New law promises seismic changes on energy and climate
Why the Inflation Reduction Act’s commitment to energy security and climate change is something every business leader needs to understand.
Its official name might be “The Inflation Reduction Act of 2022,” but this major new initiative is the most transformative energy policy in U.S. history, with significant implications— and opportunities—for companies and consumers alike.
The new law, officially enacted in August, focuses on costs and efficiencies in three foundational areas: energy, healthcare, and the overall national debt reduction. But with 85 percent of the law’s investment dollars allocated to energy security and climate change initiatives—more than $370 billion in total —it’s the “energy” component that has gained the most buzz, and especially from business leaders.
The Senate bill would allocate an estimated $369 billion toward establishing, extending, increasing, or modifying various energy and climate change programs that collectively seek to lower consumer energy costs, increase energy security, decarbonize the economy, invest in disadvantaged communities, and support rural climate resiliency.
KPMG’s recent Inflation Reduction Act briefing and infographics.
And with good reason: After much ongoing discussion, debate, and a fair amount of hand-wringing over the future of public-private energy policy (not to mention the specter of still-evolving environmental, social, and governance requirements), this new law marks the federal government’s biggest-ever investment in energy and climate initiatives, period.
Not surprisingly, there are lots of details in the fine print—a full menu of renewable energy sources, expanded green initiatives for disadvantaged and rural communities, and a broad array of grants, loans, and tax credits to motivate both the public and private sectors to keep moving.
To help business leaders navigate the new legislation and its related opportunities, our KPMG teams have broken out the energy and climate initiatives into five key areas, as we outline in our recent Inflation Reduction Act briefing and infographics.
Here’s a closer look at each area:
Consumer energy costs
What it is: Direct incentives to consumers for energy-efficient purchases on vehicles, appliances, and home energy systems, with specific allocations for affordable housing energy resources and dedicated incentives for people with lower incomes.
What’s included: $9 billion in home energy programs for disadvantaged communities, $1 billion for energy efficiency in affordable housing, and tax credits for purchasing electric vehicles and green home energy sources (such as solar panels and heat pumps). The purchase credits include caps on a buyer’s income and product costs to ensure broad-based access.
Energy security
What it is: In a word—infrastructure. “Security” means rapidly reducing reliance on other countries to power America via significant new incentives for clean energy production, manufacturing, and supply chain reliability—and future-proofing against energy price shocks.
What’s included: More than $60 billion to onshore clean energy manufacturing overall, including at least $20 billion for green vehicle infrastructure and more than $10 billion in clean technology facilities. Additional grants and credits—for upgrading facilities or producing new green products—make this a category that many business leaders will need to closely consider.
Decarbonization
What it is: This is perhaps the U.S.’s biggest and most defined commitment to “the details” of sustainable energy and net-zero emissions, simply by being a tangible, approved law (as opposed to an executive order). The legislation’s wide-ranging mix of grants and tax credits offers extensive emissions-reduction incentives across myriad business sectors.
What’s included: At least $70 billion in grants, loans, and incentives, with at least $30 billion for states and electric utilities to facilitate cleaner and more efficient local energy generation. Another $27 billion is allocated for grants or indirect investments to help reduce emissions in disadvantaged communities, and about $6 billion is set aside for assistance to large industrial emitters, such as chemical, steel, and cement plants.
Disadvantaged communities and environmental justice
What it is: New provisions to support environmental and climate justice priorities—for example, reducing local air pollution and ensuring equitable green energy access across all neighborhoods—with specific incentives focused solely on disadvantaged communities.
What’s included: $3 billion in grants to address air pollution, $3 billion to improve transportation and community planning, and multiple tax credits for clean vehicles that include school and public transit buses and even eco-friendly garbage trucks.
Rural climate resiliency
What it is: Agricultural producers and forest landowners are significant, but often overlooked, players in climate change. This area of the new law addresses that by providing grants and incentives for climate-smart agriculture practices, forest restoration, and land conservation.
What’s included: $20 billion in grants to support climate-friendly agriculture practices, $5 billion for forestry conservation and urban planning, and about $3 billion for marine habitat conservation.
Final considerations
Perhaps the most important dimension of the Inflation Reduction Act is that it is now actual, approved law—it’s on the books and open for business. And it’s much more sustainable than energy policy initiatives of recent decades, which have largely been driven by executive orders with shelf lives and staying power that were just too hard for many businesses to plan around.
The new law changes that, and especially in its allocations to state, local, and private levels that would make the unprecedented $370 billion federal commitment just a start. The significant new federal incentives for local-private buy-in can activate additional investment and innovation—and create significant new opportunities for businesses of all shapes and sizes.
