How State and Local Influences Can Make or Break Efficacy of Inflation Reduction Act Provisions
With the clean and renewable energy provisions in the Inflation Reduction Act (IRA), the Biden administration reaffirmed its commitment to its clean energy goals. These provisions serve as a step forward to meeting the administration’s goal of using 100% clean energy sources to power the electric grid by 2035, with a net zero emissions economy by 2050. As more attention is paid to climate change and clean energy, particularly with the passage of the IRA, many community leaders are examining what this could mean for their jurisdictions in terms of investment opportunities and impacts, both positive and negative. Sentiment about clean energy projects and their effects can determine the success or failure of a project planned in their respective communities.
The IRA, enacted Aug. 16, 2022, included a significant investment into renewable and clean energy projects—initially estimated $369 billion but more recently projected to be double to triple that amount in spending and tax incentives for direct investment to ensure energy security, reduce carbon emissions, increase energy innovation, and support environmental justice objectives with investment in underserved communities.
The American Clean Power (ACP) Clean Energy Investing in America report noted that between 2022 and July 2023, more than $270 billion in utility-scale clean energy investments have been permitted and slated for completion by private utility companies. According to ACP, this is equivalent to eight years’ worth of American clean energy investments, surpassing total investments into U.S. clean power plants commissioned between 2015 and 2022.
State Examples of Support for Renewable Energy Development
The ACP report says that between 2022 and July 2023, 83 new clean energy manufacturing facilities that produce energy have been announced, including new facilities and expansions or reopening’s of existing facilities. Announcements span wind, solar, biomass, geothermal, certain hydroelectric facilities—depending on the size and type —and battery storage. States determine what resources are available based on their existing energy generation mix and the potential for renewable energy development in their states’ supply chains. These capital investments into facilities noted by ACP are not evenly distributed across the country. They are sited where the wind or sunshine is plentiful, or where state policies have required the addition of renewable energy as policy as detailed below. From the following national map, wind farms are generally clustered across the Great Plains and Midwest, while solar is located predominantly across the Sun Belt.
Forty years ago, state governments began to adopt renewable portfolio standards (RPS) from renewable sources. These policies require electricity suppliers to source a set share of their electricity from designated renewable resources or carbon free eligible technologies. States use such terms as carbon free carbon neutral renewables or clean energy to define their RPS or clean energy standards (CES) policies. To date, more than 30 states, the District of Columbia, and two territories have RPS or CES. These policies help drive the nation’s $64 billion market for wind, solar and other renewable energy sources as of 2021. These policies have also played an integral role in each state's efforts to diversify their energy mix, promote development and reduce emissions. Furthermore, they have also helped support the administration’s clean energy goals driving this unprecedented investment since the adoption of the IRA into the renewable energy infrastructure.
Iowa was the first state to establish an RPS in 1983. To date, more than half of the country has established renewable energy targets. However, RPS legislation has seen two opposing trends in recent years. The National Council of State Legislators has found that since 2018, 15 states, two territories, and Washington, D.C., have passed legislation to increase or expand their renewable or clean energy targets. Simultaneously, by 2021, 11 states and one territory have allowed their RPS targets to expire.
Local Influences on IRA Impacts
Polls show that Americans generally support the development of green energy facilities. Anecdotally, there is overwhelming support in favor of renewable energy installations based upon the overall number of facilities that are placed in service annually. Nevertheless, there are instances of proposed renewable energy projects meeting with local opposition. It is in these cases across the United States where local opposition for projects undermine the federal interventions and present an obstacle to meeting the federal goals for green energy. For example, in a recent Wall Street Journal article looking at backlash against clean energy investment, it was reported that Kansas ranked third in the nation in terms of wind-powered electricity (45% of electricity generated in-state was due to wind power). Nevertheless, as quoted in the article, the state was found to trail nearly every other state in terms of large project construction and new clean power capacity in 2022, according to the American Clean Power Association. These deficits are due largely to residents not supporting the approval of these investments in their communities.
The article said, “the United States is a patchwork of state and local governments with different local rules on development, and opposition to projects has mounted for myriad reasons.” Individuals within these communities are increasingly participating in the local land use process, voicing their support or opposition around renewable energy projects in their community. Local tension can arise from challenges to the use of federal resources approved in the IRA for the goal of transitioning to clean energy. In those communities where there is resistance to renewable energy projects, certain actions could adversely affect the utilization of the federal funding that has been approved in the IRA and impede the realization of the federal government's policy goal of increasing green energy development and investment.
Differing Levels of Local Support for Renewable Energy Development
There are two local perspectives on renewable energy: communities that demonstrate support for renewable energy facilitated development and those that exhibited strong resistance for renewable energy projects that have hindered development.
Communities that demonstrate support for renewable energy development have done so by:
- Passing legislation that supports green initiatives.
- Providing coordinated communication from authoritative sources that offer clear, factual guidance for proposed projects.
- Expediting permitting and land use approvals to get projects started and completed quickly.
For example, the state of New York, has shown support of renewable clean energy in general and the IRA in particular. During Earth Week, Gov. Kathy Hochul announced eight new large-scale renewable energy infrastructure projects have been completed in the last six months to deliver clean energy to New York's power grid.
Another state that has demonstrated generous support over the years for renewable energy would be California. Its statewide cap-and-trade program limits carbon emissions and encourages sustainable energy investments. California also recently passed the Climate Corporate Data Accountability Act (Senate Bill 253) and Senate Bill 261, which focus on climate risk data transparency. The Climate Corporate Data Accountability Act requires covered entities to disclose scope 1 and scope 2 greenhouse gas emissions beginning in the year 2026, with scope 3 greenhouse gas emissions beginning in 2027. Senate Bill 261 ensures that it is mandatory for covered entities to create climate-related financial risk reports biennially starting Jan 1, 2026. By implementing a cap-and-trade program and making corporate entities reveal their climate data, California is strongly incentivizing more sustainable practices in business.
The IRA has driven renewable energy manufacturing jobs to become localized across America. For example, numerous new electric vehicle and battery manufacturing plants have been announced in an area known as the “battery belt.” Stretching from the Great Lakes through Tennessee and Kentucky and into more southern states, the battery belt represents America’s plan to keep manufacturing jobs localized. The creation of sustainable jobs removed the need to outsource to countries.
Additionally, Biden is working towards a goal of a homemade solar energy sector. A $2.5 billion investment in a solar panel plant was made from solar energy provider Hanwha Q CELLS, The investment is expected to create 2,500 new jobs in Georgia, with Biden hoping to avoid reliance on foreign suppliers.
Conversely, communities that exhibited strong resistance for renewable energy developments have hindered development have done so by:
- Enacting land use restrictions that impede development of projects in local areas.
- Elected officials are issuing moratoriums,
- Changing their local subdivision and land use ordinances, and
- Restricting the total number of facilities that can be developed in a specific area.
- Slowing or blocking permitting for local projects, thus delaying schedules or eliminating interest in specific sites.
For example, in Iowa, 16 of the state’s 99 counties have stringent restrictions. Six have indefinite wind energy moratoriums, three have temporary moratoriums, and seven have ordinances prohibitive to development. All of these were adopted in the past four years during a period of rapid wind build-out.
In Alabama, five landowners filed a lawsuit against a Texas-based wind energy company looking to develop clean energy. Concerns arose over noisy windmills, negative aesthetics, harms to tourism, sunlight reflection, decreased recreation and decreased home construction. The landowners also expressed their worries about the harm to wildlife and nearby lakes, and claimed that the wind farm would destroy their property values. The project ended up being struck down because the state legislature gave county governments the authority to oversee wind projects. Cases like these are common, as community opposition and public opinion on renewable energy often holds back development. According to Stanford researcher Michael Bennon, almost two-thirds of solar energy projects from 2010-2018 were litigated and 14% of them were canceled altogether. Even beyond cancelling or delaying a project, opposition to clean energy raises the cost of a project and causes pollution to be directed towards less privileged communities.
Investment in renewables over the last year reflects notable demand for the energy and climate tax incentives provided in the IRA. Interest will continue to increase from both public and private utility companies that seek to use these funding tools to deliver future renewable energy facilities. Nevertheless, state support and local influences can affect the efficacy of these renewable and clean energy incentives both positively and negatively. Investments in the U.S. renewable energy market, supported by the IRA, are expected to hit $114 billion by 2031, a 78% increase from $64 billion in total investments made through the end of 2021.
Both the Biden administration and Congress will play a vital role in advancing policy interventions to affect global climate change and global warming. For example, the Building American Energy Security Act of 2023 has provisions that will make it easier for renewable energy developments to obtain permitting if approved. Further, Energy Community guidance may help to mitigate any obstructive efforts by states or local communities and provide ways projects can continue to receive support to spur increased investment in rural and underserved areas that need it the most by providing further clarity needed for stakeholders to participate.
This week’s 2023 Fall Renewable Energy and Environmental Tax Credits Conference in Washington, D.C. provides an opportunity for the top energy stakeholders from across the county to network and discuss the latest IRA guidance, industry trends, emerging technologies, tax credit equity pricing and financing strategies. Those interested in gaining a better understanding of how the provisions in the IRA will be used to encourage additional investment in clean and renewable energy projects are encouraged to join the Novogradac Renewable Energy Working Group. The group not only examines IRA provisions and guidance but also provides a platform for energy professionals interested in working together to coalesce around solutions to technical clean energy issues and make the clean energy tax credit incentives more efficient in providing benefits.