The Inflation Reduction Act Stimulates Corporate ESG Goals

On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law, a historical moment in climate policy. Although called the “Inflation Reduction Act,” many economists have noted that these new policies have a lot to do with greenhouse gas (GHG) emissions and climate policy, outlining aggressive goals to drive the United States’ anthropogenic GHG emissions down to 40 percent of 2005 levels by 2030.

Regardless of political affiliation, we can all acknowledge that climate has taken center stage on both the financial and global economic stage, and for good reason. Just months before the IRA was enacted, the Intergovernmental Panel on Climate Change (IPCC) published its latest report predicting that if the Earth’s global temperature were to rise by 1.5°C, there would be “unavoidable increases” in climate risk, which we can now directly equate with economic risk.1

These laws may be the largest action taken by the US Congress and government to combat climate change in history. When viewed along with previous progress towards decarbonization across the private and public sectors, it positions the US to reach the IPCC recommended 50 to 52 percent GHG emission reductions by 2030 (approximately 1 million metric tons of carbon dioxide equivalent). By providing policy certainty and funding for the clean energy industry, the IRA also bridges the technology gap with the US’ economic competitors, positioning us to reclaim the mantel of technology and climate leader.

The IRA looks to mitigate the US’ influence on the 1.5°C scenario as noted above, and along with the Bipartisan Infrastructure Law, provides economic policy tools to provide cleaner energy, including major upgrades for public entities to reduce emissions, as well as boosting up low-income communities and improving access to resources. Specifically, the IRA’s funding primarily focuses on expanding renewable energy, decarbonized transportation, and green technology, encouraging an energy paradigm shift in the US, which will draw down GHG emissions and toxic air pollutants while positively influencing the economy and social equality. An estimated $369B is carved out for climate solutions and environmental justice (EJ) (see our earlier blog, The Rising Tide to Address Environmental Justice for more on this topic).

To fuel these initiatives, we can expect the following policies and funding allotments:

Individuals, families, and organizations

  • New and used electric vehicle tax credits ($7,500 and $4,000, respectively)
  • Energy efficient appliances and heat pump rebates ($14,000/household)
  • Solar tax credits (30%)
  • Wage requirements for clean energy tax credits

Organizations and industries

  • Hydrogen production cost savings (base credit of $0.60 per kilogram of clean hydrogen produced)
  • Forest and conservation efforts ($7.6B fund)
  • Methane emission monitoring ($1.5B funding to the EPA)
  • Methane emission penalties over 25,000MT of CO2e emissions ($900/ton in 2024, $1,200/ton in 2025, and $1,600/ton in 2026)
  • Carbon capture, utilization, and sequestration (CCUS) tax credits (various credits depending on carbon capture, use, and storage type)
  • Nuclear power plant tax credits ($15 per MWh produced)
  • Offshore wind production incentives ($100M fund)

What the IRA Can Do for You

The IRA must be viewed in the context of other government-driven steps to address climate risk. With the US Securities and Exchange Commission (SEC) poised to standardize public companies’ disclosure of climate risk information, 2022 will go down as a historical year for climate change policy reform.

As an organization, you might wonder how best to leverage the IRA and how to identify the most productive ways to contribute to the IPCC GHG reduction goal. Apex Companies highly recommends taking a long-term, data-driven, strategic management approach to ensure your climate action efforts are both impactful to your organization and to the wider goals of economic prosperity, social resiliency, and environmental stewardship.

Initial steps should include GHG inventory development, energy efficiency assessments, or a baseline review of your current ESG and sustainability program. Additionally, with new tools and models available, it’s becoming increasingly common to measure an organization’s climate change risk. A climate scenario analysis can help you assess this risk, providing greater resiliency to your operations and helping you prepare in the case of a natural disaster. An EJ screening can help to identify any business operations that could be impacting vulnerable communities.

Evaluating your risks and impacts allows you to identify your most critical objectives, which will position you to determine the most financially productive IRA and Bipartisan Infrastructure Law related projects to invest in. And remember that with any climate or social equity venture, thematic bonds can be another tool to enhance your investment as well (for more on green bonds, see our earlier blog Thematic Bonds: Opportunities and Risks).

The road to EJ and climate change mitigation can seem ambitious, but remember, every journey starts with a single step.

Below is a list of Apex service offerings to get you started:

To learn more, see our Sustainability and ESG services or contact us today!

1 https://www.ipcc.ch/sr15/

Apex Associated Press (Apex AP) represents contributions from various authors within the Apex professional community.

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