The Inflation Reduction Act brings new opportunities for health care’s climate action

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OVERVIEW

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.

CLEAN ELECTRICITY

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. Larger credits are available for projects that meet certain labor and domestic content requirements to ensure support for high-quality jobs and for projects that are located in low-income communities and communities of color. 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.
    — Extends 10% credit for microturbine projects 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 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. In addition to the bonuses under 48, for projects smaller than 5MW, it includes a 10% bonus if projects are located in low-income communities or on tribal land and a 20% bonus for projects located in low-income residential buildings or part of low-income economic benefit projects. Furthermore, clean electricity projects smaller than 5 MW can include the costs of interconnection.
  • 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

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.

ENERGY-EFFICIENT BUILDINGS

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.

RESILIENCE

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

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.

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Health Care Without Harm seeks to transform health care worldwide so the sector reduces its environmental footprint and becomes a leader in the global movement.