States slow to take up IRA tax credits
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Just past the two-year anniversary of the Inflation Reduction Act, states have captured an average of 7% of the Biden administration’s signature climate legislation potential funding opportunities.
That’s according to an
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Private investment over the same period was 5-6 times larger, according to the report, from Rhodium Group and MIT’s Center for Energy and Environmental Policy Research. Private investment, which includes business and consumer investment, totaled $493 billion, a 71% increase from the two-year period preceding the legislation. Rhodium and MIT-CEEPR have created the
California and Texas, leaders in the clean energy economy, topped the states for the most amount of tax credits, the reports found. California has claimed $13 billion — 11% of its total potential — and Texas $9 billion, or 6% of its full funding potential, RMI said. Nevada, on the other hand, has already captured 54% of its full potential tax credits.
The IRA allocates billions in the form of tax credits, grants and loans over 10 years to support clean energy projects. It created or substantially modified 24 different incentives in the federal tax code, a dozen of which are available for the first time to non-tax paying entities like cities and states as elective- or direct-pay tax credits. Tax credits can cover anywhere from 6% to 70% of project costs.
Cities and states have been somewhat slow to pick up on the tax credits,
Federal investment in clean energy is likely to be a campaign issue between former President Donald Trump and Vice President Kamala Harris. No Republican voted for the IRA, and Harris cast the tie-breaking vote in the Senate. Trump has vowed to dismantle key provisions of the legislation, calling it overreach by the Biden administration whose provisions benefit China.
But the law has gained some traction among Republicans, especially those that have seen significant projects launched in their districts. That gives the IRA “staying power,” said John Podesta, Biden’s senior adviser for clean energy innovation and implementation, at an Aug. 13 speech on the IRA’s two-year anniversary.
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“According to Climate Power, 58% of the new clean energy jobs created since the IRA passed are located in Congressional districts represented by Republicans,” Podesta said.
He noted that in July, 18 House Republicans wrote a letter to Speaker Mike Johnson, R-La., urging him not to repeal the IRA’s energy tax credits.
“Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing,” the letter said. “A full repeal would create a worst-case scenario where we would have spent billions of taxpayer dollars and received next to nothing in return.”
Clean investment has flowed to all 50 states during the post-IRA period, the Rhodium/MIT report found.
In absolute terms, most of the dollars were spent in California at $94 billion, Texas at $69 billion, Florida at $29 billion, Georgia at $22 billion, and Arizona at $18 billion.
By 2030, RMI estimates the federal government will top $1 trillion. Through June, the government has allocated $66 billion, the group said.
“States have a long way to go in reaching their full investment potential,” RMI said in its report. “But if they focus on the sectors with the most opportunity, they can increase their chances of winning the race to the top. Use of the tax credits is just getting started, so it makes sense that these numbers are (for almost all states) low right now. But most states are also not on track to achieve the full potential, and more work will be needed to realize it.”
