The Inflation Reduction Act (IRA) is an unprecedented initiative—it’s a powerful instrument for the U.S. to combat the climate crisis and curb greenhouse gas emissions while shaping a prosperous future for American businesses. From opening up vast opportunities in green industries to fostering a competitive edge in domestic manufacturing, the Act is brimming with business incentives that engender sustainable action.
In this post, we uncover how you—as a business—can take advantage of the IRA’s upside while contributing positively to a sustainable future. (Note: This post does not cover the rebates offered to taxpayers and homeowners for home efficiency—for example, installing a heat pump—and other home electrification projects.)
What is the Inflation Reduction Act?
The Inflation Reduction Act represents a landmark proposal set to significantly reshape the economic landscape of the United States. Under its purview—which passed as part of the FY2022 federal budget reconciliation bill—approximately $300 billion will go toward deficit reduction, while a staggering $369 billion will be invested in energy security and climate change programs over the next decade.
The IRA aims to invigorate the economy, curb inflation, and move the U.S. toward a more sustainable future. It intends to lower energy costs, increase cleaner energy production, and reduce carbon emissions by roughly 40% by 2030, presenting a triple win for the country:
1. Invigorate the U.S. domestic manufacturing sector by incentivizing domestic production of solar panels, wind turbines, and electric battery storage. It will create jobs in manufacturing facilities, boost the economy, and reduce reliance on foreign goods.
2. Reduce carbon emissions in line with our net-zero pledge. The IRA sets ambitious, achievable targets for reducing carbon emissions, to slash carbon emissions by about 40% by 2030. With tax credits (more on that in a minute), grants, and loans available for businesses that invest in clean energy technologies, the IRA will make it more affordable for businesses to invest in these technologies.
3. Create millions of quality jobs in green industries, like manufacturing, installing, maintaining, and developing new clean energy technologies
With an optimistic vision for America’s future, the IRA’s strategy stimulates economic growth, advances environmental goals, and promotes employment. What’s in it for you as a business? The opportunity to progress toward a sustainable future without a significant financial burden.
How does the Inflation Reduction Act encourage investment?
The IRA presents a dual approach to encourage investment—it stabilizes the economic climate and provides a clear direction for businesses seeking to invest in a sustainable future. The IRA is not just a response to inflation—it’s a driving force behind economic growth and environmental stewardship.
According to the White House, “The Inflation Reduction Act of 2022 (IRA) is a comprehensive plan to address the inflation challenge facing the United States. The IRA includes a number of measures aimed at reducing inflation, including increasing federal government revenue, lowering healthcare costs, and increasing the supply of goods and services. The IRA also includes a ten-year plan of security for inflation, which will help to protect American families from the effects of inflation.”
From a technical standpoint, the IRA is a strategic mechanism to counteract inflation, which is traditionally a deterrent to businesses considering long-term investments in a volatile economic climate.
The IRA also promotes investment by providing the stability of public funding. This bill is not just about reducing inflation; it’s about sparking a transition towards more sustainable technologies and business models.
Global economies are shifting toward a net-zero future, and there is an opportunity to strategically align national policies and economies with that reality.
Consider a small business interested in switching to renewable energy but held back by the initial costs and uncertain ROI. With the IRA’s ten-year plan, this business is assured of sustained government support, making the transition to green energy financially prudent. Similarly, tech startups developing innovative carbon-capture technologies can rest assured knowing their efforts align with government-backed sustainability initiatives and make such ventures more viable and attractive to investors.
What are the IRA incentives for businesses?
The IRA offers many opportunities for businesses to optimize internal infrastructure, lower energy costs, and drive growth. By encouraging investments that align with broader economic and environmental objectives, the IRA aims to create an environment where businesses survive and thrive.
Here are a few ways that businesses can save under the IRA, all of which the IRA provides tax credits or grants and loans for:
- Invest in energy efficiency measures. Businesses can save money on their energy bills by investing in energy efficiency measures, like insulation, energy-efficient lighting upgrades, and smart thermostats.
- Install renewable energy systems. Businesses can generate electricity from renewable sources, like solar and wind power, and receive up to 30% back on the installation cost.
- Purchase energy-efficient appliances. Businesses can save money on energy bills by purchasing energy-efficient appliances like refrigerators, washing machines, and dishwashers.
- Adopt sustainable practices. Businesses can reduce their environmental impact by adopting sustainable practices, like recycling, composting, and water conservation. They can also qualify for tax credits for implementing employee incentives, like biking to work.
- Get grants and loans to help finance sustainability and clean energy projects. The IRA provides grants and loans to help businesses finance clean energy and sustainability projects, for example, retrofitting commercial buildings for energy efficiency or installing electric vehicle charging infrastructure. These measures are designed to make it easier for businesses to make these investments.
However, the allure of the IRA extends far beyond electrification. It offers a robust suite of tax credits designed to encourage business investment in key areas:
- Research and development credit: This credit is available to businesses that invest in research and development activities aimed at new or improved technological innovation. The amount of the credit is equal to 20% of the qualified research expenses.
- Small business expensing: This provision allows small businesses to expense up to $1 million of the cost of new equipment in the purchase year.
- Net operating loss carryback: This provision allows businesses to carry back net operating losses for up to two years, which can help businesses offset taxable income and reduce their tax liability.
What specific incentives does the IRA provide for clean energy and sustainability initiatives?
The Inflation Reduction Act (IRA) provides several tax credits for businesses that invest in clean energy or other sustainability initiatives. Designed to incentivize companies to prioritize net-zero practices and innovations, the credits contribute to broader societal goals while offering financial benefits to companies.
Some of the tax credits available to businesses under the IRA include:
- Investment Tax Credit (ITC): The ITC is a tax credit of up to 30% of the cost of installing solar panels or other renewable energy systems. The credit can help businesses save money on energy bills and reduce their carbon footprint.
- Production Tax Credit (PTC): The PTC is a tax credit of up to $0.0275 per kilowatt-hour (kWh) of electricity generated from wind or geothermal energy and can help businesses save money on their energy bills and reduce their reliance on fossil fuels.
- Energy Efficiency Improvement Credit: The Energy Efficiency Improvement Credit is a tax credit of up to 30% of the cost of making energy efficiency improvements to a business’s property, helping them save money and reduce their environmental impact.
- Clean Fuel Vehicle Tax Credit: The Clean Fuel Vehicle Tax Credit is a tax credit of up to $7,500 for a new electric vehicle or $4,000 for a new plug-in hybrid EV. This credit helps businesses make the transition to an electric fleet.
- Alternative Fuel Infrastructure Tax Credit: The Alternative Fuel Infrastructure Tax Credit is a tax credit of up to 30% of the cost of installing alternative fuel infrastructure, like electric vehicle charging stations or clean hydrogen fueling stations.
The tax credits and other incentives available under the IRA can help businesses reduce their costs, improve their bottom line, and protect the environment.
If your business plans on taking advantage of any of the IRA’s tax credits and incentives, Sustain.Life can help you track your emissions reductions as a result. Book a demo today to learn more.
1. UNCTAD Investment Policy Hub, “$369 billion in investment incentives to address energy security and climate change,” https://investmentpolicy.unctad.org/investment-policy-monitor/measures/4004/-369-billion-in-investment-incentives-to-address-energy-security-and-climate-change Accessed May 23, 2023
2. The White House, “Inflation Reduction Act Guidebook,” https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/ Accessed May 23, 2023
3. IRS, “Qualified Small Business Payroll Tax Credit for Increasing Research Activities,” https://www.irs.gov/businesses/small-businesses-self-employed/qualified-small-business-payroll-tax-credit-for-increasing-research-activities Accessed May 23, 2023