What Does the Inflation Reduction Act Mean for Climate Tech?

Here are questions to ask about the bill’s impact on climate tech. In any case, it’s a huge and welcome step forward.

This article was originally published by GreenBiz and is part of Covering Climate Now, a global collaboration of news outlets strengthening coverage of the climate story.

Senator Chuck Schumer

After almost two years of uncertainty and the ever-looming threat of losing the congressional majority without passing any major climate legislation, Democratic senators are finally ready to support a bill that offers incentives for crucial climate technologies.

Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV) announced July 27 their intention to introduce the Inflation Reduction Act of 2022 (IRA22) to the Senate floor. The main objective of the bill is to cut inflation, meaning impacts will be felt at every startup and legacy company with a large overhead and limited amount of capital. And hopefully, by every American.

The intricacies of the bill itself can be read at a plethora of other outlets already eloquently covering the general proposal. Instead, this article begins the process of asking questions about its potential impact on behalf of every stakeholder within the climate tech sector — the scientists, entrepreneurs, venture capitalists and all related employees within clean energy.

Before asking initiative-specific questions, some initial queries:

  • Will the bill’s proposed tax credits benefit emerging technology companies or bolster already established corporations with a track record of steady production and economic stability? If both, how will that money be allocated?
  • Will the ability to take advantage of the financial incentives include diversity and equity requirements? As explained in the most recent Climate Tech Weekly newsletter, the number of funding deals for women-led businesses is still abysmally low, and the current data doesn’t break down the number of businesses led by entrepreneurs who are Black, Indigenous or people of color.
  • Will the rollout include accessibility standards and education initiatives, ensuring all Americans can understand and benefit from the bill and thus the technology being created?

On Manchin’s official website, he published a lengthy statement declaring, “…[to ensure] our country invests in the energy security and climate change solutions we need to remain a global superpower through innovation rather than elimination … As the superpower of the world, it is vital we not undermine our superpower status by removing dependable and affordable fossil fuel energy before new technologies are ready to reliably carry the load.”

Manchin’s phrasing left little to interpretation. The West Virginia senator requires the preservation of coal plants and use of oil for an undetermined time, alongside solar, wind, hydro, hydrogen and nuclear power generation nationwide. There is no specific mention of natural gas, but it’s safe to assume it’s inclusion within the fossil fuel category. These fossil fuels (and potentially hydrogen) require pipelines for transportation, adding a new category of questions to be considered.

Follow-up questions:

  • How will pipeline infrastructure be addressed?
  • Is there a technologically innovative way to create pipeline infrastructure ensuring minimal environmental and cultural impact (such as the protests that erupted in the wake of the Dakota Access Pipeline plan), and can old infrastructure be effectively repurposed?
  • Who will oversee the permitting and pipeline development process? Federal agencies? Government contracting to private corporations? Or will it be on a state-to-state basis?
  • It was reported that Alaskan land and the Gulf of Mexico will be available for new oil and gas drilling leases. Will the influx of previously unavailable fossil fuels affect the market for renewable energy, slowing down development and integration of available renewable technologies in deference to the familiar oil and gas? If yes, is there a contingency plan in place to combat that particular effect on the market?

Next, the bill claims that it will cut America’s GHG emissions 40 percent by 2030. The Washington Post reports that one path towards that goal includes $30 billion in production tax credits to increase U.S. manufacturing of solar panels, wind turbines, batteries and critical minerals processing, alongside $10 billion in investment tax credits to ensure that climate technology is built in the United States.

Follow-up questions:

  • What does the word “manufacturing” mean in this context? Literal construction of solar panels and wind turbines? Or does it also include infrastructure development vital to the distribution of this clean energy (including retrofitting older systems and grids, upgrading, if not overhauling, current energy infrastructure, and ensuring clean energy is available across the U.S. regardless of geographical location)? And will some of these funds be dedicated to technological innovation of this infrastructure?
  • As GreenBiz previously reported, using the power of green hydrogen, for example, requires the ability to safely and efficiently transport the hydrogen. Do the incentives apply to companies focusing on those transportation needs or solely to businesses creating hydrogen-fixing engines and other “green” renewable energy alternatives?
  • Will the federal government require companies taking advantage of tax incentives to submit annual or biannual reports reaffirming their eligibility for the incentives, ensuring taxpayer money is efficiently and effectively used for renewable energy and climate technology production? If yes, what will that look like? How will an auditing body be chosen?
  • What will be required of companies choosing to engage in this process? Will it require additional resources to legally and regularly comply?

One of the more surprising aspects of IRA22 is the inclusion of a 15 percent corporate minimum tax for companies generating more than $1 billion in annual revenue. The likes of Amazon, Google, Apple, Meta, Microsoft and Alphabet will take a financial hit. Each of these major tech companies also invest heavily in climate tech creation, funding numerous innovative climate tech startups and funds to produce much of the renewable energy and mitigation technology supported by IRA22.

Jamie Beck Alexander, director of Drawdown Labs, further elaborated on the complicated dilemma the corporate tax introduces. Referring to conversations held between Alexander and the big tech companies, Alexander said, “The same big tech companies [stated] if you remove any language around corporate taxes we can maybe support [the bill] but we cannot, we will not support anything that has a corporate tax like that on it.”

Alexander further stated that employees working with and for these multibillion-dollar companies should remain vigilant, adding pressure from within to ensure each company’s publicly stated environmental and social values remain an equal priority with their economic bottom line.

Follow-up questions:

  • Will the proposed 15 percent corporate tax impact the willingness of multibillion-dollar companies to invest and continually support climate tech funds and startups?
  • Will Amazon, Google, Apple, Meta, Microsoft, Alphabet and other companies covertly lobby to kill the bill secretly? Or, will they benefit from it because of all of the work and money already invested in the climate tech startup sector?
  • Or, most realistically, will it be a little bit of all of the above? Lobbying against the tax while also taking advantage of the benefits for their climate tech work?

These questions are just the tip of the iceberg. As the bill is 725 pages long, it will take time for all of the details to come to light. If/when IRA22 passes the Senate, it still needs to go through the House of Representatives for President Joe Biden to ratify. Policies will change, numbers will be slashed or engorged, and industry lobbyists will apply external pressure.

Until the bill becomes a law, the climate tech sector can only follow developments and prepare accordingly.

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