BlueGreen Alliance | A User Guide to the Inflation Reduction Act

How New Investments Will Deliver Good Jobs, Climate Action, and Health Benefits

The transformational power of the Inflation Reduction Act cannot be overstated. This legislation—passed by Senate and House Democrats and signed into law by President Joe Biden on August 16, 2022—will revitalize U.S. manufacturing, grow clean energy, and support and create good union jobs across the country. It will tackle climate change by reducing emissions up to 42% by 2030 and create the good-paying, union jobs we need to give all workers the opportunity for a middle-class life. The Inflation Reduction Act demonstrates that we can have both good jobs and a clean environment.

The Inflation Reduction Act will:

  • Grow clean energy and drastically reduce emissions while creating high-quality jobs in the clean economy through proven standards that lift up job quality;
  • Make historic investments to expand clean energy and electric vehicle (EV) manufacturing;
  • Transform the industrial sector to reduce emissions and build our own supply chains for vital technologies;
  • Accelerate clean vehicle deployment and a whole-of-government approach to address this source of greenhouse gas and health-harming emissions, while also creating and preserving good union jobs, supporting and growing a domestic supply chain for vehicle components and technologies, and improving mobility and air quality in our neighborhoods;
  • Establish a host of critical investments in clean energy infrastructure, transmission, energy efficient homes and buildings, affordable housing, and resilient and healthy communities; and
  • Sustain and expand high-quality jobs to workers and in communities that need them the most, including low-income workers and workers living in communities that have been hit hard by energy transition or job outsourcing. 

An analysis from the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst commissioned by the BlueGreen Alliance found the more than 100 climate, energy, and environmental investments in the Inflation Reduction Act will create more than 9 million jobs over the next decade—an average of nearly 1 million jobs each year (see Table 1).

Table 1: Job Creation Estimates from Investments in the Inflation Reduction Act

Policy Area Job Creation Potential over 10 Years
Clean Energy Investments 5,000,000
Clean Manufacturing Supply Chains 900,000 
EVs and Clean Transportation 400,000
Energy Efficiency Improvements for Homes and Offices 900,000
Environmental Justice and Climate Resilience 150,000
Natural Infrastructure  600,000

Political Economy Research Institute (PERI) at the University of Massachusetts Amherst

More specifically, the report found:

  • Expanded tax credits to support manufacturing of clean energy technologies—from solar to wind to batteries—would support the creation of more than 67,000 jobs each year over a decade.
  • A new program to invest in pollution-reducing upgrades at steel, aluminum, cement, and other emissions-intensive manufacturing facilities would create nearly 12,000 jobs each year over a decade.
  • The investments in just two programs—the Advanced Technology Vehicle Manufacturing (ATVM) Loan Program and the Domestic Manufacturing Conversion Grant Program—that will prepare facilities for EV and other clean transportation manufacturing would create more than 7,000 jobs each year over a decade to retrofit those facilities. They would also create or sustain hundreds of thousands of long-term jobs at thousands of factories established, expanded, or retooled with federal support and more throughout the economy.
  • The nearly $3 billion dollars to update and modernize our transmission infrastructure would create nearly 4,000 jobs each year over a decade

This law represents a game-changing investment in the nation’s economy. It will make our nation and economy stronger, cleaner, and more just. The robust investments included in this package will support and create good union jobs, help fight inflation, lower healthcare and energy costs, reinvest in domestic manufacturing, build secure supply chains, and make our economy less dependent on volatile global prices. At the same time, it will take bold action to confront the climate crisis, invest in economic and racial justice programs, support clean air and water, and power our nation for generations to come.

The Inflation Reduction Act demonstrates that we don’t have to choose between good jobs and a clean environment, as some falsely claim. This legislation supports both. 

A User Guide

Many of the programs and policies included in the law are new or expanded, and wading through the processes of utilizing these new funding sources efficiently and to their maximum benefit may be somewhat overwhelming. 

The purpose of this user guide is to act as an easy reference for a number of policies and programs included in the law in eight broad areas:

  1. Clean Energy 
  2. Clean Technology Manufacturing  
  3. Industrial Transformation 
  4. EV Deployment, Manufacturing, and Supply Chain 
  5. Transmission
  6. Buildings 
  7. Energy Transition for Workers and Communities 
  8. Resilient and Healthy Communities 

We explore the goals, timelines, and implementation mechanisms for each of these policy areas. In doing so, we hope this resource helps ensure the funds from the Inflation Reduction Act are maximized to benefit workers, their families, and communities by achieving job quality as well as climate, health, and equity gains.

We explore how the law addresses job quality and equity; break down the implementation mechanisms included in the legislation and explain how they operate; outline some key provisions in the law; and provide an easy-to-reference grid of some of the key provisions and how they work.

The law is expansive and includes tax policy and health care provisions that—while significant—fall outside of the scope of this resource. The provisions we have selected for a deeper dive in this user guide all touch on the intersections between good jobs, a stable climate, a clean environment, and a fair and just economy.

The Bipartisan Infrastructure Law

The investments in the Inflation Reduction Act complement those in the $1.2 trillion Bipartisan Infrastructure Law (BIL)—also known as the Infrastructure Investment and Jobs Act—which was signed into law by President Biden on November 15, 2021. The investments and policies included in this law—some of which are already being released by federal agencies—will rebuild and modernize our nation’s crumbling infrastructure and create good-paying, union jobs across the nation while making some important investments to address climate change. At the same time, there are concerns with some of the law’s provisions, and careful attention to implementation will be needed to ensure the law translates into benefits for the environment and communities. 

BIL includes billions in reauthorizations of existing programs as well as $550 billion in new federal infrastructure funding over five years to repair, rebuild, and modernize America’s bridges, transit systems, water infrastructure, and more. While more than half of the law’s funding is dedicated to transportation infrastructure—including surface transportation, airports, zero-emissions school buses, EV charging, ports, public transit, railways, and more—it also provides significant funding for broadband, the power grid, water infrastructure, improving resiliency, and legacy pollution reduction. 

This law will support and create high-quality union jobs, not only at construction job sites, but at manufacturing facilities across the supply chain through the use of strong Buy America and Buy American provisions.

The BlueGreen Alliance previously released a user guide breaking down the investments in the BIL. You can find that resource here.

Implementation Overview: How the Money Moves

Successful navigation of the federal funding made available by the Inflation Reduction Act will require familiarity with 1) the mechanisms through which federal programs are implemented and 2) the different ways federal funds flow from federal agencies, whether through states—and, ultimately, to communities—or directly to eligible entities. For each of the policies we explore in this guide, we have identified which mechanism will be used in the grids included in this document. Below, we provide more information on those mechanisms and how they generally operate. 

Eligible Entities

In broad terms, the funding made available in the Inflation Reduction Act flows in one of two ways: either to states—which then utilize the funds themselves or distribute them to local governments, communities, or private entities—or directly to private entities and/or individuals. 

Which entities are eligible for each program or funding opportunity will depend largely on what type of funding structure that program utilizes. For example, block grants are distributed to state and local governments and not to private entities. Alternatively, consumer tax credits are distributed to individuals, bypassing state and local governments. Loans—like those made available by the U.S. Department of Energy (DOE) through their Loan Programs Office (LPO)—can be awarded to a wide range of entities. 

In the section below, we explore the different funding mechanisms and, where possible, note what entities are typically eligible for that type of funding. Additionally, you will find eligible entity notes for each program included in the charts included on this site.

Grants

At its most basic, a grant provides government funding that is not expected to be paid back. However, within this broad category, there are several subtypes of grants that are used to distribute funding in the Inflation Reduction Act. 

Mandatory Grant: 

A mandatory grant is any grant in which funds are automatically awarded to all eligible applicants. Mandatory grants are not typically given to private organizations or individuals. Rather, they are awarded to state or local governments. Mandatory grants are typically created by legislation that appropriates money for a specific program and determines eligibility for lower levels of government to receive the money to implement the program. 

Block grants—like the Environmental and Climate Justice Block Grants included in the Inflation Reduction Act—and formula grants—such as the High-Efficiency Electric Home Rebate included in the law—are usually subsets of mandatory grants. We explore these subsets in more detail below. Discretionary grants are mutually exclusive from mandatory grants.

Formula Grant:

A formula grant is a type of mandatory grant where funds are disbursed according to a “formula,” or a fixed set of criteria usually written into the enabling legislation. The formula dictates whether an entity is eligible for funds, and if so, how much. If an entity meets the formula, the award is automatic. The formula may be as simple as a flat dollar amount per unit of population, or it may be much more complex, including various funding, eligibility, program, and compliance criteria. However, it is always intended to be quantitative and objective.

Formula grants are typically awarded to either state or local governments. Large federal spending programs are often structured as formula grants to states, where every state receives an amount of funding based on its population and other characteristics, and then spends this funding to implement the program.

Formula grants are quite similar to block grants, and many programs qualify as both. When a distinction is made, block grants provide more flexibility and breadth to the awardees, while formula grants have more specific and quantitative funding structures and requirements. Formula grants that are not considered block grants may instead be considered as categorical grants. 

Block Grant: 

A block grant is a mandatory grant awarded to a government entity by a larger government entity to fulfill a broad set of government functions. In the case of a federal block grant, the government defines a set of functions to be carried out, and then awards grants to state or local governments to carry out those functions at their own discretion. A prominent example included in the Inflation Reduction Act is the Environmental and Climate Justice Block Grant, which can be used for community-led monitoring and remediation of emissions, mitigating the effects of urban heat islands, and facilitating the engagement of disadvantaged communities in federal and state policymaking. 

Block grants are quite similar to formula grants, and many grant programs qualify as both. Block grants are mutually exclusive from categorical grants, as block grants give broad discretion to awardees to spend their funds, while categorical grants have highly specific requirements.  

Discretionary or Competitive Grant:

A discretionary grant, also called a competitive grant, is a grant where awardees are chosen among a pool of applicants based on a review process. The review process will generally involve a set of fixed criteria based on the grant program, funding agency, or specific Request for Proposal (RFP), but it will also most likely involve some degree of subjective judgment.

Federal discretionary grants are typically awarded by federal agencies. There may be enabling legislation that allocates money for a specific grant program, or the grant program may be created by the agency using its existing budget. Either way, the agency typically has a good amount of control over how to evaluate applicants and award funds. State and local government agencies, private companies, nonprofits, labor unions, and individual people may be eligible applicants, depending on the grant program.

Mandatory grants are mutually exclusive from discretionary grants.  

Categorical Grant:        

A categorical grant is any grant from the federal government to state and local governments to fund a highly specific set of programs and activities. Head Start is a classic example of a categorical grant in which the U.S. Department of Health and Human Services (HHS) funds local awardees to operate childcare programs following a specific set of federal guidelines.

Categorical grants may be structured as either mandatory or discretionary grants, and they may be structured as formula or project grants. Categorical grants are mutually exclusive from block grants, as block grants give broad discretion to awardees to spend their funds, while categorical grants have highly specific requirements. 

Project Grant:

A project grant is any grant awarded to fund a specific project, initiative, or service. These are typically competitive and may be awarded to government agencies, nonprofits, or private companies. Project grants are often considered a subset of categorical grants. The U.S. Department of Transportation’s (DOT) Capital Investment Grants are an example of a project grant program. 

Loans 

Broadly, loans are pools of government funding that are expected to be paid back, unlike grants. There are a number of loan programs included in the Inflation Reduction Act. 

Basic Loans

The Inflation Reduction Act authorizes or funds the federal government to make loans for a variety of purposes. Particularly critical to the clean energy and manufacturing investments we highlight in this document are loans that would be administered by the DOE’s LPO, which operates programs to provide financing for clean and advanced energy, industrial, and clean vehicle manufacturing projects. The benefit of working with the LPO for a project is that these loans are lower cost, the LPO is able to offer more flexible financing options, and the office remains involved in the project for its lifetime—offering access to DOE’s team of experts to help ensure the success of the project. 

Loan Guarantees

In some instances, DOE or other agencies are also able to provide loan guarantees—which reduce the risk of a project by having the federal agency agree to assume the debt for the loan should the borrower default—or coordinate with other parts of the federal government to provide a mix of grant, loan, or other financing.

Bonds

A bond is a security issued in exchange for a loan—essentially as an “IOU.” An entity can raise money by issuing a bond and selling it for cash to an investor. The bond typically stipulates a rate of interest to be paid over the life of the bond and a date of maturity when the principal is to be repaid in full.

There are a plethora of specific government bond programs designed for specific types of spending, projects, and circumstances, such as Qualified School Construction Bonds and Recovery Zone Economic and Facility Bonds. 

Tax Credits and Deductions

Project developers, manufacturers, and consumers are able to offset some of the cost of projects and purchases through tax credits. A variety of tax credits are used throughout the Inflation Reduction Act to incentivize the use and manufacture of clean technology.

The Basics: Refundable vs. Nonrefundable Tax Credits and Direct Pay

Tax credits fall into two broad categories, refundable and nonrefundable. A refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. A nonrefundable tax credit can only offset taxes owed and not increase an applicant’s federal refund. Therefore, a refundable tax credit can guarantee a benefit and a nonrefundable credit cannot. All of the forms of tax credits discussed below may be refundable or nonrefundable. 

Direct pay—which the Inflation Reduction Act applies to some tax credits—goes a step further, allowing developers to treat the tax credits as payments of their tax liability. Direct pay acts as a financing option for entities to receive their credit upfront, allowing them direct capital instead of relying on the tax equity financing market. Direct pay is available for the Investment and Production Tax Credits for eligible entities, including state, local, and tribal governments and tax-exempt entities.

Investment Tax Credits

The Inflation Reduction Act includes Investment Tax Credits (ITC)—dollar-for-dollar credits to offset expenses—for investments in renewable energy projects and the build out of manufacturing facilities to produce parts and materials for clean energy projects and clean vehicles. 

Production Tax Credits  

Production tax credits provide a rebate based on the amount of a relevant product made by an entity, such as a utility or manufacturer. One example is a rebate per kilowatt of electricity produced by a renewable source. These can also apply to manufacturing—a production tax credit would provide a certain amount for each blade or solar panel component produced.

Consumer Tax Credits

The law also includes a number of consumer tax credits to incentivize and support the use of clean energy and energy efficiency technologies as well as clean vehicles. For example, the Inflation Reduction Act includes significant extensions to energy efficiency tax credits for both homeowners and commercial property owners and developers. The Residential Energy Efficient Property Tax Credit (25C) is a tax credit that homeowners can use to make certain energy efficiency improvements to their homes and appliances. The Residential Clean Energy Credit (25D) is a tax credit that homeowners can use to install such things as solar panels and hot water heaters, batteries, geothermal heat pumps, and fuel cells.

Additionally, one exciting change to the tax code in the Inflation Reduction Act is that the Clean Vehicle Tax Credit, which will lower the upfront cost of purchasing a battery electric, plug-in hybrid, or fuel cell EV by up to $7,500, will also encourage car and battery manufacturers to bring their operations—and good automotive manufacturing jobs—onshore.  

Excise Tax

An excise tax is a tax on goods or services. Some well-known examples of an excise tax include taxes on gasoline, alcohol, cigarettes, and tires. These taxes are common at the federal, state, and local levels of government. The Inflation Reduction Act includes a permanent extension of the Black Lung Excise Tax, an excise tax on coal used domestically which funds the Black Lung Disability Trust Fund to help pay for expenses for miners disabled by Black Lung Disease and their families. 

Tax Deduction

Similarly to a tax credit, a tax deduction lowers the amount owed to the Internal Revenue Service (IRS), but it does so in a different way. While a tax credit reduces the amount of money owed to the IRS, a tax deduction reduces the amount of income subject to being taxed.

Other Investment Mechanisms

The Inflation Reduction Act also includes a couple of additional investment mechanisms that do not fit into the categories above. 

Cooperative Agreements

Cooperative agreements facilitate the transfer of something of value from federal executive agencies to states, local governments, and private recipients for a public purpose or benefit. While similar to grants, cooperative agreements differ in that they provide substantial involvement between the federal awarding agency or pass-through entity and the non-federal entity in carrying out the purpose of the agreement.

Technical Assistance

Technical Assistance is the process of providing targeted support to an organization with a development need or problem, which is typically delivered over an extended period of time. This form of assistance is particularly important to disadvantaged communities that might otherwise lack access to the resources or expertise needed to navigate complex environmental issues, regulations, and opportunities. Technical assistance can be provided through federal or state agencies to help communities and stakeholders at many levels.