Data to Defend the Inflation Reduction Act

What's in the Inflation Reduction Act?

The IRA included many incentives for clean energy solutions, often in the form of tax credits. These include tax credits for:

• Clean electricity investment and production
• Nuclear power production
• Domestic manufacturing of components for solar and wind energy, inverters, battery components, and critical minerals
• New and used and commercial electric vehicles (EVs) meeting certain requirements
• EV charging or other alternative vehicle fueling in low-income or rural areas
• Clean fuel production and sustainable aviation fuel sale or use
• Carbon dioxide capture and sequestration
• Clean hydrogen production
• Energy efficiency home improvements (heat pumps, door and window upgrades, insulation and air sealing)
• Home solar panels and battery storage
• New energy efficient homes
• Energy efficiency improvements to commercial buildings
• Bonus credits for projects in low-income and 'energy communities, and which meet prevailing wage and apprenticeship requirements

• A fee on methane pollution from oil and gas industry leakage
• Rebates for home electrification and efficiency measures, especially for low- and middle-income households
• Funds for the Department of Energy's Loan Program Office to upgrade, repurpose, or replace energy infrastructure
• The Greenhouse Gas Reduction Fund's 'green bank'

Which of these provisions are the most important for reducing climate pollution?

There have been a few efforts to model the potential effectiveness of some of these different provisions in terms of reducing US climate pollution. Then-senate majority leader Schumer's office released an estimate. They didn't specify who had conducted the modeling, and it's no longer available, but the numbers (which CCL staff retained) are reasonable and useful. Rhodium Group and the Princeton REPEAT Project have also provided estimates. The average breakdown in terms of percentage of IRA-caused climate pollution reductions from the three estimates is illustrated in the pie chart below.



Let's review some of these provisions one-by-one below.

Clean Electricity Tax Credits

As the chart above illustrates, the clean energy provisions are by far the most important in terms of reducing climate pollution, responsible for close to half of the IRA's potential emissions cuts. One recent study estimated that if these provisions remain in place, there will be about twice as much clean electricity deployed in the US between now and 2035 as a scenario in which the clean electricity tax credits are revoked.

And a report from Aurora Energy Research estimated that by 2040, the removal of these tax credits would result in at least $336 billion less investment, 237 gigawatts less clean energy deployed (about as much total wind & solar capacity as was installed in the US through 2023), and increase average American electricity rates 10% (a $142 per year increase in household electricity bills):


Increase in electricity rates (left) and household monthly energy bills (right) if the IRA clean electricity tax credits are repealed. Regions in grey are not served by Independent System Operators, which allow independent power producers and non-utility generators to trade power, and were not included in this study. Source: Aurora Energy Research.

The IRA's clean electricity provisions include:

• A clean electricity investment tax credit (US tax code 48E) for investments in the deployment of clean electricity facilities
• A clean electricity production tax credit (45Y) for facilities that produce clean electricity
• An advanced manufacturing production tax credit (45X) for domestic manufacturing of components for solar and wind energy, inverters, battery components, and critical minerals
• An advanced energy project investment tax credit (48C) for projects that re-equip, expand, or establish an industrial or manufacturing facility for:
  • the production or recycling of clean energy equipment and vehicles;
  • the processing, refining, or recycling of critical materials; or
  • that install equipment designed to reduce the facility's greenhouse gas emissions by at least 20%

The clean electricity tax credits are critical for creating the financial incentives to deploy as much clean energy as possible. The advanced manufacturing and energy tax credits help to ensure that as many of the components and supply chains for this clean energy are made in the USA as possible, so that we're not relying on importing all of these technologies from other countries like China.

Electric Vehicle Tax Credits

There's significant disagreement among the energy modeling groups about how effective the EV tax credits will be at reducing climate pollution. The Princeton REPEAT model assumes that people will buy whichever vehicle is cheapest, and with the combination of falling battery prices and the tax credit, EVs are expected be the cheapest choice for most new car buyers by 2030. But in reality other factors play a role in Americans' vehicle purchasing decisions.

Rhodium Group thinks that the EV tax credits will make little difference in climate pollution levels by 2030, Princeton thinks they'll make a big difference, and the analysis cited by Senator Schumer is right in the middle. But there's a lot of uncertainty about just how effective and thus how important the EV tax credits are.

A recent study estimated that the EV tax credits would increase EV sales by about 20% between now and 2035. But about 80% of those EVs would be purchased if the tax credit were revoked. Because of their relatively high up-front cost, the tax credit is also usually used by relatively wealthy Americans who could and would have purchased an EV anyway, and/or would have otherwise purchased a relatively fuel-efficient vehicle.

So, while the EV tax credits helps to reduce climate pollution it's not nearly as effective as the clean electricity tax credits, for example. There are three forms of EV tax credits:

• A tax credit for new EVs (30D) will take up to $7,500 off of the vehicle price if certain criteria are met, like most of the battery minerals and components coming from and being manufactured in the United States or a free trade partner.
• A tax credit for used EVs (25E) will take up to $4,000 of the vehicle price if certain criteria are met, like if the purchaser earns less than $75,000 per year. There are no assembly, sourcing, or manufacturing restrictions for the used EV tax credit. It applies regardless of where the vehicle and its components were made.
• A tax credit for commercial EVs (45W) will take up to $7,500 off of the vehicle price if purchased by businesses for commercial purposes. This currently applies to vehicles purchased by car dealerships and leased to individual car buyers in what's come to be known as the "leasing loophole."

Additionally, domestic battery manufacturing can qualify for the Advanced Energy Project investment tax credit (48C) or the Advanced Manufacturing production tax credit (45X) mentioned above, but not both. Manufacturing of EVs and other EV components qualifies for the Advanced Energy Project investment tax credit (48C).

As EV adoption accelerates in the USA and even faster in the rest of the world, the advanced manufacturing and energy tax credits help to ensure that as many of the components and supply chains for these EVs and their batteries are made in the USA as possible, so that we're not relying on importing all of these technologies from other countries like China.  The EV tax credits are important for increasing the demand for those EVs, by making them more affordable for less-wealthy Americans.

It's also worth considering that of the projects and facilities built and planned with IRA funds, 238 of 388 (over 60%) involve EV and battery manufacturing plants, accounting for over $126 billion out of a total $159 billion in IRA-related investments (nearly 80%). The domestic supply chain requirements to qualify for the EV tax credits have been extremely successful in convincing companies to build EV and battery manufacturing facilities in the USA. Revoking the EV tax credits would thus put a lot of jobs and revenue at risk, because batteries and components would no longer have much benefit from being made in the USA.


Source: E2.org/announcements

Methane Pollution Fee

The IRA included a fee on methane pollution from oil and gas industry leakage that fails to comply with EPA regulations. The modeling groups estimated that this provision – America's first price on a climate pollutant – would account for about 5–9% of the IRA's emissions reductions. 

Large oil companies like ExxonMobil tend to support policies like the methane fee. That's because there's a global demand for relatively low-emissions natural gas, and so big oil and gas companies already have an incentive to implement measures to reduce their methane leakage. However, many small oil and gas companies and their advocates like the American Petroleum Institute want the methane fee to be revoked, because their profits are less dependent on international markets and they don't want to pay for the repairs needed to reduce their methane leakage.

It's also worth noting that unlike tax credits and rebates, the methane fee doesn't cost the government any money. In fact, the Congressional Budget Office estimated that the methane fee will generate a modest $7 billion in revenue over a decade, and so revoking the methane fee would come with a small budgetary cost.

Building Electrification and Efficiency

The IRA includes both tax credits and rebates for building electrification and efficiency. CCL has a whole training page about the opportunities offered to homeowners and an Electrification Action Team! But homes and buildings only directly account for a bit over 10% of US climate pollution (it's a larger number if emissions from electricity are included, but those are usually attributed to the power sector). Thus incentives to make homes and other buildings more efficient and electrified account for about 5% of the IRA's potential climate pollution cuts. 

The rebate programs will be implemented through individual state energy offices, with funds supplied to them by the Department of Energy (DOE). The DOE has already approved many of those state programs, and so much of that funding will be safe from being clawed back. The tax credits for building energy efficiency (25C) and for home solar panels and battery storage (25D) are vulnerable.

Industrial Carbon Removal

The IRA includes tax credits for carbon dioxide capture and sequestration (45Q) – either by capturing the carbon from a smokestack (carbon capture) or removing it from the atmosphere (direct air capture). Modelers estimate that industries deploying these technologies could account for around 8% of the IRA's total climate pollution cuts.

To date there has been very minimal implementation of these technologies, but it could increase as they become more mature and cost-effective, with this financial assistance. This tax credit has some bipartisan appeal because it both reduces climate pollution and benefits the industries responsible for that pollution.

Climate-Smart Agriculture and Forests

The IRA included about $20 billion earmarked for natural climate solutions, to be deployed through existing US Department of Agriculture conservation programs over a five-year period.  These programs are extremely popular with farmers and are oversubscribed (applications from farmers far exceed the annual funds available).  As a result, they have some bipartisan appeal, because members of Congress often like to support farmers.

The IRA specified that the funds should be used for climate-smart agriculture.  These include practices like cover cropping, low-till agriculture, and planting more trees on farms and pastureland.  Modeling results suggested that these provisions could account for 5–13% of the IRA's climate pollution cuts. Because of the popularity of these programs, the funding may remain in place, but CCL supports preserving the requirement that it be directed specifically to projects that will “reduce, capture, avoid, or sequester carbon dioxide.”  House Republicans' draft Farm Bill in 2024 (which did not advance) would have preserved the funding, but removed climate-related guardrails.

The Political Climate

Republicans hold very slim majorities in the House and Senate in the 119th Congress.  In August 2024, 18 House Republicans sent a letter to Majority Leader Mike Johnson opposing efforts to repeal the entire IRA:

Today, many U.S. companies are already using sector-wide energy tax credits – many of which have enjoyed bipartisan support historically - to make major investments in new U.S. energy infrastructure. We hear from industry and our constituents who fear the energy tax regime will once again be turned on its head due to Republican repeal efforts. Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing. A full repeal would create a worst-case scenario where we would have spent billions of taxpayer dollars and received next to nothing in return.

Speaker Johnson subsequently stated, "You’ve got to use a scalpel and not a sledgehammer, because there’s a few provisions in there that have helped overall."

Two-thirds of IRA-funded clean energy and manufacturing projects and over 80% of associated financial investments have gone to districts represented by Republicans. The statewide numbers are even starker, with 78% of projects and over 90% of financial investments going to states that President Trump won in the 2024 election.

And if the IRA or some of its key provisions are repealed, some executives surveyed from 900 clean tech companies said they would have to relocate their companies to another country. Others said they would go out of business entirely, and many said they would have to lay off workers. Rural areas and small communities across America would be hurt the worst, since rural areas have seen the biggest uptick in clean energy projects, investments and jobs since the IRA was passed.



It's in everyone's best interests to preserve as many IRA incentives as possible in order to preserve these jobs, revenue, and climate pollution reductions.

Republicans will primarily apply changes to the IRA via budget reconciliation.  This is a process through which the Senate can pass legislation with a majority vote (bypassing the 60-vote filibuster threshold) as long as the measures included in the package are primarily budgetary in nature. That means they can't include provisions like most permitting reforms that aren't centered around costs to the federal budget, but tax credits and rebate programs are fair game.

In 2017, President Trump took office with Republicans controlling the majority of votes in the House and Senate, much like the state of Congress in 2025. One of their biggest legislative efforts was the Tax Cuts and Jobs Act of 2017, which reduced a variety of tax rates. Many of the tax cuts for individuals established in that bill are scheduled to expire in 2025, and so extending them will be one area of focus for Congress. A full extension of the bill is estimated to cost around $4 trillion. That's where changes to the IRA could come into play, to help pay for a small portion of those tax cut extensions (the climate provisions of the IRA were estimated to cost less than half a trillion dollars – more recently revised to close a a trillion dollars – and much of those funds have already been spent). But these tax negotiations are expected to take many months in 2025.