid-scale battery plants across the nation by 2030. This is estimated to bring an estimated $2.7 billion to NC from 2022-2030.
- Job Creation - The IRA is expected to create more than a million good-paying jobs across the nation by “on-shoring” clean energy manufacturing. In NC alone, there were nearly 104,000 clean energy workers in 2021. Through these tax credits in solar, wind, storage, and other industries, this figure will grow and allow more North Carolinians, including those living in rural and under-resourced areas, to benefit from a clean energy economy.
- Environmental Justice - The bill dedicates approximately $60 billion to fund initiatives in LMI communities. Notably, approximately $35 billion will be directed to emissions-reducing projects in LMI households across NC through funding state and local green banks like the NC Clean Energy Fund. This is a step in the right direction to create a just clean energy transition for disadvantaged and under-resource populations that have been left behind by clean energy access.
- Emissions Reductions - The bill puts the US on a path towards achieving a 40% reduction in emissions by 2040 below 2005-levels. That translates to approximately a one gigaton reduction in 2030, about 10 times more than any other piece of legislation in US history. Though this falls short of the climate goals laid out by the Paris Agreement (a 50% reduction) experts are confident that other levers can help close the gap. These include state leadership and policy, business innovation and expansion, and strong market signals from consumer adoption. This will also prove to be vital for NC to meet its own emissions reduction mandates of 70% by 2030 and carbon-neutrality by 2050, as laid out by HB 951: Energy Solutions for NC.
As with most things on Capitol Hill, achieving bill passage required compromise. Consequently, the IRA is not perfect, though this is a huge boost to the clean energy economy, creating thousands of new jobs, while reducing carbon emissions on the grid.
Moving Forward with the IRA
The Inflation Reduction Act marks a promising step in the right direction for the NC energy transition. It is set to offer much needed tax credits and rebates to incentivize more people to install solar and energy efficient appliances, drive an EV, or weatherize their homes and businesses. Market signals and certainty will also play a vital role in continuing the rapid growth of the clean energy industry across the country.
Success will require an all-hands-on-deck approach that neither government nor business can achieve alone. We urge clean energy advocates to continue pushing for proactive state policies that encourage cross-sectoral collaboration and innovation. We must also be sure that these initiatives intentionally uplift communities that have been left out of the conversation up to this point. NCSEA celebrates this symbolic step forward and is prepared to continue advocating for a forward-thinking, clean energy economy that works for everyone.