Tacked on to the vast majority of climate-focused tax incentives that make up the reconciliation deal brokered by Senate Democrats are bonuses that can be unlocked if certain labor standards are met.
The Inflation Reduction Act that squeaked through the Senate Sunday would provide hundreds of billions of dollars over a decade for energy security and climate change programs. Much of that funding would be for clean energy tax credits, and structured with tiers offering greater credit if certain labor practices are in place.
It’s also estimated that thousands of jobs—particularly in the clean energy space—could be created with this funding.
Jason Walsh, director of the BlueGreen Alliance, a policy group focused on the intersection of clean energy and union jobs, said few pieces of legislation have had the potential for such “sweeping” job creation.
“We have long called for congressional action that will address the joint crises of climate change, income inequality, and racial injustice,” he said in a written statement. “This bill’s investments offer an opportunity to support and create good union jobs and for workers and communities to reap the economic gains of the clean economy. Now it’s time to get it over the finish line.”
The bill, brokered by Sen. Joe Manchin (D-W.Va.) and Senate Majority Leader Chuck Schumer (D-N.Y.), and ultimately tweaked in the final hours by Sen. Kyrsten Sinema (D-Ariz.), is expected to be considered by the House on Aug. 12.
Production, Investing Credits
The package would fund many different green energy tax credits; among them are production tax credits, which are available for producing energy generated from renewable sources, and investment tax credits, which are available for investing in those renewable sources.
But the production and investing tax credits are tiered differently, depending on whether prevailing wages are paid and apprenticeship requirements are met.
Prevailing wages are determined by the US Department of Labor, depending on occupation and geographic location. The apprenticeship requirements on many of the credits mandate that a certain percentage of the total hours of construction must be completed by apprentices, starting at 10% and scaling up over time to 15%.
For the production tax credits, green energy production facilities—like wind, solar, and other energy producers—that pay prevailing wages during construction and for the first decade of operation, and fulfill apprenticeship requirements, can qualify for up to five times the base amount of the credit, according to a Congressional Research Service report. The base and the bonus credit amount depend on the type of energy and how much is generated.
The tiered structure is a bit more straightforward for the investing tax credit. A base tax credit of 6% can be unlocked for investments in the creation of clean energy facilities, such as solar, fuel cells, small wind property, and others. The tax credit would increase to 30% if prevailing wages are paid during construction and for the first five years of energy creation, and if apprenticeship mandates are met.
Pro-union groups, such as the BlueGreen Alliance, are applauding the provisions, while employer groups are concerned. In an Aug. 4 letter to Senate leadership, the Associated General Contractors of America called attaching labor standards to tax incentives an “unprecedented” approach.
“The unilateral imposition of not less than 15 percent of project hours to be performed by registered apprentices will eliminate large swaths of the construction industry from competing for projects incentivized through the clean energy and energy-efficient commercial building tax credits and deductions, among others,” the letter said.
The Wall Street Journal’s right-leaning editorial board also spoke out against the structure, saying the package “punishes companies and contractors whose workers aren’t unionized.”
The bill includes other initiatives that would benefit workers, such as making permanent disability benefits funding coal miners with black-lung disease.