The Inflation Reduction Act is poised to accelerate the energy transition in the US, which will lead to a rapid workforce transition as well.
The legislation could help create nearly 5 million new jobs in renewable energy over the next 10 years, along with more than 2 million jobs to manufacture climate tech—like EVs and wind turbines—and shrink the carbon footprint of buildings, according to an analysis from the BlueGreen Alliance.
But figuring out who gets those jobs and how to support workers in industries like coal or oil and gas can become complicated quickly.
“How do you transition coal miners into renewable energies or into battery production or something like that? A big concern of labor was making sure that on the front-end you would have these commitments toward honoring their union contracts,” Alí Bustamante, deputy director of education, jobs, and worker power at the Roosevelt Institute, told Emerging Tech Brew. “Basically just transitioning over to do something else, but really with the same compensation and the same kind of union protection that they had in the past.”
Companies looking to take advantage of all the IRA’s tax incentives are in wait-and-see mode. The open-comment period for labor requirements in the IRA closed on Friday, and federal agencies will now solidify what will be required of employers when it comes to maximizing potential tax credits through wages and apprenticeships.
What’s in the IRA
To maximize the IRA’s tax credits for production of tech like batteries and solar panels, companies will need to pay workers a prevailing wage (e.g., at least the average pay for the job in the local region) and employ apprentices through the Department of Labor’s Registered Apprenticeship Program or a state-level program equivalent.
Meeting these requirements generally results in ~5x the amount for most incentives, Nicole Elliot, a tax attorney at Holland & Knight, told us. That means a credit of 0.3 cents per kWh available to a renewable energy generator, for example, would jump to 1.5 cents per kWh if a given company complies with the labor rules.
“It’s not like an all-or-nothing,” she said. “It’s not mandatory, but it is such a sweetener that most [employers] will be aiming to hit that.”
The labor provisions tied to the IRA credits are unusual because they’re administered through the tax code, but they’re modeled after long-standing legislation that sets prevailing-wage requirements for federally funded public works projects, Timothy Taylor, employment and litigation attorney at Holland & Knight, told us.
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“It, to some extent, levels the playing field between union and non-union workforces,” he said. “I think part of the practical functional effect is trying to move union workers and union membership into these industries.”
In Bustamante’s view, the IRA measures don’t include enough mechanisms to hold companies accountable to ”really make sure that these practices are as inclusive and equitable as possible.” And because of how the legislation was crafted, the IRA is not as explicit in its focus as the bipartisan infrastructure law on workers and development in disadvantaged areas that have historically had a high concentration of jobs in the fossil-fuel industry, Bustamante said.
“They have these governance structures in place, not just to issue grants and contracts, but also to make sure that there’s accountability on the back end, by having robust reporting on workforce outcomes and making sure that there’s going to be a lot of community involvement and priority in marginalized communities,” he said. “When you work through the tax code, as the Inflation Reduction Act does, you really lose control of a lot of that.”
Looking ahead: The IRS and the US Department of the Treasury will provide more information about compliance soon, likely by the end of the year, Elliot said. Experts expect this guidance to outline the sort of documentation companies looking to claim IRA tax credits will need to keep.
“I have a lot of clients in this space, and they are all aiming to make sure they meet these requirements. So, that is my barometer,” Elliot said. “Those clients that I work with are eagerly awaiting Treasury and IRS guidance.”
Depending on the results of the midterms, there may be a renewed effort by lawmakers to tack on labor stipulations or structures for accountability, Bustamante said.
“So far, we’ve seen a lot of declarations of commitments to increase production or to increase construction of renewable projects,” he said. “What we don’t have is really any indication from companies that these investments are going to be prioritizing any kind of disadvantaged communities or have any kind of equity or inclusiveness focuses to them.