Inflation Reduction Act of 2022 incentivizes renewable energy, EV technology

The Inflation Reduction Act of 2022 contains provisions addressing inflation, healthcare, tax, and climate change. Embedded in the bill is $369 billion in climate and energy-related provisions, which are designed to (1) incentivize and accelerate the buildout of renewable energy, (2) accelerate the adoption of electric vehicle (EV) technologies and (3) improve the energy efficiency of buildings and communities.

Many of the proposed provisions are welcome news and may spur development and investment. For example, new provisions related to transferability of certain credits could introduce more options for project developers and sponsors to monetize tax attributes, thus giving them alternatives to tax equity financing.

These energy- and climate-related provisions are a monumental and unprecedented investment in the adoption and expansion of renewable and alternative energy sources. The new rules can be very complex, however, and it is important for taxpayers to understand the rules and model how they could apply to their particular projects. Now that these changes have been enacted into law, the focus will turn to implementing regulations and guidance, as taxpayers evaluate the IRA's impact. Companies should carefully analyze what the IRA's changes mean from a capital allocation and deployment perspective, as well as how some of the changes could impact current, pending or potential transactions and investments.