Inflation Reduction Act: Subsidies & Reliefs for Non-US Businesses
The Inflation Reduction Act 2022 pledges several hundred billion dollars in new spending and tax-breaks that aim, amongst other things, to boost domestic clean energy production. So how does this benefit overseas businesses looking to avail themselves of any available financial incentives by relocating to, or expanding their operations in, the USA?
Below we look at the ways in which this new piece of legislation and planned landmark investments across a host of different sectors in the United States of America may be able to benefit non-US business owners looking to establish a commercial presence in the USA.
What is the Inflation Reduction Act?
On 16 August 2022, the Inflation Reduction Act was signed into law in a bid to help fight climate change and set forth a new era of American innovation and industrial ingenuity to help lower consumer energy costs and drive the global clean energy economy forward. This new and vast piece of legislation represents a game-changing investment in the nation’s economy and the most significant action that Congress has taken in response to the climate crisis in the nation’s history, working to reduce the United States’ share of global greenhouse gas emissions by around 40% or more by the year 2030.
According to leading economists, in addition to fighting climate change, the Inflation Reduction Act will also serve to reduce the deficit to help fight inflation and support strong, stable economic growth through the creation of several million new jobs over the next few years in the following sectors: clean energy, clean manufacturing supply chains, clean transportation and electric vehicles, energy efficiency improvements for homes and buildings, environmental justice and climate resilience, and in natural infrastructure.
In conjunction with President Biden’s Justice40 initiative, it is also hoped that targeted spending from the proposed federal investments for climate and clean energy will directly benefit disadvantaged communities, including prioritisation or targeting of resources to environmental justice communities and those impacted by energy transition. This includes communities with significant job losses within the fossil fuel economy following the closure of a coal mine or coal-fired power plant. In this way, the Inflation Reduction Act is intended to deliver progress and prosperity across hard-hit American families and businesses.
Breaking this down, it is hoped that the new Act will achieve each of the following goals:
- grow clean energy technology and use of this technology, in this way drastically reducing carbon emissions while creating high-quality jobs within the clean economy
- make significant investments to expand clean energy and electric vehicle manufacturing
- transform the industrial sector to reduce emissions, and build reliable and sustainable supply chains for vital industry-technologies
- accelerate clean vehicle deployment to address this source of emissions, while also creating good union jobs, supporting and growing a domestic supply chain for vehicle components, and improving mobility and air quality
- establish a host of key investments in clean energy infrastructure, transmission, energy efficient buildings, affordable housing, and resilient and healthy communities
- sustain and expand high-quality jobs to workers and in communities that need them the most, including low-income workers and workers living in communities that have been hit hard by energy transition or job outsourcing.
Inflation Reduction Act financial incentives
The Inflation Reduction Act directs $369 billion in federal funding to clean energy technology, with the goal of substantially lowering America’s carbon emissions by the end of this decade. The funds will be delivered through a varied mix of tax incentives, grants and loan guarantees, with clean electricity and transmission commanding the biggest slice, followed by clean transportation, including electric-vehicle incentives. As such, with the 2022 Act come several financially beneficial opportunities for business owners of any scale, including non-US businesses, from accessing solar energy to electric vehicles and more.
Essentially, by awarding a combination of rebates, grants and loans toward the cost of sustainable improvements, the Inflation Reduction Act is motivating all companies in every industry to step up, make a change and do their part to help restore climate health.
Below we look at a breakdown of just some of the financial incentives that may be available to those thinking of starting a business or establishing a commercial presence in the USA, including different policies and programs around clean energy projects, clean technology manufacturing and industrial transformation, as well as electric vehicle deployment, auto-manufacturing and its supply chain. We also touch upon investments in constructing or retrofitting healthy, energy efficient and climate-resilient commercial and other buildings.
Inflation Reduction Act financial incentives for clean energy projects
When it comes to clean energy, there are various financial incentives under the Inflation Reduction Act that have either been extended or newly-established, including investment tax credits (ITCs) and production tax credits (PTCs) for clean energy deployment. This is where business owners can offset some of the cost of purchases and projects through tax credits, although to receive the full value of the tax credit, say 30% of project costs, rather than 6%, prevailing wage and registered apprenticeship requirements must also be met.
ITCs or PTCs could include, for example, the production of electricity using onshore and offshore wind, solar power, geothermal power, battery storage and pumped-storage hydro. These tax credits also covers projects with net zero carbon emissions, where credit is not limited to any particular clean energy technology, but rather any technology that does not contribute to carbon emissions. Additionally, there are various bonus credits available, offering up to an additional 10% tax credit if certain conditions are met. This includes a ‘domestic content bonus credit’ for utilising domestically made iron and steel, plus other manufactured components, designed to stoke demand for US manufacturing of clean energy; an ‘energy communities bonus credit’ for qualified facilities that are placed in service within an energy community; and a ‘low income communities bonus credit’ for the development of solar and wind projects in low income communities.
The strengthened and newly-established tax credits for clean energy under the Inflation Reduction Act will not only help drastically reduce greenhouse gas emissions in the United States, but help to provide high-quality jobs in the clean economy. These tax credits are expected to propel significant growth in clean energy deployment, hopefully stimulating parallel growth in US manufacturing of clean technology parts and materials.
Importantly, in the context of clean energy, all business owners can take advantage of the savings made available by the Act, while also benefitting from lower utility bills and a cleaner environment, where even simple, cost-effective eco-upgrades, like switching to solar energy, can be powerful enough to make a difference — and, in financial terms, warrant a refundable tax credit. Further, for the business owner who uses clean energy equipment manufactured in America, the additional financial benefits can be significant.
Inflation Reduction Act financial incentives for clean technology manufacturing
By including billions of dollars in tax credits to expand clean technology manufacturing, the Inflation Reduction Act makes the largest ever investment in US manufacturing of clean energy technologies, including solar, wind, batteries and electric vehicles. These investments are essential to connect climate action with good union jobs, building secure domestic supply chains instead of relying on overseas production marred by high pollution.
Financial incentives include an extended investment tax credit (ITC) for establishing or retooling a factory to produce a broad range of clean technologies, including renewable energy and electric vehicle components. The Act also introduces a new production tax credit (PTC) for manufacturing solar, wind and battery components, and for processing critical minerals, like aluminium, cobalt, lithium and nickel to incentivise the building of new US facilities to support clean energy supply chains at a globally competitive scale.
There are also various incentives to help address industrial pollution, where the Act establishes and expands specific investment programs to reduce emissions in energy-intensive industries such as steel, aluminium and cement. This includes, for example, financial assistance in the form of grants, rebates and loans for commercial-scale deployment of industrial emissions reduction technology, together with grants and technical assistance to businesses that support activities that assist in measuring, reporting and/or steadily reducing the quantity of embodied carbon of construction products and materials.
Inflation Reduction Act financial incentives for electric vehicles and auto-manufacturing
The transportation sector in the USA represents the single largest source of climate-warming greenhouse gas and health-harming emissions, surpassing even industrial emissions in the States, where a significant transition to cleaner cars and trucks is essential if the United States is to meet its climate goals. In a bid to reduce emissions from vehicles and decarbonise its mobility systems, there are various financial incentives under the Inflation Reduction Act, especially when it comes to using electric vehicles.
The updated ‘clean vehicle tax credit’ will cover 30% of the cost to swap company gas-based cars, vans and trucks with clean commercial vehicles. Business owners that upgrade their commercial vehicles to ones that are more energy-efficient, but not fully electric, can also still claim a tax credit of up to 15% of the cost. The result of this tax credit will likely be an influx of electric vehicles seen on American roads and, as such, a lowered carbon footprint. The credit will essentially reduce the cost of new electric vehicles by up to $7,500, while also incentivising the establishment of a complete and resilient supply chain for essential electric vehicle battery components in North America.
Additionally, the newly-established ‘commercial clean vehicle tax credit’, designed to accelerate the deployment of clean vehicles for commercial and other fleets, incentivises business owners to purchase clean vehicles by defraying the incremental upfront cost of purchasing clean vehicles versus vehicles powered solely by gasoline or diesel. Finally, in the context of EV’s, the ‘alternative fuelling property credit’ of up to $100,000 per property helps individuals and businesses install electric vehicle charging and alternative-fuelling equipment, such as for ethanol, natural gas, and compressed or liquefied natural gas.
In the context of auto-manufacturing, the Act provides auto supply chain manufacturing grants and loans. These include the ‘advanced technology vehicle manufacturing loan program’ which provides direct loans to manufacturers to re-equip, expand and/or establish facilities that produce clean vehicles and their components, as well as trains, locomotives, maritime vessels and aircraft. There are also ‘domestic manufacturing conversion’ grant’s available to support the domestic production of electric vehicles and hybrid vehicles.
Inflation Reduction Act financial incentives for commercial premises
When it comes to the buildings sector, it is hoped that investments in either constructing or retrofitting healthy, energy efficient and climate-resilient buildings will help to drive down some of the emissions causing climate change. The Inflation Reduction Act 2022 includes a number of targeted provisions specifically designed to improve the energy efficiency of both homes and other buildings, including schools and commercial premises.
Tax incentives for both residential and commercial use have been extended under the Act by 10 years, helping to incentivise the manufacturing and installation of energy efficient products. For example, the ‘energy efficient commercial buildings tax deduction’ enables owners of buildings to claim a tax deduction for installing qualifying systems that reduce energy usage by at least 25%. However, the tax credits pertaining to multifamily housing and commercial buildings come with the same strong labour standards associated with the clean energy sector, including prevailing wage and apprenticeship requirements.
How do you claim the financial incentives offered under the Act?
The successful navigation of the funding made available through the Inflation Reduction Act requires familiarity with the mechanisms through which certain federal programs are implemented ‘and’ the different ways in which funds flow from federal agencies, whether through states and, in turn, to communities, or directly to eligible entities.
In very broad terms, the funding made available in the Act flows in either one of two ways: first, to states — which then utilise the funds themselves or decide to distribute them to local governments, communities or private entities — or secondly, directly to private entities or individuals. Which entities are eligible for each funding opportunity will depend largely on the type of funding mechanism that is utilised by the program in question.
For example, block grants, like the Environmental and Climate Justice block grants included in the Act, or formula grants, such as the High-Efficiency Electric Home Rebate, are distributed to state and local governments and not to private entities. In contrast, discretionary grants can be awarded to private companies and individuals. Loans, like those made available by the US Department of Energy through their Loan Programs Office, can be awarded to all kinds of different entities, while consumer tax credits are distributed to individuals, in this way directly bypassing both state and local governments.
As such, the first step to utilising any one of the available tax credits or other financial incentives for your business is to check that your business and its upgrades qualify via the Inflation Reduction Act guidebook. This can be found online on the whitehouse.gov website and sets out who is eligible to apply for funding and for what clean energy activities. The second step, not least when it comes to establishing a commercial presence or relocating to the States is to seek expert advice. Running a business in the USA can provide several financially lucrative opportunities, provided you can readily access these opportunities.
NNU Immigration are a London-based team of specialist US attorneys dedicated to US immigration, visa and nationality applications. We provide expert advice and support to non-US companies and entrepreneurs looking to relocate or establish operations in the US in order to take advantage of the financial incentives available under the Inflation Reduction Act.
For advice on pursuing business opportunities in the US, contact us.
This article does not constitute direct legal advice and is for informational purposes only.