The Inflation Reduction Act and Its Impact on the Metalcasting Industry
Last month, the U.S. Congress passed comprehensive climate, tax, and health care legislation, the Inflation Reduction Act of 2022 (IRA), that includes billions of dollars in incentives for domestic manufacturing, both in direct tax credits for factories and domestic content requirements for electric vehicles and clean energy projects, and to bolster consumer efforts to improve home energy efficiency. The $700 billion-plus bill was signed into law by President Biden on August 16.
The passage of the bill caps off more than a year of up-and-down intraparty negotiations, with Senate Majority Leader Chuck Schumer (D-N.Y.) and Energy and Natural Resources Chair Joe Manchin (D-W.Va.) eventually coming up with a suite of policies that could get support from every Democrat. The bill passed the 50-50 Senate in a vote process known as budget reconciliation on August 7, with Vice President Kamala Harris breaking the tie. It was approved by the House in a straight party-line vote on Friday, August 12.
The bill contains $369 billion in direct climate investments over the course of the next 10 years, including long-term extensions of clean energy tax credits and a host of incentives for technologies like nuclear, hydrogen, carbon capture, and battery storage. The solar, wind, and electric vehicle industries are expected to be spurred by the new tax provisions and incentives. The goal of these provisions is a 50% reduction in greenhouse gases by 2030, with a further eye on the goal of net zero emissions by 2050. The bill proposes investing $369 billion in energy security and climate change programs over the course of the next 10 years.
To help pay for the health care, energy, and environmental titles, the IRA will raise revenue with some changes to the tax code. This includes an alternative minimum tax on corporations, an excise tax on stock buy-backs, and more than $80 billion in new funding to the Internal Revenue Service (IRS) for tax enforcement.
Following are some of the key components of the IRA that may be of interest to the U.S. metalcasting industry, particularly for metalcasters that produce castings for the electric vehicle market, dryers, heat pumps, critical minerals mining, and the overall energy sector.
Domestic Clean Energy Manufacturing
The package includes a five-year, $60 billion production tax credit that would send payments directly to companies involved in clean energy manufacturing. About half of the credits will flow to efforts to spur manufacturing for solar panels, wind turbines, batteries, and critical minerals processing.
- $30 billion in production tax credits is set to go toward accelerating the U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing.
- A $10 billion investment tax credit is for building clean technology manufacturing facilities, like plants that make electric vehicles, wind turbines, and solar panels.
- $2 billion in grants are for retooling existing auto manufacturing facilities to manufacture clean vehicles.
- Up to $20 billion in loans are slated to build new clean vehicle manufacturing facilities across the country.
- $500 million in the Defense Production Act is for heat pumps and critical minerals processing.
- $2 billion will go to National Labs to accelerate breakthrough energy research.
Tax Incentives for Buying Electric or Hybrid Cars
The Act looks to accelerate the adoption of clean vehicles by reforming the related tax credits in several ways. The new law includes tax credits worth up to $7,500 for new electric and hybrid cars, and up to $4,000 for used ones. To be eligible, the buyer, the vehicle, and seller will have to meet certain requirements, like the buyer’s income, the price of the car, and the source of the materials used to make the vehicle.
This credit is reduced or eliminated if a certain percent of the critical minerals used in the battery is not extracted or processed in a county with which the U.S. has a free trade agreement or has been recycled in North America. As of January 1, 2024, at least 40% of the critical minerals must meet this definition; this percent climbs to 80% by 2026.
The Act also eliminates the 200,000 clean vehicles sold quota per manufacturer. Previously, GM, Tesla, and Toyota were over the 200,000-vehicle threshold and thus ineligible for the tax credit. In addition, it establishes an $80,000 price cap for vans, SUVs, and pickup trucks and a $55,000 price cap for all other consumer vehicles.
Clean Heavy-Duty Vehicles
The IRA will provide $1 billion to establish a program to make awards of grants and rebates to states, local governments, and nonprofit school transportation associations to replace Class 6 and Class 7 heavy-duty vehicles with zero-emission vehicles.
The funding could also be used to purchase, install, operate, and maintain the infrastructure needed to charge, fuel, or maintain zero-emission vehicles or to plan and provide technical assistance to support zero-emission vehicle adoption and deployment. It requires that 40% of funding ($400 million) be directed to recipients proposing to replace eligible heavy-duty vehicles serving communities located in nonattainment areas.
Reducing Carbon Emissions
The bill targets investments at reducing emissions in every sector of the economy, including electricity production, transportation, industrial manufacturing, buildings, and agriculture. This includes:
- Tax credits for clean sources of electricity and energy storage and roughly $30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to clean electricity.
- Tax credits and grants for clean fuels and clean commercial vehicles to reduce emissions from all parts of the transportation sector.
- Grants and tax credits to reduce emissions from industrial manufacturing processes, including almost $6 billion for a new Advanced Industrial Facilities program, which would provide grants to help fund technology to reduce greenhouse gas emissions at energy intensive facilities. This could be an opportunity for the metalcasting industry.
- Deployment Program to reduce emissions from the largest industrial emitters like chemical, steel, and cement plants.
- Over $9 billion for federal procurement of American-made clean technologies to create a stable market for clean products, including $3 billion for the U.S. Postal Service to purchase zero-emission vehicles.
- $27 billion clean energy technology accelerator to support deployment of technologies to reduce emissions, especially in disadvantaged communities.
- A Methane Emissions Reduction Program to reduce the leaks from the production and distribution of natural gas.
Clean Energy Tax Credits
The package includes 10-year extensions of existing credits for wind and solar, as well as provisions for heat pumps, rooftop solar, and standalone energy storage, such as batteries. The credits also are tied to prevailing wage and domestic content requirements.
The package includes $60 billion for environmental justice, sending new investments to communities exposed to greater levels of pollution. The funding includes $3 billion to EPA for environment and climate justice block grants. Those grants would help with pollution monitoring; mitigating climate and health risks; climate resiliency; reducing indoor air pollution; and assisting disadvantaged communities to engage with state and federal government. There is $3 billion in grants for creating more access to transportation, $3 billion in grants for improving air quality near ports, and $1 billion for clean heavy-duty vehicles.
The agreement also includes a total of $27 billion toward a clean energy technology accelerator to support deployment of emission-reduction technologies, especially in disadvantaged communities.
For the first time ever, the bill provides authority to the Secretary of Health and Human Services to negotiate directly with pharmaceutical manufacturers on the price of prescription drugs sold to the Medicare program. In addition to drug price negotiation, the bill’s healthcare provisions include an annual cap of $2,000 for Medicare Part D beneficiary out-of-pocket spending, the extension of premium subsidies for ACA enrollees, a rebate program for Medicare prescription drugs with price increases in excess of inflation rates, and targeted measures to cap the costs to Medicare beneficiaries of insulin products.
Federal agencies will be moving quickly to implement the law. The agencies have significant authority and will be responsible for the implementation which will include the promulgation of many new rules and decisions on how to deploy funding.
Permitting reform is the next area to watch. As part of the agreement struck between Senator Manchin and the Democratic leadership, the West Virginia senator was promised that the Senate would pursue additional legislation aimed at federal permitting reform. Senator Manchin released a broad outline of that deal, which includes directing the president to designate 25 energy projects for prioritization, set maximum timelines for environmental reviews, and complete the controversial Mountain Valley Pipeline project.
Law firm Holland and Knight has compiled an in-depth overview of the package for AFS members only located at www.afsinc.org/news.
For additional information, contact Stephanie Salmon, AFS Washington Office,