Inflation Reduction Act Birthday – Changes Needed

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One year ago during August, President Biden signed the Inflation Reduction Act (IRA), a progressive trade and manufacturing industrial policy gambit that is now well on its way toward a country powered by clean energy as it moves toward electricity and a fossil-fuel free future. However, many organizations think some changes are needed.

“Here’s what we’re thinking about,” said the watchdog group Good Jobs First. “The 45X – The Advanced Manufacturing Production Credit – called 45X for its place in the Internal Revenue Code, gives electric vehicle battery producers massive subsidies based on kilowatt hours. That Uncle Sam is hitting the gas pedal, er, accelerator pedal, for clean transportation is a huge plus, and 45X requires components to be produced in the US or territory.

“On the minus side, however, the IRA has no requirements for these massively subsidized companies to do good by their production workers. There are no market-based wage or benefit requirements, nothing that mandates company leaders to pay workers a wage to support themselves or their families – even though the 45X credit on its own is enough to completely cover these companies’ capital investment costs and their total wage bill for the first several years of production. Fortunately, states and communities can take action to ensure this pivotal moment doesn’t turn into another boondoggle for the One Percent,” said Good Jobs First today.

Good Jobs First Observations excerpted

• The IRA doesn’t require companies to locate in, for example, historically neglected communities or in towns that once had a robust manufacturing base. Electric vehicle companies are clearly favoring the South: Volkswagen in Chattanooga, TN.; BMW in Spartanburg, SC.; Nissan in Canton, MS.; Toyota in Georgetown, KY.; Hyundai in Bryan County and Rivian in Morgan County, GA; VinFast in Chatham County, NC.
• All six of these are right-to-work states, where workers’ rights, pay and, protections are fewer. All of these also have no state minimum wage above the federal minimum wage of $7.25 ,which despite soaring housing, energy, and food costs, has remained unchanged since 2009.

Good Jobs First Recommendations

• States and local governments should demand more from battery makers seeking economic development subsidies.
• Production worker wage requirements should set a floor at market rates – and not get away with giving us “average” wages artificially inflated by executive salaries.
• ALL tax credits and exemptions, grants, and loans, should be performance-based, so that companies don’t get their subsidy until they deliver. If they fall short on jobs, wages, or investments, strong clawbacks or money-back guarantees should ensure they repay taxpayers.
• Cap EV and battery-plant subsidies at $35,000 per job.
• Attach robust Job Quality Standards that ensure at least market-rate wages and benefits (with living-wage floors), tied to inflation.
• Use the federal subsidies to reduce the burden on local residents – for every dollar a car’s manufacturing is subsidized by state or local incentives, subtract a dollar from the federal purchase credit (or from any applicable state credit or other inducement).
• Focus on helping incumbent workers and communities currently dependent upon internal-combustion engine vehicles retool and adapt.

US Treasury Remarks

“Just shy of a year ago, I delivered a major economic speech in Michigan that laid out the case for our Administration’s economic plan. At the time, we had just witnessed a historic economic recovery from the depths of the pandemic downturn. An unprecedented pace of job creation had brought the U.S. labor market back in record time. Yet, we were still in the early stages of executing President Biden’s long-term economic agenda. We had just completed the enactment of our trifecta of historic investments: the Bipartisan Infrastructure Law, CHIPS and Science Act, and Inflation Reduction Act.,” said US Treasury Secretary Janet Yellen, during a speech in Las Vegas yesterday to the IBEW and building trades unions.

Our Administration is taking decisive action against these persistent challenges by investing in America. We have mobilized public and private investments in three strategic sectors as part of our “modern supply-side” agenda. We passed the Bipartisan Infrastructure Law – a generational investment in our physical and digital infrastructure. This law is already delivering tens of thousands of new projects across the country that are increasing our productivity and growth potential. They are also strengthening our competitiveness and supply chain resilience.

“We also enacted the CHIPS and Science Act – a major investment that is boosting semiconductor manufacturing and incentivizing investments in cutting-edge R&D. A strong semiconductor industrial base at home will help bolster our nation’s resilience to global shocks. Finally, we are implementing the Inflation Reduction Act. It’s our nation’s boldest-ever climate action. And it is beginning to spark an economic renaissance in communities that had been left behind.

“I’d like to focus specifically on the Inflation Reduction Act as we mark its one-year anniversary. Last year, I identified three goals for this law: tackling climate change, expanding economic opportunity, and strengthening our economic resilience and energy security…

President Biden has identified this decade as the “decisive decade” to combat climate change. The United States has committed to reduce our greenhouse gas emissions by at least half from 2005 levels by 2030. And we have committed to a net-zero economy by 2050. Tackling climate change requires global action. But the United States must do our part, and a clear signal from the world’s largest economy can mobilize action by other nations. While more is needed, scientific studies conclude that the IRA – and other Administration actions – are moving us well toward achieving our commitments under the Paris Agreement.

“Our climate strategy is based on a simple premise: targeted public investments can help mobilize private capital toward compelling public policy objectives. This is an old strategy that we’ve successfully utilized in the past – like in the development of new technologies like the Internet.

“The IRA invests in both demand- and supply-side incentives to build the clean energy economy. On the supply side, the IRA expands and extends the existing foundation of tax incentives. These incentives provide long-term certainty for investors in pursuing clean energy projects. With the IRA, investors have greater confidence to scale-up deployment of established technologies like solar energy. The IRA also helps develop nascent technologies like clean hydrogen and sustainable aviation fuel. These are essential to reducing emissions from harder-to-abate sectors. Expansions on the supply side are also matched by IRA tax credits and rebates to drive up demand for consumer goods like electric vehicles, heat pumps, and energy-efficient appliances.

Together, these incentives spur greater innovation and competition in the clean energy industry. And they drive down the cost curves of these technologies. Lower costs mean greater adoption. This will not only help the United States mitigate our greenhouse gas emissions. It will help the rest of the world as well. Thanks to the IRA, one study estimates that for every ton of carbon dioxide reduced within our country, 2-3 tons of reductions will be achieved outside the United States….

“The climate transition is one of the biggest economic transitions of our lifetimes. Today, over $1 trillion in new capital each year is being invested in clean energy around the globe. But for far too long, economic opportunity in the United States has been concentrated on the coasts. That must change. We must not only create clean energy jobs in the aggregate – but the employment and other benefits of this transition must accrue broadly across all communities. A core goal of the IRA is to revitalize communities that have suffered industrial decline or been left behind. We are putting American workers and American jobs at the center of our clean energy transition, making sure Americans in every part of our country benefit from the rising global demand for low-carbon products.

“The early results are in. Through my travels, I’ve seen how the clean energy industry is expanding across the country. I’ve visited solar companies in North Carolina and Louisiana. I’ve toured an EV battery plant in Tennessee. And I see the difference that the IRA is making in Nevada as well. In the Midwest and the South, there are now so many shovels in the ground for new EV battery factories that many are dubbing these regions the new “Battery Belt.” Treasury’s analysis indicates that investments in clean energy, EVs, and batteries since the President took office have been concentrated in counties that need them the most – that is, those that had lagged the country in earnings, college graduation rates, and child poverty rates.

“This progress has not occurred by happenstance. The Inflation Reduction Act provides place-based incentives that bolster the business case to invest in certain communities. There is a bonus incentive for companies to invest in solar and wind projects in low-income communities, complementing Treasury’s other work to bolster capital access in these places. It’s also important that cities and towns that have served as the backbone of our nation’s traditional energy production are not left behind. The IRA provides a bonus for companies that invest in areas with closed coal mines or coal-fired power plants, and other communities that have relied on jobs in fossil fuel industries. This is a major pillar in our Administration’s broader effort to renew the economic potential of our nation’s energy communities.,” Yellen said.