The Inflation Reduction Act’s investments are bearing fruit by creating good-paying jobs, strengthening our energy security, tackling climate change, and improving services the IRS provides to taxpayers. As a part of President Biden’s broader Investing in America agenda, Treasury will continue to collect and share data, analysis, and stories about how the IRA is aiding American families and workers, driving investment toward underserved communities as well as to new technologies and markets, and ensuring economic fairness. Read more about the IRA’s impacts across its major themes below.

Creating Jobs and Spurring Investment

The IRA has unleashed an investment and manufacturing boom in the United States. These investments are generating long-term economic growth for the whole country and creating jobs in underserved communities. According to the Rhodium Group’s and MIT’s Climate Investment Monitor, companies have announced more than $242 billion in new investments to build the clean energy economy. This includes investments in industries like electric vehicles, batteries and energy storage, clean energy manufacturing, clean power generation, carbon management, and many others, according to data tracked by Rhodium Group and MIT Clean Investment Monitor.

These investments have already created 271,713 jobs as of February 2024, and are projected to support approximately 1.5 million jobs over the coming decade according to estimates by outside groups.

The newly created or expanded tax incentives created by the Inflation Reduction Act primarily work by reducing the costs of building qualifying energy projects and equipment or by incentivizing the production of energy or manufactured goods. For each incentive, there are eligibility requirements for taxpayers and qualification criteria for the energy project or type of production in question. But in general, an eligible taxpayer who installs qualifying equipment or generates or manufactures a qualifying product and meets any criteria for materials and production methods, may receive the base tax credits.

The law creates several new features that will attract greater levels of investment and steer it toward quality projects and jobs in communities in need. To ensure that investment reaches underserved communities, reinvests in energy communities, and includes good-paying wages for workers, the IRA also created new bonus credits that increase the value of many clean energy incentives.

And, so that state, local, and tribal governments and tax-exempt entities like rural electric cooperatives and many others may access the tax incentives for the first time, the law creates “elective pay” (also called “direct pay”). Most of the entities eligible for direct pay would not normally owe federal income tax. However, by filing a return and using direct pay, these entities can receive tax-free cash payments from the IRS for the clean energy tax credits they earned, so long as all requirements are met, including a pre-filing registration requirement.

Clean energy bonus credits are already spurring an economic revitalization in communities that have historically been left behind or underserved.

  • The Low-Income Communities Bonus Credit (§ 48(e)) provides up to a 20-percentage point boost to the Investment Tax Credit for qualified solar or wind facilities in low-income communities, on Indian land, as part of affordable housing developments, and benefitting low-income households.
  • The Energy Community Bonus Credit provides additional incentives for qualified investments in energy communities, or communities with closed coal mines, coal power plants, or brownfield sites, or where fossil fuel employment has significantly contributed to local economies.

Strengthening Energy Security and Affordability

Energy costs pose significant challenges for American families. For lower income and middle-class families, including those living paycheck to paycheck, energy—electricity, heating fuel, and gasoline—can account for a large share of their monthly budgets. Reliance on gas and oil for heating can be expensive and energy insecure as well. When prices spike due to geopolitical events, consumers are on the hook to pay, but shifting to clean energy can shield families better from global events and make them more energy independent.

Many of the IRA’s incentives reduce energy costs and price volatility, such as consumer tax credits for energy efficient equipment and electric vehicles that can aid American families.

Other incentives support manufacturers by boosting investment in factories across the U.S. that produce solar panels, batteries, electric vehicles, carbon capture equipment, and many more clean energy technologies. It’s now cheaper than in the past to produce clean energy and manufacture clean energy products here in the United States. Because of that, production will increase and costs will drop over time, making clean energy more affordable for consumers at home and globally.

Climate Impact

The IRA’s investments in cleaner energy sources, their delivery, and their use will translate to lower greenhouse gas emissions and reduced impact on the climate. The law makes the largest investment in reducing carbon pollution in U.S. history. It is a pro-growth climate policy that helps lower consumer costs and boosts American economic growth and leadership in innovation while simultaneously moving our country towards meeting our climate goals.

Challenge still remain

For all the progress made during the IRA’s first year, challenges still remain. One of these is the potential for rising project costs. The authors of the Brookings study show that macroeconomic conditions led by higher interest rates and materials costs could hamper clean energy investment. In fact, the study cautions that “macroeconomic conditions may have larger impacts on IRA investments than IRA investments have on macroeconomic conditions.”

The growing backlog of renewable power projects seeking to connect to the electric grid also presents a potential hurdle for the expansion of clean energy. A recent study led by Lawrence Berkeley National Laboratory (Berkeley Lab) shows renewable power projects are spending longer in so-called interconnection queues, a term that refers to the impact studies developers must complete before a project can connect to the system. The study shows that nearly 2,000 gigawatts of renewable energy and storage capacity were waiting in these queues at the end of 2022, a 40% increase from a year earlier. Entering an interconnection queue is just one step in the development process, but the data nevertheless provides “a general indicator for mid-term trends in developer interest,” according to the study.

Two main issues are causing these delays, according to Berkeley Lab: grid capacity and the design of interconnection evaluation processes. Some progress has been made toward removing these obstacles. The Federal Energy Regulatory Commission has approved reforms to speed up the interconnection evaluation process, and the Infrastructure Investment and Jobs Act contains provisions to support the addition of transmissions lines to the grid.