The Inflation Reduction Act brings new opportunities for health care’s climate action
Our summary and deep dive into the details of this win for climate and health
By Antonia Herzog, Ph.D., Associate Director of Climate Policy and Advocacy, Health Care Without Harm
CLEAN TRANSPORTATION: VEHICLE AND FUELS
CLEAN ENERGY PROJECT FINANCING
President Biden recently signed into law the Inflation Reduction Act (IRA), the strongest U.S. climate action ever, with $369 billion in strategic investments over the next ten years to drive the growth of clean energy and cut the nation’s carbon footprint. The legislation takes aim at the single biggest health threat facing humanity — the climate crisis, with an unprecedented investment in clean energy, environmental justice, pollution-reduction programs, and climate resilience.
Recent analyses (Energy Innovation 2022, Rhodium Group 2022, Jenkins et al 2022) show the provisions in the IRA may spur up to a 40% reduction in U.S. greenhouse gases (GHGs) by 2030. While this gets us closer to President Biden’s goal of cutting climate pollution in half by 2030, additional actions from the federal government and accelerated work from a broad array of non-federal actors including the health care sector, which represents 8.5% of U.S. emissions, are essential to build on this strong momentum.
With its mission to do no harm and heal, the health care sector has an important role to play when it comes to climate action. Health Care Without Harm’s Health Care Climate Council health system leaders exemplify what the sector can achieve by reducing emissions and building more resilient facilities and healthier communities in the face of present and future climate impacts. The IRA will help advance and scale the work of these leaders, as well as provide opportunities for other health systems to join in this critical work.
The IRA puts us on the road to a more equitable, low-carbon economy and accelerates health care sector decarbonization and resilience. Incentives in the IRA can be used directly by health systems to reduce their GHG emissions through investments in clean renewable electricity, electrifying vehicle fleets, installing electric vehicle charging stations, increasing building energy efficiency, and additional clean energy project financing opportunities.
Especially good news for nonprofit health systems is the inclusion of the “direct pay” option for nonprofit organizations for many of the tax credits in the IRA. This will effectively allow them to now receive the benefits of tax credits as an upfront payment rather than a tax credit. Nonprofit health systems can reap the full benefits of the credit without dealing with a third-party entity or complicated financing package. This will help greatly reduce financing costs for nonprofits and open the door to more direct ownership and investment in renewable energy sources like solar, storage, and more resilient energy systems.
We are at a historic moment in our climate fight, finally addressing climate change with the urgency that science demands, and in ways that can build a healthier and more just nation.
Last month, much of the country experienced the type of extreme heat that climate change will only worsen. The IRA provides billions of dollars to help disadvantaged, underserved populations, who typically spend an above-average share of their income to pay their energy bills, manage increasingly dangerous heat. It includes rebates and tax credits to put energy-efficient air conditioners and heat pumps within reach for lower-income households, tax credits for homebuilders constructing high-efficiency multifamily housing, and grants to help states and localities adopt and implement new building codes encouraging energy-efficient design.
Reducing the health impacts of climate change, especially for the most vulnerable populations, will result in fewer ER and medical visits, lowering the demands on our nation’s already overburdened health systems. Modeling predicts the IRA provisions will create up to $200 billion in avoided health damages through 2030 while preventing up to 4,500 premature deaths, 119,000 asthma attacks, and 484,000 lost workdays from reduced air pollution.
Considering it is a compromise, the overall substance of the IRA is surprisingly good, despite a variety of measures included to aid fossil fuel expansion. Analysis of the bill finds that for every ton of emissions potentially generated by the IRA’s oil and gas provisions, at least 28 tons of emissions are avoided by other provisions. Multiple provisions direct investments to communities that currently host, or previously hosted, fossil energy infrastructure to help them transition toward a clean energy economy.
While the legislation is domestically focused, it proves the United States has the potential to once again lead on climate internationally. On the road to COP27, the Biden administration’s international pledges no longer ring hollow, which will allow the United States to regain diplomatic trust and strengthen its role on the international stage by leading the clean energy transformation the world urgently needs.
The financial incentives contained in the IRA will help health care organizations advance their climate- and equity-related work. Below, we outline specific components of the legislation that can be used directly by health systems to make investments in renewable electricity, electrify their vehicle fleets, increase the energy efficiency of their buildings, and utilize clean energy project financing programs.
The IRA includes significant tax incentives for a variety of renewable energy resources aimed at transforming the tax landscape and accelerating investment in a clean energy transition. Among these strategic incentives is the extension and expansion of clean electricity tax credits, including credits for investment in and production from clean energy sources. Additionally, larger credits are available for projects that meet specific requirements tied to workforce development and a just transition to a clean energy economy, with a particular focus on benefitting low-income communities and communities of color, both of which have been disproportionately affected by climate change and its health impacts.
Clean Electricity Tax Credits (45(a), 45Y, 48, 48E)
The key driver of decarbonization in the IRA is the long-term 10-year extension, and expansion, of clean electricity tax credits. The bill extends the current federal investment and production tax credits (ITC and PTC) for clean energy sources and storage until the end of 2024 and then establishes a new technology-neutral ITC and PTC for all zero-carbon (and some very low-carbon) electricity generation technologies, from 2025–2032. There is a base credit that is increased up to five times for projects that meet certain labor requirements and bonus credits for projects that meet the domestic content requirements and are located in “energy communities,” low-income and tribal communities. In addition, these credits now include the direct pay option for non-profits allowing nonprofit health systems to move beyond power purchase agreements (PPA) to directly use the PTC to own large clean electricity producing projects, or to use the ITC to fund investments in clean electricity generation and storage.
- Investment Tax Credit (ITC — 48, 48E):
— Maintains 30% credit for solar energy property, geothermal property, fiber-optic solar property, fuel cell property, microturbine property, small wind property, offshore wind property, combined heat and power property, and waste energy recovery property constructed before January 1, 2025.
— Creates 30% credit for energy storage technology, biogas property, microgrid controllers, dynamic glass, and linear generators constructed before January 1, 2025.
— Provides a 30% credit for geothermal heat pump projects constructed before January 1, 2033. Credit reduces to 26% in 2033 and 22% in 2034.
— Applies a 10% bonus for meeting domestic manufacturing requirements for steel, iron, or manufactured components and a 10% bonus for projects located in energy communities (defined as brownfield sites or fossil fuel communities).
— For solar and wind facilities smaller than 5MW, there is a 10% bonus if located in low-income communities or on tribal land; or a 20% bonus if located on a low-income residential building with the electricity produced being equitably allocated to the residents or as part of low-income economic benefit projects. These will be determined by an application and award process with a total of 1.8 GW/year for all projects.
— Clean electricity projects smaller than 5MW can include the costs of interconnection.
— For most technologies, this tech-specific ITC (48) is replaced beginning in 2025 by the tech-neutral ITC (48E), an emissions-based incentive that is neutral and flexible between clean electricity technologies. The bonus credit structure remains the same.
- Production Tax Credit (PTC — 45(a), 45Y):
— Restores the PTC for applicable renewable energy sources to their full pre-“phaseout” rates, including for projects that began construction before 2022 and were or will be placed in service in 2022. Revives and extends the PTC for solar facilities, which ended in 2006, out to 2024.
— Extends the date of construction for geothermal, wind, closed- and open-loop biomass, landfill gas, municipal solid waste, hydropower, and marine and hydrokinetic facilities to 2024. Increases hydropower, municipal solid waste, and marine and hydrokinetic credit to full value (was previously halved).
— Strikes the offshore wind credit phaseout for facilities placed into service before 2022.
— Applies a 10% bonus for meeting domestic manufacturing requirements for steel, iron, or manufactured components and a 10% bonus for facilities located in energy communities (defined as brownfield sites or fossil fuel communities).
— The tech-specific PTC (45(a)) is replaced beginning in 2025 by the new tech-neutral PTC credit (45Y) for electricity produced and sold or stored at facilities placed into service. Facilities may use carbon capture, utilization, and storage (CCUS) to reach qualifying emissions level.
- For both the PTC and ITC, facilities with a maximum net output of less than 1 MW are exempt from the labor requirements and receive that bonus automatically.
- The PTC and ITC cannot be used together. Participants must choose one credit or the other.
- Credits are set to phase out by 2032 or when emission targets are achieved (i.e., the electric power sector emits 75% less carbon than 2022 levels). Facilities will be able to claim a credit at 100% value in the first year, then 75%, then 50%, and then 0%.
CLEAN TRANSPORTATION: VEHICLES AND FUELS
Transportation contributes the largest share of U.S. emissions. Heavy-duty vehicles make up over a quarter of pollution from transportation and contribute greatly to particulate matter and nitrogen oxides linked to disease and death. The IRA expands tax credits to help health systems transition their fleet to electric vehicles — an important part of reducing Scope 1 emissions — as well as install EV charging infrastructure. These investments and incentives will decrease air pollution responsible for numerous health harms, particularly for vulnerable populations like children and disadvantaged community members. This presents an opportunity for hospitals and health systems to electrify their fleets, and in doing so, improve the sustainability and climate resilience of their operations and reduce their health impact on the communities they serve.
Qualified Commercial Clean Vehicle Credit (45W)
Starting in 2024, qualifying clean commercial vehicles will be eligible for a tax credit equal to 30% of the difference between the cost of the clean vehicle and its gas-powered counterpart. The credit includes the direct pay option allowing nonprofit health systems to use these funds to help electrify their fleets. The provision is subject to a series of limits:
- $7,500 cap for vehicles lighter than 14,000 lbs (Class 1–3)
- $40,000 cap for vehicles heavier than 14,000 lbs (Class 4–8)
- Reduced credit of 15% for vehicles powered by an internal combustion engine.
Alternative Fuel Refueling Property Credit (30C)
This tax credit provides incentives that individuals and commercial entities such as retailers, local businesses, or commercial fleet operators can use to install charging infrastructure on qualified properties. It provides a 10-year extension and enhances the amount of credit available for the installation of EV infrastructure and increases EV accessibility by targeting investments toward rural and lower-income residents. This credit includes a direct pay option and so could be used by nonprofit health systems to install EV charging infrastructure if they meet the various requirements.
- Qualified Properties Census Tract Requirement limits eligibility to infrastructure installed as defined by:
— A population census tract where the poverty rate is at least 20%; or
— Non-metropolitan area: the median family income ≤ 80% of the statewide median family income;
— Metro-area: the median family income ≤ 80% of statewide median family income or the metropolitan area median family income.
- Individual Credit: $1,000 or 30% of the installed cost, whichever is of lesser value.
- Commercial Credit: Increases the incentive from $30,000 per property location to $100,000 per item. The maximum incentive is now 30% of the cost of the alternative fuel refueling property up to $100,000 per charger, whichever is of lesser value, and is calculated per single unit rather than per location.
— Base and bonus structure: 6% base credit of the cost of the qualified property but organizations can receive a bonus credit for projects that meet prevailing wage and apprenticeship requirements to get the full 30% tax credit.
— — For construction before January 1, 2024, the hours of apprenticeship must equal 12.5% of the total labor hours. For construction that begins after that date, the apprenticeship hours must amount to 15% of the total labor hours.
The IRA includes tax incentives for commercial buildings such as health care facilities to improve the energy efficiency of existing buildings as well as new construction projects. Beyond lowering operating costs and improving climate resilience, energy-efficiency measures can yield benefits for health care workers, patients and staff health, such as reduced symptoms of respiratory and cardiovascular conditions, rheumatism, arthritis, and allergies, as well as fewer injuries.
Energy Efficient Commercial Buildings Tax Deduction (179D)
This increases the tax deduction for commercial properties that achieve higher levels of efficiency and provides another boost for projects that meet prevailing wage requirements for any involved contractors and subcontractors.
- Significantly expands the incentive for 10 years, from $1.80 per square foot currently to a sliding scale of $2.50 to $5.00 per square foot for businesses achieving 25 to 50 percent reductions in energy use over existing building performance standards, with a pathway for existing building retrofits to access the deduction.
- Maintains the provision to allocate the deduction for public projects (city, state, etc.) to the project designer/developer, and expands this allocation option to be used for tribal government projects and projects by nonprofit (e.g. tax-exempt) entities. This means that a health system that is building or retrofitting a hospital or other medical building space can now pass on the deduction to the developer, thereby reducing tthe project’s costs.
Climate change impacts not only human health but also the delivery of health care and the ability of communities to rebound from extreme weather events. Hospitals are on the front lines of the climate crisis and must adapt both their infrastructure and service delivery to remain effective in the face of these new threats. The IRA provides funds to strengthen the resilience of coastal communities to climate change impacts including investments in resources to become more prepared.
Investing in Coastal Communities and Community Resilience
- Provides $2.6 billion to the National Oceanic and Atmospheric Administration (NOAA) for direct expenditures, contracts, grants, cooperative agreements or technical assistance to support the conservation, restoration and protection of coastal and marine habitats and resources to enable coastal communities to prepare for extreme storms and other changing climate conditions. Eligible grant recipients include coastal states, local and tribal governments, nonprofit organizations, institutions of higher education and the District of Columbia.
CLEAN ENERGY PROJECT FINANCING
In addition to the combination of direct pay and tax incentives, the IRA also presents new financing possibilities for health systems to unlock the benefits of solar and wind conversion, energy efficiency, electric vehicles, and other clean energy infrastructure. The provisions within the IRA significantly add to a growing list of clean energy funding opportunities across the federal government and states — all designed to provide grants, loans, and other financial and technical assistance to those seeking to implement climate and health solutions.
Greenhouse Gas Reduction Fund
Provides EPA funding to give grants to state, local, regional, and tribal programs to in turn provide low-cost financing for clean energy, low-, and zero-carbon technology projects around the country. It can be used as seed capital for regional, local, state, or tribal green banks and is modeled after the success of state and local green banks. EPA must begin distribution of the grants within 180 days, finishing by 2024. Health systems can apply to these green banks or other programs set up for the financing of clean energy projects.
- $12 billion in grants for eligible financial entities or entities that would in turn provide financial or technical support to establish such financial entities.
- $15 billion in grants for eligible entities to provide financial and technical support and to support the deployment of clean energy technologies in low-income and disadvantaged communities.
- Eligible programs must prioritize projects that would not otherwise have access to financing and any repayments derived from grants must be recycled into the program for additional grants or operation.
- Qualified projects, activities and technologies include those that reduce or avoid GHG emissions and other forms of air pollution in partnership with the private sector and those that assist communities in reducing or avoiding GHG emission and other forms of air pollution. Eligible applicants include non-profit organizations that can provide capital for the swift deployment of low and zero-emission products.
[See a fuller summary of important programs and provisions in the Inflation Reduction Act that can improve patient and community health and equity and support U.S. health care organizations in decarbonizing and building climate resilience.]