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The Inflation Reduction Act (IRA) is a Big Deal

Posted by Charley Cormany, EFCA Executive Director

The Inflation Reduction Act (IRA) is a historic legislative achievement. Many people had given up hope that it would ever see the light of day until it was abruptly resurrected earlier this summer. On August 16, 2022, President Biden signed this sweeping $737 billion health care, tax, and climate bill into law.

There is little doubt that the huge infusion of capital from the new law will fundamentally alter the clean energy industry. Many in the industry have expressed both hope and fear about what these changes will bring. There is a ton of speculation about the long-term consequences.

While we can’t know for sure how everything will play out, here are some of what I think will be the most notable impacts.

We Can Finally Talk About Climate Change

Simply affirming the critical importance of addressing climate change is a big deal. A few short years ago, the government was unwilling to address or mention climate change; some even labeled it a hoax. The IRA demonstrates that the Biden administration takes climate change seriously and is aggressively attempting to limit America’s impact on the environment. Hopefully, it’s not too late.

Over Half of the IRA Funds Are Directed at Reducing Greenhouse Gas Emissions

The inflation reduction act (IRA) dedicates $369 billion of its resources to addressing climate change. These funds are directed at incentives for electric vehicles, support for carbon capture and storage, and accelerating the growth of clean energy, including energy efficiency and electrification. Experts say that these efforts will bring the country closer to achieving the long-term greenhouse gas emissions (GHGs) reductions we need to avoid the worst impacts of climate change. The passing of the IRA is a huge step forward and will go a long way towards our transition to a clean energy future.

We Are Entering an Energy Transition

We are at a unique crossroads, moving away from fossil fuels to a carbon-free energy future.

History is filled with examples of energy transitions. A few hundred years ago, we switched from oxen and horsepower to coal and steam, which set the stage for the Industrial Revolution. At the turn of the twentieth century, the discovery of huge oil reserves in Texas and other states made it economically feasible to burn petroleum at a mass scale. Now, the fossil fuel era is slowly ending, and we are entering a new transition to clean energy generated from renewable sources.

In each previous energy transition, there have been winners and losers. We should expect the same this time around. We can’t expect the change to be seamless, and anything of this magnitude provides both opportunities for advancement and failure on a scale we have not seen in years.

Although the number of taxpayer dollars being doled out is significant, those dollars will only serve as primers to get the transition moving. Government funding alone is not enough to support an evolution of this scale. Business models need to make sense. We need to get our investments right to ensure that the funds the IRA provides are not just a flash in the pan and are utilized for long-term, meaningful changes.

Fortunately, renewables are now both the cleanest and cheapest form of energy available. If you are motivated by the bottom dollar, you can’t ignore their impact. Even so, it will take a long-term commitment and continued investment to ensure a lasting transition to a clean energy future.

Mixed Emotions About the Scale and Impact

Many people in the industry have expressed mixed emotions about the scale of this funding for clean energy. I would describe these mixed emotions as a combination of hopeful optimism combined with sheer panic over the magnitude of what these investments may represent. Many of us have seen what can happen with large influxes of Federal capital.

In particular, we remember the American Recovery and Reinvestment Act of 2009, better known as ARRA. The ARRA funds were a primer and did help jump-start a stalled economy, which was what they were intended to do. The problem is that large sums of government funding must combine with good intentions and solid long-term planning. The California Solar Initiative (CSI) is a successful example of when we got things right. The funding primed the pump with significant incentives. As consumer demand increased, the volume of projects increased, and incentives were reduced. Eventually, the market transformed and sustained itself based on demand alone. I am hopeful we can do the same this time around.

It would be optimistic to think these funds will be used for positive efforts alone. When the numbers are this big, you must accept that there will be some good ideas and some less than honest intentions.

The past has shown us that things are not always what they appear to be on the surface. We must avoid the Solyndra Solar type scandals, which gave the industry a black eye. I think you must expect a certain level of dirty deeds when the numbers get this big. Perhaps, we will learn from our past mistakes and better filter out the less than honest players. Money draws all kinds, like moths, to a fire, especially when the numbers are this big. Hopefully, we can minimize the number of bad actors. If we pay attention, the honest players will win.

It Will Take More Than Money

Transitioning to clean energy will require something that is in short supply right now – dedicated human labor and strategic thinking. We might be okay with strategic thinking, but there is no question we are short on human capacity.

Where will we get the workforce to meet the IRA’s climate objectives? The labor market is already tight. One of the IRA’s goals is to create thousands of jobs, which I have no doubt it will do. Workforce development will be critical to making these funds effective and long-lasting. The workforce is everything right now. We are counting on today’s youth to see this through.

We Need to Rely on Upcoming Generations

Upcoming generations have a keen interest in sustainability, which is a good thing. Perhaps it’s because of what they’ve seen in their lifetimes.

This has been a tough time for our current crop of children. My high school-aged son and college-aged daughter have lived through drought, fires, a global pandemic, and social unrest on a scale we have not witnessed in over half a century. Their generation is resilient and robust; perhaps that is just what we need going forward. I will say that I am impressed by the number of young folks that are starting their journey to college and have chosen some form of sustainable curriculum as their academic path. We need to embrace, support, and encourage them.

I have confidence that the next generation will do a better job safeguarding the planet than my parents or my generation.

The Inflation Reduction Act is Exciting and Encouraging

There’s no question that this legislation will dramatically impact our industry and provide welcome funding for many objectives. There are concerns about how the money will be distributed and utilized. One thing to consider is that the IRA is a start, not the final answer to addressing climate change and people’s dependence on fossil fuels.

Previous efforts, like the ARRA funds, come and go. ARRA had an impact but fell short of expectations. The IRA funds are an order of magnitude larger than the ARRA. If we pay attention and combine them with a ready labor force, they might be able to tip the scale and jump-start a clean energy future based on carbon-free energy.

The goals and ambitions proposed in the legislation are huge. The challenges are real, and the sense of excitement is palatable. We have some heavy lifting to do, and this legislation eliminates many excuses. It’s time to step up to the plate, figure things out and enact lasting change. That is exciting and terrifying at the same time. Our children are counting on us to get this right, so let’s do our best. The funds are there, and the goals are defined. The question is, are we up to the challenge?

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