The Inflation Reduction Act – Breaking Down Renewable Energy Development Support

Specific to climate change, the IRA includes $369 billion earmarked for energy security, climate resilience, and reduction of carbon emissions, with a goal of reducing carbon emissions by ~40 percent by 2030. The legislation includes significant provisions supporting renewable energy development, including offshore wind lease area expansion, investment in supporting electric transmission, and tax credits for offshore wind projects.

Passage of the IRA marks the largest single US federal government investment in renewable energy in our nation’s history. Further, it provides significant home energy rebate programs and tax credits for electric conversions and energy efficiency improvements, income-dependent tax credits for used and new clean vehicles, and a $1 billion grant program to increase energy efficiency in affordable housing.

The IRA includes over $60 billion for clean energy research and manufacturing support, including promotions for construction and conversion of manufacturing facilities to produce clean (electric and alternative fuel) vehicles; and production tax credits for wind turbines, solar panels, and supporting infrastructure and industries.

Offshore Wind Elements

Relative to offshore wind (OSW) development, there are a number of important components of the IRA to note, including funding for transmission planning supporting OSW developments, opening of locations on the Outer Continental Shelf (OCS) previously withdrawn from leasing including the southern Atlantic coastal areas and Gulf of Mexico, and expansion of the definition of the OCS to include the US exclusive economic zones and adjacent to US territories.

Other key elements of the IRA related to OSW include the issuance of energy investment tax credits (ITCs). This provision provides for a 30% tax credit for OSW projects that initiate construction before January 1, 2026 which may serve as a meaningful driver to accelerate projects in the licensing and permitting process now. There are a number of milestones built-in that can trigger additional ITCs, including meeting greenhouse gas emission reduction targets, and use of domestically manufactured goods. Additional elements of the program provide tax credits to domestic manufacturers of wind energy infrastructure components, including specialized OSW installation vessels.

A controversial element of the IRA legislation relates to the timelines and conditions under which the Bureau of Ocean Energy Management (BOEM) can issue new OSW lease area leases. Specifically, BOEM cannot issue new OSW lease areas unless it has issued leases totaling at least 60 million acres for oil and gas leasing in the OCS in the previous year. This is likely to result in BOEM needing to alter its path in implementing its upcoming offshore oil and gas 5 year leasing program. Critics of this element of the IRA have suggested it may be a significant impediment to OSW development.

Epsilon will closely monitor the rollout of the various provisions of the IRA related to energy production and OSW development, and we look forward to providing future updates in our Permitting Matters blog. We welcome your feedback and thoughts on the Inflation Reduction Act, and encourage you to reach out to us at dklinch@epsilonassociates.com to tell us what you think about what the federal government got right, and where they fell short of your expectations.

[1] Full text of bill available here: https://www.congress.gov/bill/117th-congress/house-bill/5376