Will the IRA Make The Energy Transition Worker-Friendly and American-made?

By Matthew McMullan
Nov 18 2022 |
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As always, the details will matter a lot.

You know what’s both cool and good? Lemme tell you, buddy: The Inflation Reduction Act (IRA). It’s cool because a society-wide switch to clean energy will slow down the warming climate, and it’s good because it will help facilitate that. Ultimately, it will help get Americans get out of automobiles powered by combustion engines and into American-made EVs. And that’s great, because we sure do love our cars. 

But – and this is something we say often at the Alliance for American Manufacturing, whether we’re talking about Buy America rules or a primary election candidate agitating about U.S. trade policy – the details matter. The IRA, which passed in August, has put a framework in place. It spends close to $370 billion dollars on an American-made energy transition, the lion’s share of which comes in the form of foregone tax revenue that will incentivize the buildout of clean energy infrastructure like charging stations, energy-efficient construction for commercial buildings, and also for generation of renewable electricity. It also includes consumer tax credits for buying qualifying domestically manufactured EVs. And, very importantly, the IRA includes provisions attached to these tax breaks that are meant to ensure companies building and installing all this clean energy stuff pay prevailing wages and employ a sizeable amount of apprentices on their construction sites.

Qualifying, provisions – this is where the details come in. Because a lot of this is incentivized by tax breaks, the Treasury Department and the IRS will have to issue regulations to spell out what exactly will qualify for these incentives. And the way they spell them out – the details – will greatly determine how far the IRA’s incentives will go toward doing what they’re supposed to be doing: Making sure good wages are paid on the jobs the bill will generate, while also encouraging domestic manufacturing.

There was a very good article on this subject in the American Prospect earlier this week. Joel Michaels writes:

These provisions represent a dramatic new vision for shared growth. The U.S. has always done industrial policy through the tax code. The fuel and R&D tax subsidies of yore, however, had no requirements for recipient companies to pay their workers a living wage.

But whether this new vision will be successful is uncertain. Its success rests on how the Treasury and IRS write the regulations implementing Congress’s plan.

Michaels points out that because these tax breaks are “uncapped,” it means they can be claimed by anyone, without limit, in perpetuity. And if we get the details right in the tax breaks the IRA framed out it could generate a lot more investment than originally forecast.

You can read the article here. And again: The details matter!