The Inflation Reduction Act is an opportunity for businesses to improve their sustainability with significantly reduced costs

The Inflation Reduction Act (IRA) of 2022 marks a pivotal moment for businesses pursuing sustainability. Among the many initiatives the IRA covers, it has a strong focus on reducing energy use and expediting renewable energy development in the U.S. It is the largest climate and energy spending package in U.S. history and includes $394 billion in funding for renewable energy and climate resilience projects. Out of this, $216 billion are tax credits for businesses.  

This is an opportunity for businesses to improve their sustainability with significantly reduced costs — a chance that should not be passed up. However, specific guidelines and targets must be met to qualify for the incentives. Understanding the IRA's provisions and planning accordingly is essential.

Early planning for success

It's always better to be proactive rather than reactive. Knowing what's possible before starting a project and integrating IRA requirements throughout the process is far more efficient than trying to prove compliance retroactively. This proactive approach is not only a good idea for programs in the IRA but also for sustainability initiatives in general. 

Including sustainability programs from the beginning of a project integrates them throughout its lifecycle rather than retroactively squeezing them into existing systems or searching for the necessary budget.  

Fleet vehicle cost savings

The IRA offers a tax credit of 30% off the sale price of commercial electric vehicles, up to $7,500 per vehicle, and up to $40,000 for trucks. This first federal tax credit for commercial EVs is valid through 2032. To capitalize on this, businesses should maintain an inventory of their existing fleet to prioritize vehicle replacements strategically.

Onsite renewable energy

Integrating onsite renewable energy can be a great way to reduce emissions and lower operating expenses. This will show year-over-year improvements in your annual greenhouse gas reporting — an important part of all sustainability programs.

The IRA offers incentives for either the initial installation of renewable systems or for producing renewable energy — the same renewable energy system can't claim both. Which option is better depends on the size of the system, installation cost, and efficiency. Typically, larger projects with high rates of energy generation should go for the production credit, and smaller, less efficient projects are better off with the installation credit. 

Energy investment credit

The energy investment tax credit provides a 30% credit for the installation and equipment costs of solar, wind, energy storage, and other renewable energy systems. An additional 10% tax credit is available for projects in low-income communities. That's a chance to reduce installation costs by up to 40%! However, to qualify, the installation and maintenance workers on the project need to be paid the local prevailing wage, and at least 10% need to be in registered apprenticeship programs.  

Meeting this tax credit requires forward planning. You should start by evaluating which type of renewable energy system is most suitable for your location. Factors such as annual sunshine and wind are major considerations, along with available space to place the system. Next up is getting estimates and ensuring contractors can meet the labor requirements to qualify for the tax credit. 

Clean energy production

The production tax credit offers 2.75 cents per kWh of renewable energy produced for the first 10 years of the project's lifetime, with similar labor requirements as the investment credit. Businesses must evaluate which credit—installation or production—best suits their needs, considering labor and energy production over the project's lifespan.

Energy-Efficient building improvements

The IRA extends and expands the 45L tax credit for residential units and the 179D credit for commercial structures. Residential units can receive up to $5,000 for meeting Energy Star and DOE Zero Energy Ready Home Program standards. Commercial buildings can receive between $2.50 and $5.00 per square foot for energy efficiency improvements. Both credits have worker prevailing wage and apprenticeship requirements.

Early-stage planning and design are critical for achieving the high energy efficiency required for these credits. Developers must ensure thorough documentation and third-party verification of energy reduction estimates.

Additional IRA incentives

Beyond what was already discussed, a variety of opportunities are available for more niche businesses. This includes tax credits for businesses manufacturing renewable energy components or implementing carbon capture equipment.

Researching the IRA to identify which incentives apply to your specific projects and understanding how to claim them is an integral part of forward planning. You can also tap into sustainability experts to help guide you through the process! 

Moving Forward: Navigating the IRA

Navigating the complexities of the IRA and understanding which incentives your business can claim requires expertise. Additionally, making sure the incentives play a significant role in your business's larger sustainability programs, rather than a one-off project, is important. Showing ongoing sustainability improvements continues to grow in importance to investors and consumers alike.  

Laura Steinbrink and Emerald Built Environments help teams identify whole system visions for sustainability that create practical success for stakeholders. They use keen facilitation skills to move clients and project teams through difficult decisions by pinpointing what matters and exploring team knowledge for innovative solutions. Laura has directly participated in over 50 LEED projects nationwide, including BD+C, ID+C, O+M, C+C, ND, and Homes. She is the firm’s founder and managing member and continues to work with clients, helping them set and achieve sustainability goals and strategies. Recently, she's been busy leading the firm's E in ESG practice area, which supports sustainability strategy development, stakeholder engagement, GHG emissions reporting, and compliance frameworks, including TCFD and GRESB for large privately held companies. 

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