The Inflation Reduction Act is designed to reduce the cost of generating renewable energy in the United States. It offers tax credits that can cover up to 70% of a renewable energy project if it meets certain requirements. These incentives are meant to support American workers and communities, and to offset the added expense of using domestically produced goods and paying prevailing wages.
However, the Biden administration’s guidance on how the tax credits will be allocated is causing concern among energy companies. For example, Summit Ridge Energy, a developer of utility-scale solar projects, purchased 2.5 million U.S.-made solar panels, but the Treasury Department issued guidance that would require the solar cells, not just the panels, to be made in the United States for Summit Ridge to qualify for the 10% tax credit.
This guidance is emblematic of the current stage of climate action, which involves technical rule-making that reflects a tension between urgency and ensuring that the benefits of the energy transition are widely shared. The bonus tax credits are meant to offset the costs associated with going the extra mile, but they’re not requirements.
While some companies are concerned that they may not qualify for tax credits, others feel that the Inflation Reduction Act is a powerful force for decarbonization. The impact of the law is already evident, with announcements of 47 new plants to make batteries, solar panels, and wind turbines since it was passed.
