Legence - The U.S. Inflation Reduction Act (IRA): Key Provisions Impacting the Built Environment

THE WORLD’S FIRST ENERGY TRANSITION ACCELERATOR ™

Money on the Table

THE U.S. INFLATION REDUCTION ACT (IRA): Key Provisions Impacting the Built Environment

Executive Summary

With approximately 40 percent of global emissions attributable to the construction, operation and maintenance, and demolition of the global building stock, stakeholders of the built environment have a tremendous responsibility to accelerate the decarbonization of their assets. Reaching net-zero goals will require decarbonizing at least 40 percent of the existing building stock by 2030—the same year in which all new builds must, in perpetuity, be net-zero carbon.

Even still, the built environment remains the climate laggard. The sector’s annual operational energy-related emissions reached a record high in 2021, and was the sector that saw the largest annual increase in the U.S. in 2022.

But the risks associated with continued inertia and inaction are growing larger and more numerous. Beyond the obvious physical risks that unabated climate change poses for building assets, there’s the risk of noncompliance, both with new government regulations and with the expectations of investors, insurers, suppliers, employees, tenants, occupants and other stakeholders who engage and transact with the buildings and construction sector.

Indeed, the heightened focus on the sector’s management of its Environmental, Social, and Governance (ESG) risks underscores the imperative to invest—despite lackluster occupancy rates, climbing interest rates, labor shortages, bloated commodity prices, and other headwinds—in the sustainability of built environment’s value chain.

Fortunately, the passage of the U.S. Inflation Reduction Act (IRA) by the Biden-Harris administration last year offers a path forward for businesses of the buildings

and construction sector, as well as organizations of other industries with sizable building infrastructure footprints. The legislation makes available billions of dollars in tax credits, competitive grants, loans, and other funding mechanisms for businesses to put toward a variety of eligible climate change mitigation and adaptation projects in the built environment. It equips numerous federal, state, local, and Tribal institutions to invest in their own building assets and roll-out funding through existing and newly stood-up programs to local businesses and nonprofits for climate mitigation projects.

The IRA presents a once-in-a-generation opportunity to cost-effectively advance the climate alignment of America’s public and private building stocks. This federal assistance can help offset the oftentimes prohibitive costs of modernizing our existing building infrastructure. That said, IRA incentives vary in their periods of availability and the size of their allotments. Potential participants can benefit greatly from better understanding available funding mechanisms and eligibility and taking action sooner, rather than later.

Legence presents this eBook, Money on the Table, to provide insights to our valued stakeholders of the key opportunities now at their disposal and, importantly, offer guidance on how they may take advantage of them.

JEFFREY SPRAU Chief Executive Officer, Legence

About Legence

Legence, a Blackstone portfolio company, is an Energy Transition Accelerator™ that provides advisory services and implementation focused on financing, designing, building, and servicing complex systems in mission-critical and high-performance facilities.

Legence companies are top-tier, with years of experience and teams of experts positioned well within their sectors to move quickly and capture the once-in-a-generation funding opportunities made available by the IRA. They provide advisory and implementation services to assist partners in maximizing efficiency consumption and building efficiency from start to finish.

Our IRA Program Office can help you leverage key programs and connect you to relevant federal offices. We turn complexity into clarity — from funding application to project execution.

Click here and let us know how we can help.

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We’re a legion of companies committed to making the spaces we occupy healthier and more sustainable.

Understanding the Funding Mechanisms of the IRA

The IRA will rely heavily on the tax code to advance the deployment of clean energy technologies and combat climate change. It will restore, modify, and expand several tax credits and other incentives while also creating new credits. The Joint Committee on Taxation estimates that, in total, the provisions in Subtitle D – Energy Security of the IRA will cost approximately $68 billion over the next 10 years. Below is a summary of Subtitle D.

Many of these provisions provide two credit values: a lower base credit and a bonus rate. The bonus rate is equal to five times the base amount and is available only when requirements related to prevailing wage and apprenticeship are met. Under certain provisions, the IRA also further incentivizes the use of domestic content and placement in identified communities, e.g., energy communities or low-income communities.

Another unique feature of the IRA is that it permits taxpayers, in particular situations, to elect a direct pay option in lieu of a tax credit, or the option to monetize the credits by transferring them to another entity.

Key Concepts: Bonus Credit

PREVAILING WAGE

Under the prevailing wage requirements, a taxpayer must ensure that any laborers and mechanics are paid prevailing wages during the construction of a project and, during the relevant credit period, for the construction, alteration and repair of such a project. The IRA provides correction procedures and directs the Secretary of the Treasury to provide further guidance. In order to receive increased incentives for prevailing wages, guidelines must be met for all relevant projects where construction begins on or after January 29, 2023. For more information on the Department of Labor’s applicable prevailing wages, follow the steps linked here.

Energy Security of the IRA will cost approximately $68 billion over the next 10 years.

ENERGY COMMUNITY

Energy communities are defined to include: 1) brownfield sites; 2) a metropolitan or non-metropolitan area which (a) has direct employment or local tax revenues over an established percentage related to the extraction, processing, transport or storage of coal, oil or natural gas (b) has an unemployment rate at or above the national average; or 3) a census tract or any adjoining tract in which a coal mine closed after December 31, 1999, or a coal fired electric power plant was retired after December 31, 2009

APPRENTICESHIP

Under the apprenticeship requirements, a taxpayer must ensure that no less than the applicable percentage of total labor hours for the construction of the project is performed by qualified apprentices. The IRA provides correction procedures and directs the Secretary of the Treasury to provide further guidance. In order to receive increased incentives for apprenticeship programs, guidelines must be met for all relevant projects where construction begins on or after January 29, 2023.

LOW INCOME

Applicable for solar and wind facilities, low-income communities are defined by 26 U.S.C.§ 45D(e) or on Indian land. Low-income residential building projects are those projects participating in certain federal housing assistance programs, while low-income economic benefit projects are those where at least 50 percent of the financial benefits of the electricity produced must be provided to households with income either (a) less than 200 percent of the poverty line, or (b) less than 80 percent of area median gross income.

DOMESTIC CONTENT

The taxpayer must certify that any steel, iron or manufactured product which is part of a facility or project be produced in the United States. For this purpose, manufactured products will be considered manufactured in the United States if the “adjusted percentage” of the total cost of the components of such product are mined, produced, or manufactured in the United States.

Key Concepts: Credit Monetization

DIRECT PAY

In certain limited circumstances a taxpayer can elect for direct payment of the tax credit. Importantly, direct payment is only available for an “applicable entity” which includes tax-exempt Entities (e.g. school districts) a state or political subdivision thereof, the Tennessee Valley Authority, an Indian Tribal Government or any Alaska Native Corporation. In certain cases direct pay is phased out if domestic content requirements are not ascertained.

This limited direct pay option is available for tax credits found in Sections 30C, 45(a), 45Q, 45U, 45V, 45W, 45X, 45Y, 45Z, 48, 48C, and 48E.

Tax credits for which the limited direct pay option is available that are covered in this eBook include: Sections 30C, 45, 45Y, 48, 48C, and 48E.

The limited ability to elect direct pay by only those applicable entities is broadened under certain provisions (specifically Section 45Q, Section 45X, and 45V) for the first five years, opening the option to elect direct pay to a broader array of taxpayers.

TRANSFERABILITY

In certain circumstances, a taxpayer can elect to transfer all or any part of a tax credit to an unrelated taxpayer in exchange for cash. The ability to transfer is available for tax credits found in Sections 30C, 45(a), 45Q, 45U, 45V, 45X, 45Y, 45Z, 48, 48C, and 48E.

Tax credits eligible for transfer to an unrelated taxpayer in exchange for cash that are covered in this eBook include: Sections 30C, 45, 45Y, 48, 48C, and 48E.

In certain limited circumstances a taxpayer can elect for direct payment of the tax credit. Importantly, direct payment is only available for an “applicable entity.”

Energy and Climate Funding Opportunities for the Buildings and Construction Sector

Building Efficiency | Key Opportunities

IRA STATUTORY LOCATION: 50144 | ENERGY INFRASTRUCTURE REINVESTMENT

FINANCING

PERIOD OF AVAILABILITY: To remain available through September 30, 2026

AMOUNT: $5,000,000,000

FUNDING MECHANISM: Loan Guarantees

DESCRIPTION: The IRA creates a new program under the U.S. Department of Energy Loan Programs Office (LPO) entitled, “Energy Infrastructure Reinvestment Financing,” and provides $5 billion through Sept. 30, 2026 to be leveraged for up to $250 billion in commitment authority for loan guarantees (including refinancing) of eligible projects. The loan tenure must not exceed 30 years.

ELIGIBLE ACTIVITIES INCLUDE: Projects that (1) Retool, repower, repurpose or replace energy infrastructure that has ceased operations; or (2) Enable operating energy infrastructure to avoid, reduce, utilize, or sequester air pollutants or anthropogenic emissions of GHG. Potential projects could include repurposing shuttered fossil energy facilities for clean energy production, retooling infrastructure from power plants that have ceased operations for new clean energy uses, or updating operating energy infrastructure with emissions control technologies, including carbon capture, utilization, and storage (CCUS).

Additional Information: Energy infrastructure is defined as a facility, and associated equipment, used for (1) the generation or transmission of electric energy; or (2) the production, processing, and delivery of fossil fuels, fuels derived from petroleum, or petrochemical feedstocks.

Energy infrastructure projects that provide environmental damage remediation will qualify and fossil fuel projects financed will be required to have emission control technologies. Application requirements include (1) detailed project plans, (2) community engagement plans, and (3) if the applicant is an electric utility, the financial benefit of the program must be passed on to the customer or associated community.

Applicants interested in a pre-application consultation can contact lpo@hq.doe.gov

IRA STATUTORY LOCATION: 60201 | ENVIRONMENTAL AND CLIMATE JUSTICE BLOCK GRANTS (ECJ PROGRAM)

PERIOD OF AVAILABILITY: To remain available through September 30, 2026

AMOUNT: $3,000,000,000

FUNDING MECHANISM: Primarily competitive grants, with potentially a limited number of non-competitive grants and contract support.

DESCRIPTION: The IRA will provide $3 billion to establish a program to provide grants to invest in community-led projects in disadvantaged communities and community capacity-building centers to address disproportionate environmental and public health harms related to pollution and climate change. Of that $3 billion, $2.8 billion is available for grants for up to three years in duration to eligible entities for eligible activities. The remaining $200 million is allotted for technical assistance to the eligible entities for the $2.8 billion in grants to help them with activities related to the grants; technical assistance funding may be awarded in the form of grants or other funding mechanisms, such as contracts. Eligible funding recipients will be community-based nonprofits or organizations, or a partnership between community-based nonprofit organizations and a Tribe, a local government, or an institution of higher education.

ELIGIBLE ACTIVITIES INCLUDE: (1) Community-led air and other air pollution monitoring, prevention and remediation, investments in low- and zero-emission and resilient technologies, and workforce development that helps reduce GHG emissions and other air pollutants; (2) Mitigating climate and health risks from urban heat islands, extreme heat, wood heater emissions and wildfire events; (3) Climate resiliency and adaptation; (4) Reducing indoor air toxics and indoor air pollution; or (5) Facilitating engagement of disadvantaged communities in state and federal public processes.

Additional Information: In February 2023, the Environmental Protection Agency (EPA), which will administer the ECJ Program, issued a Request for Information (RFI) in order to source public input on ECJ Program Design, Eligible Projects, Eligible Recipients, [Program] Reporting and Oversight, and Technical Assistance. Parties interested in submitting a public comment on the ECJ Program (Docket ID No. EPA-HQ-OEJECR-2023-0023), either via the Federal eRulemaking Portal or via email at ECJRFI@epa.gov, have until April 10, 2023 to do so.

The IRA will provide $3 billion to establish a program to provide grants to invest in community-led projects in disadvantaged communities.

IRA STATUTORY LOCATION:

60503 | USE OF LOW-CARBON MATERIALS

PERIOD OF AVAILABILITY: Through September 30, 2026

AMOUNT: $2,150,000,000

FUNDING MECHANISM: Direct Federal Spending

DESCRIPTION: The IRA will provide $2.15 billion to the Federal Buildings Fund to acquire and install low-embodied carbon materials and products for construction and alteration of buildings under jurisdiction, custody, and control of the U.S. General Services Administration (GSA).

ELIGIBLE ACTIVITIES INCLUDE: Providing for the construction and renovation of GSA federal buildings using materials and products determined by the U.S. Environmental Protection Agency to have substantially lower levels of embodied greenhouse gas emissions as compared to industry averages for similar materials or products.

IRA STATUTORY LOCATION:

60504 | GENERAL SERVICES ADMINISTRATION EMERGING TECHNOLOGIES

PERIOD OF AVAILABILITY: Through September 30, 2026

AMOUNT: $975,000,000

FUNDING MECHANISM: Direct Federal Spending

DESCRIPTION: The IRA will provide $975 million to the Federal Buildings Fund for emerging and sustainable technologies, and related sustainability and environmental programs.

ELIGIBLE ACTIVITIES INCLUDE: Providing for the purchase, installation, and implementation of emerging and sustainable technologies, along with the GSA’s related sustainability and environmental programs.

IRA

STATUTORY LOCATION: 60116 | LOW EMBODIED CARBON LABELING FOR CONSTRUCTION MATERIALS

PERIOD OF AVAILABILITY: To remain available until September 30, 2026

AMOUNT: $100,000,000

FUNDING MECHANISM: Competitive grants, cooperative agreements, contract, technical assistance, direct federal spending

DESCRIPTION: To develop and implement a program to identify and label construction materials and products for use in federally funded transportation and building projects that have substantially lower levels of embodied greenhouse gas emissions.

ELIGIBLE ACTIVITIES INCLUDE: Work associated with identifying and labeling construction materials and products that have substantially lower levels of embodied greenhouse gas emissions.

Additional Information: Interim guidance was released by the Environmental Protection Agency (EPA) that interprets “substantially lower” materials as those that are in the highest performing 20 percent when compared to similar products/materials. Affected parties, including prospective funding recipients, and other stakeholders are encouraged to submit comments to the EPA on its establishment of these new grant, technical assistance, and carbon labeling programs for construction materials with substantially lower levels of embodied carbon. Parties interested in submitting a public comment on these programs (Docket ID No. EPA-HQ-OPPT-2022-0924) may do so through Federal eRulemaking Portal More information on this RFI, which closes on May 1, 2023, can be accessed here.

STATUTORY LOCATION: 30002(A)(1) | GREEN AND RESILIENT RETROFIT PROGRAM – GRANTS AND LOANS

IRA

PERIOD OF AVAILABILITY: Funds for grants and direct loans available until September 30, 2028

AMOUNT: $837,500,000

FUNDING MECHANISM: Competitive grants, loans

DESCRIPTION: To provide grants and loans to HUD-assisted properties to improve energy or water efficiency; enhance indoor air quality or sustainability; implement the use of zero-emission electricity generation, low-emission building materials or processes, energy storage, or building electrification strategies; or make the properties more resilient to climate impacts.

ELIGIBLE ACTIVITIES INCLUDE: To fund projects at an eligible property that improve energy or water efficiency; enhance indoor air quality or sustainability; implement the use of zero-emission electricity generation, low-emission building materials or processes, energy storage, or building electrification strategies; or address climate resilience.

IRA STATUTORY

LOCATION: 60102 | GRANTS TO REDUCE AIR POLLUTION AT PORTS

PERIOD OF AVAILABILITY: To remain available through September 30, 2027

AMOUNT: $3,000,000,000

FUNDING MECHANISM: Rebates and competitive grants

DESCRIPTION: To purchase and install zero-emission port equipment and technology, conduct associated planning or permitting activities for this equipment and technology, and develop climate action plans to further address air pollution at ports.

ELIGIBLE ACTIVITIES INCLUDE: (1) To purchase or install zero-emission port equipment or technology for use at, or to directly serve, one or more ports; (2) To conduct any relevant planning or permitting in connection with the purchase or installation of such zero-emission port equipment or technology; and (3) To develop qualified climate action plans.

Additional Information: The Environmental Protection Agency Office of Air and Radiation (OAR) issued a general RFI regarding the implementation of the Clean Ports Program. While that RFI expired in January 2023, stakeholders are welcome to submit written input on the Clean Ports funding program design to cleanports@epa.gov. At the time of this writing, the EPA plans to issue an additional RFI expanding on the Agency’s technical questions regarding the Inflation Reduction Act’s Clean Ports Program by April 2023. More information on the upcoming technical RFI can be found here.

IRA STATUTORY LOCATION: 30002(A)(4) | GREEN AND RESILIENT RETROFIT PROGRAM – BENCHMARKING

PERIOD OF AVAILABILITY: Until September 30, 2028

AMOUNT: $42,500,000

FUNDING MECHANISM: Federally-funded third party contract support

DESCRIPTION: To conduct energy and water benchmarking of HUD-assisted properties, provide associated data analysis and evaluation at the property and portfolio level, and develop information technology systems necessary for the collection, evaluation, and analysis of such data.

ELIGIBLE ACTIVITIES INCLUDE: Energy and water benchmarking, along with associated data analysis and evaluation at the property and portfolio level, and the development of information technology systems necessary for the collection, evaluation, and analysis of such data.

IRA

STATUTORY LOCATION: 60112 | ENVIRONMENTAL PRODUCT DECLARATION ASSISTANCE

PERIOD OF AVAILABILITY: To remain available until September 30, 2031

AMOUNT: $250,000,000

FUNDING MECHANISM: Competitive grants, cooperative agreements, contracts, technical assistance, direct federal spending

DESCRIPTION: To support the development and standardization of environmental product declarations, including measurements of the embodied greenhouse gas emissions of construction materials and products, through grants and technical assistance to businesses that manufacture construction materials and products, States, Indian tribes, and nonprofit organizations that support the businesses mentioned above.

ELIGIBLE ACTIVITIES INCLUDE: Developing and verifying environmental product declarations; technical assistance; other activities that assist in measuring, reporting, and steadily reducing the quantity of embodied carbon in construction materials and products.

Additional Information: Interim guidance was released by the Environmental Protection Agency (EPA) that interprets “substantially lower” materials as those that are in the highest performing 20 percent when compared to similar products/materials. Affected parties, including prospective funding recipients, and other stakeholders are encouraged to submit comments to the EPA on its establishment of these new grant, technical assistance, and carbon labeling programs for construction materials with substantially lower levels of embodied carbon. Parties interested in submitting a public comment on these programs (Docket ID No. EPA-HQ-OPPT-2022-0924) may do so through Federal eRulemaking Portal. More information on this RFI, which closes on May 1, 2023, can be accessed here.

IRA STATUTORY LOCATION:

60502 | ASSISTANCE FOR FEDERAL BUILDINGS

PERIOD OF AVAILABILITY: Through September 30, 2031

AMOUNT: $250,000,000

FUNDING MECHANISM: Direct Federal Spending

DESCRIPTION: To convert GSA facilities to high-performance green buildings, as part of the Federal Buildings Fund.

ELIGIBLE ACTIVITIES INCLUDE: Measures that improve a building’s environmental performance, including those that reduce energy, water, and material resource use; improve indoor environmental quality; reduce air and water pollution and waste generation; increase the use of environmentally preferable products; increase reuse and recycling opportunities; integrate systems in the building; and reduce the environmental and energy impacts of transportation to and from the building.

IRA STATUTORY LOCATION:

60106 | FUNDING TO ADDRESS AIR POLLUTION AT SCHOOLS

PERIOD OF AVAILABILITY: To remain available until September 30, 2031

AMOUNT: $50,000,000

FUNDING MECHANISM: Competitive grants and technical assistance

DESCRIPTION: To provide funding for grants and other activities to monitor and reduce pollution and greenhouse gas emissions at schools in low-income and disadvantaged communities. To provide technical assistance to schools in low-income and disadvantaged communities to develop school air and environmental quality plans and to identify and mitigate ongoing air pollution hazards.

ELIGIBLE ACTIVITIES INCLUDE: (1) To address environmental issues affecting air quality in schools; (2) To develop school air and environmental quality plans that include standards for school building, design, construction, or renovation; (3) To identify and mitigate ongoing air pollution hazards in schools; (4) To provide financial assistance addressing air quality to schools in low-income and disadvantaged communities.

IRA STATUTORY LOCATION:

13303 (SECT. 179D) | ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION

PERIOD OF AVAILABILITY: Permanent*

AMOUNT: $5.00/SF for projects placed in service between January 1, 2023 and December 31, 2032

Base Credit Amount: $0.50-$1.00 per square foot, depending on increase in efficiency, with deduction over four year periods capped at $1 per square foot. Inflation adjusted. Alternatively, taxpayers can deduct adjusted basis in “qualified retrofit plans” that reduce a building’s energy use intensity by at least 25 percent.

Bonus Credit Amount: 5 times the base amount if the project meets prevailing wage and registered apprenticeship requirements.

FUNDING

MECHANISM: Tax credit; Business Tax Deduction

Additional Information: If the qualifying system or building is installed on federal, state, or local government property, then the 179D tax deduction may be taken by the person primarily responsible for the system’s design. The 179D tax deduction does not apply to other non-tax paying entities, including but not limited to NGOs or churches, unless there exists an energy-as-a-service agreement that is owned by a tax paying company.

DESCRIPTION: Beginning in 2023, the IRA will modify, expand, and extend the energy-efficient commercial buildings deduction. The IRA will reduce the amount by which a building must increase its efficiency to qualify for the deduction from 50% to 25%, update the reference standard to ASHRAE 90.1-2007 and keep it current with any future ASHRAE updates, and eliminate the partial allowance of the 179D deduction. The base deduction will be $0.50 per square foot, and the deduction can be increased $0.02 for each percentage point increase in energy efficiency, up to a maximum of $1.00 per square foot. The bonus deduction will be $2.50 per square foot (base credit multiplied by factor of five) if prevailing wage and apprenticeship requirements are met, and the deduction can be increased $0.10 for each percentage point increase in energy efficiency, up to $5.00 per square foot. The cap on the deduction is reduced from a lifetime cap to a three-year cap.

Additional Information: A complete summary of 179D tax deductions provided by the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy (EERE) can be accessed online here.

Building Efficiency | Strategic Insights:

The Inflation Reduction Act makes available billions of dollars in incentives for corporate, government, and nonprofit organizations to invest in the energy efficiency and performance of their owned and controlled building assets.

For corporations, a great deal of the direct incentives for building energy efficiency improvements is confined to monies made available via the Energy Efficient Commercial Buildings Deduction (i.e., Sect. 179D) and the Energy Infrastructure Reinvestment Financing, both of which are itemized above.

However, the buildings and construction sector’s equipment manufacturers, implementers, and service providers, as well as companies specializing in building asset development, management, and maintenance would be remiss to overlook the sizable new business opportunities opened by the mobilization of federal funds toward federal agencies, lower governments, and certain nonprofit organizations.

In brief, state, local, and Tribal institutions, as well as eligible nonprofits, will be seeking opportunities to maximize the life cycle impacts of the grants they’re awarded; and in circumstances where grants are awarded on a competitive basis, it’s likely that applicants demonstrating shovel-readiness will be best positioned. It is also likely that disbursements of direct federal spending will be provisioned on the severity of the needs they’re meant to address, determined by a range of factors, among other yet-to-be-determined criteria.

To that end, non-corporate fund recipients would do well to identify and evaluate projects across a range of metrics suitable for IRA funding. And to ensure this process yields actionable results, they would do well to consult with reputable service providers who are practiced in the accurate estimation of project costs, delivery timelines, and financial (e.g., energy cost savings), environmental (i.e., energy-related emissions), and public health (e.g., indoor air quality, hazardous waste production, etc.) outcomes.

Additional clarity from the U.S. Departments of Treasury, Energy, Housing and Urban Development, as well as the Environmental Protection Agency and General Services Administration will prove vital in empowering fund recipients and their partners to initiate these critical projects. In the meantime, however, decision makers in the buildings and construction sector must prepare and market services for IRA fund recipients that stand capable of satisfying the eligibility criteria for the legislation’s wealth of funding mechanisms.

AND LEGENCE IS HERE TO HELP.

SPOTLIGHT:

ENERGY INFRASTRUCTURE REINVESTMENT

The establishment of the Energy Infrastructure Reinvestment Program of the Department of Energy’s Loan Programs Office gives owners and investors of high-emitting, fossil energy-related infrastructure a significant opportunity to strengthen their sustainability credentials in the capital markets and otherwise avoid divestiture, or worse, stranding their assets entirely.

But retooling, repowering, and repurposing in this fashion requires a degree of technical knowledge, technological capacity, and project management expertise that falls outside the remit of the typical buildings and construction service provider.

SPOTLIGHT:

AIR POLLUTION IN SCHOOLS

Among other shortcomings of our public building infrastructure, the pandemic era underscored the perennial challenge of deferred maintenance backlogs in education facilities. And with state and local governments juggling the dual needs of not only recruiting and retaining faculty and staff, but investing in the technologies, processes, and other resources needed to combat student learning loss, it’s increasingly likely that institution-level allocations for overhauling buildings and equipment will suffer.

To that end, it is imperative that the institutions applying for competitive grants and other funding to address air pollution at schools work with service providers that can guarantee cost efficiency.

Renewable Energy & Low-Carbon Fuels, Electrification, End-Use Emissions Reductions | Key Opportunities

IRA STATUTORY LOCATION:

13102 (SECT. 48) | INVESTMENT TAX CREDIT FOR ENERGY PROPERTY

PERIOD OF AVAILABILITY: Projects beginning construction prior to January 1, 2025. For geothermal heat property, the base investment tax credit is 6 percent for the first 10 years, scaling down to 5.2 percent in 2033 and 4.4 percent in 2034.

Prevailing wage and apprenticeship requirements go into requirement for projects started on or after January 30, 2023.

AMOUNT: Base credit of 6 percent of qualified investment (basis of energy property), with eligibility for bonus credits.

Bonus Credit Amount: Credit is increased by up to 10 percentage points for projects meeting certain domestic content requirements for steel, iron, and manufactured products. Credit is increased by up to 10 percentage points if located in an energy community.

Prevailing wage and apprenticeship requirements take effect for projects larger than 1MW that begin construction on or after January 30, 2023. The bonus rate will increase to 30 percent.

DESCRIPTION: Extends and modifies the energy investment tax credit for investment in renewable energy projects.

ELIGIBLE RECIPIENTS: Fuel cell, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, and combined heat and power properties. For solar, includes (1) equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, to provide solar process heat, and (2) equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight or electrochromic glass that uses electricity to change its light transmittance properties in order to heat or cool a structure.

IRA STATUTORY LOCATION:

13101

(SECT. 45) | PRODUCTION TAX CREDIT FOR ELECTRICITY FROM RENEWABLES

PERIOD OF AVAILABILITY: Projects beginning construction prior to January 1, 2025

AMOUNT: Base credit of $0.03/kW (inflation-adjusted), with bonus credit eligibility

Bonus Credit Amount:

Credit is increased by 10 percent if the project meets certain domestic content requirements for steel, iron, and manufactured products. Credit is increased by 10 percent if located in an energy community.

Prevailing wage and apprenticeship requirements take effect for projects larger than 1MW that begin construction on or after January 30, 2023. The bonus rate will increase to 30 percent.

DESCRIPTION: Extends and modifies the existing production tax credit for production of electricity from renewable sources.

ELIGIBLE RECIPIENTS: Facilities generating electricity from wind, biomass, geothermal, solar, small irrigation, landfill and trash, hydropower, and marine and hydrokinetic renewable energy.

IRA STATUTORY LOCATION:

13702(H)

(SECT. 48E) | [TECHNOLOGY-NEUTRAL] CLEAN ELECTRICITY INVESTMENT TAX CREDIT

PERIOD OF AVAILABILITY: Facilities placed in service after December 31, 2024. Phase-out starts the later of (a) 2032 or (b) when U.S. GHG emissions from electricity are 25 percent of 2022 emissions or lower.

AMOUNT: Base credit of 6 percent of qualified investment, with eligibility for bonus credits, including IRA Sect. 13703.

Bonus Credit Amount:

Credit is increased by 10 percent if the project meets certain domestic content requirements for steel, iron, and manufactured products. Credit is increased by 10 percent if located in an energy community.

Prevailing wage and apprenticeship requirements take effect for projects larger than 1MW that begin construction on or after January 30, 2023. The bonus rate will increase to 30 percent.

DESCRIPTION: Provides a technology-neutral tax credit for investment in facilities that generate clean electricity. Replaces the investment tax credit for facilities generating electricity from renewable sources (extended in Section 13202 through 2024).

ELIGIBLE RECIPIENTS: Facilities that generate electricity with a greenhouse gas emissions rate that is not greater than zero and qualified energy storage technologies.

Additional Information: Section 13703 offers an additional tax deduction for facilities or property qualifying for this tax credit. These facilities or property will be treated as a 5-year property for purposes of cost recovery; meaning, they will be able to deduct from their taxable income the depreciating value of their business assets, such as equipment, faster than the value actually declines. In practical terms, qualifying facilities or property will be able to take bigger deductions—leaving them with lower taxable income—in the earlier years of a clean energy investment.

IRA STATUTORY LOCATION: 13701 (SECT. 45Y) | [TECHNOLOGY-NEUTRAL] CLEAN ELECTRICITY PRODUCTION TAX CREDIT

PERIOD OF AVAILABILITY: Facilities placed in service after December 31, 2024. Phase-out starts the later of (a) 2032 or (b) when U.S. GHG emissions from electricity are 25 percent of 2022 emissions or lower.

AMOUNT: Base credit of $0.03/kW (inflation-adjusted), with bonus credit eligibility, including IRA Sect. 13703.

Bonus Credit Amount: Credit is increased by 10 percent if the project meets certain domestic content requirements for steel, iron, and manufactured products. Credit is increased by 10 percent if located in an energy community.

Prevailing wage and apprenticeship requirements take effect for projects larger than 1MW that begin construction on or after January 30, 2023. The bonus rate will increase to 30 percent.

DESCRIPTION: Provides a technology-neutral tax credit for production of clean electricity. Replaces the production tax credit for electricity generated from renewable sources (extended in Section 13201 through 2024).

ELIGIBLE RECIPIENTS: Facilities generating electricity for which the greenhouse gas emissions rate is not greater than zero.

Additional Information: Section 13703 offers an additional tax deduction for facilities or property qualifying for this tax credit. These facilities or property will be treated as a 5-year property for purposes of cost recovery; meaning, they will be able to deduct from their taxable income the depreciating value of their business assets, such as equipment, faster than the value actually declines. In practical terms, qualifying facilities or property will be able to take bigger deductions—leaving them with lower taxable income—in the earlier years of a clean energy investment.

Provides a technology-neutral tax credit for production of clean electricity.

IRA STATUTORY LOCATION: 13404

(SECT. 30C) | ALTERNATIVE FUEL VEHICLE REFUELING PROPERTY CREDIT

PERIOD OF AVAILABILITY: From January 1, 2023 to December 31, 2032

AMOUNT: Base credit of 6 percent of the cost for businesses, limited to a $100,000 credit per item of property for businesses. Eligible for bonus credits.

Bonus Credit Amount: Businesses can claim a 30 percent credit for projects meeting prevailing wage and registered apprenticeship requirements. This form can be used to calculate general business credits.

DESCRIPTION: Provides a tax credit for alternative fuel vehicle refueling and charging property in low-income and rural areas. Alternative fuels include electricity, ethanol, natural gas, hydrogen, biodiesel, and others.

ELIGIBLE RECIPIENTS: The qualified alternative fuel vehicle refueling property credit must be for clean-burning fuels, as defined in the statute, and must be located in low-income or rural areas.

IRA STATUTORY LOCATION: 60101 | CLEAN HEAVY-DUTY

VEHICLES

PERIOD OF AVAILABILITY: To remain available until September 30, 2031

AMOUNT: $1,000,000,000

FUNDING MECHANISM: Competitive grants and rebates

DESCRIPTION: To provide funding to offset the costs of replacing heavy-duty Class 6 and 7 commercial vehicles with zero-emission vehicles; deploying infrastructure needed to charge, fuel, or maintain these zero-emission vehicles; and developing and training the necessary workforce.

ELIGIBLE RECIPIENTS: Program covers up to 100 percent of costs for (1) incremental cost of replacing an existing heavy-duty vehicle with zero-emission vehicle; (2) purchasing and operating associated infrastructure; (3) workforce development and training; (4) planning and technical activities.

IRA STATUTORY LOCATION: 13501 (SECT. 48C) | ADVANCED ENERGY PROJECT CREDIT

PERIOD OF AVAILABILITY: The credit is available when the application and certification process begins and ends when credits ($10,000,000,000) are fully allocated.

Per guidance released by the U.S. Department of Treasury in February 2023, the first allocation round (Round 1) will begin on May 31, 2023, and will allocate $4 billion of qualifying advanced energy project credits with approximately $1.6 billion allocated for projects located in certain energy communities.

AMOUNT: Base credit of 6 percent of qualifying investment, with eligibility for bonus credits.

Bonus Credit Amount: Businesses can claim a 30 percent credit for projects meeting prevailing wage and registered apprenticeship requirements.

DESCRIPTION: Provides a tax credit for investments in advanced energy projects, as defined in 26 USC § 48C(c)(1)

ELIGIBLE RECIPIENTS: A project that (1) re-equips, expands, or establishes an industrial or manufacturing facility for the production or recycling of a range of clean energy equipment and vehicles;

(2) re-equips an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20 percent; or (3) re-equips, expands, or establishes an industrial facility for the processing, refining, or recycling of critical minerals.

Will allocate $4 billion of qualifying advanced energy project credits with approximately $1.6 billion allocated for projects located in certain energy communities.

Renewable Energy & Low-Carbon Fuels, Electrification, End-Use Emissions Reductions | Strategic Insight

While the built environment certainly benefits from the Inflation Reduction Act, the lion’s share of the federal funds made available by the historic legislation is reserved for investment in the overhaul of the U.S. energy system—particularly in the electric power and transportation sectors.

Even still, electric power and transportation sector fund recipients will need to work with developers, equipment manufacturers, and service providers of the buildings and construction to capture and leverage their incentives. Moreover, they will need to act quickly, as the availability of many of the IRA’s appropriated funds to support renewable energy and low-carbon fuels is limited.

For instance, prospective claimants of the renewable energy investment tax credit (Sect. 48) will only be able to do so for their projects whose construction began prior to January 1, 2025. And for prospective claimants of the technology-neutral clean electricity investment tax credit (Sect. 48E), the indefinite onset of the credit phase-out warrants bringing their eligible projects online sooner rather than later.

In short, business leaders endeavoring to take advantage of these funds cannot afford to waste either time or resources in the construction and activation of their eligible projects.

SPOTLIGHT: SPOTLIGHT:

PROJECT AND PROPERTY CREDITS CLEAN ENERGY ASSETS

Business leaders attempting to overhaul their building infrastructure footprints in pursuit of Advanced Energy Project Credit (48C), or invest in the development of new building facilities altogether in order to claim the Alternative Fuel Vehicle Refueling Property Credit (30C), will need the necessary engineering and plant management expertise.

Owners of eligible industrial facilities capable of receiving these funds must ensure their projects are implemented safely, affordably, and of course, in compliance with industry standards, government regulations, and tax credit eligibility criteria.

Commercial real estate owners and developers—be they public or private organizations—are not excluded from the unique opportunity to leverage public funds toward reducing their operational expenses, improving local environmental quality, and advancing public health outcomes with clean electricity-producing infrastructure.

They will, however, be competing with incumbent renewable energy infrastructure developers for public funds whose availability is limited.

The installation of rooftop solar, small-scale onsite wind, microgrid controllers, combined heat and power, and other clean power-producing properties is technically complex. It requires careful implementation to avoid disrupting mission-critical operations of their host facilities.