The Inflation Reduction Act: Investments in Environmental Justice

The Biden administration has made it a priority to target environmental justice issues as part of the administration’s broader economic agenda. On August 7, the Senate passed the Inflation Reduction Act of 2022 (Act), which would provide about $369 billion to reduce greenhouse gas emissions to 40 percent below their 2005 levels by 2030 as well as reduce carbon emissions and invest in renewable energy. A small but potentially mighty component of the Act focuses on strengthening environmental justice. The Act offers benefits to environmentally burdened communities and developers of projects that advance environmental justice. Most of the environmental justice components can be broken down into the following three categories:

  1. Research & Data
    1. Allocated $32.5 million to the Chair of the Council on Environmental Quality to support the collection and tracking of data relating to disparate impacts of environmental pollution and climate burdens. The Act falls short of specifying who will be collecting and tracking the data, but one possible player would be the Department of Health and Human Services. The agency launched its Environmental Justice Index on August 11, 2022, which would assign an environmental justice score for communities based on data identifying the cumulative impacts of environmental burden.
    2. Allocated $53 million to the Administrator of the Environmental Protection Agency (EPA) for air quality monitoring conducted by the EPA in low-income and disadvantaged communities and at schools in these communities. The Administrator is also authorized to make grants to air pollution control agencies, public or nonprofit private agencies, institutions and individuals for the purpose of conducting research on the causes and prevention of air pollution in these communities.
  2. Tax Credits
    1. The legislation would permit Treasury to create a program to provide “boosters” to the Investment Tax Credit of an additional 10% to solar and wind developers for facilities constructed in low-income or Indian communities and 20% for low-income residential building projects or a project that has at least 50 percent of the financial benefits of the electricity produced by the facility provided to households with income less than 200 percent of the poverty line or less than 80 percent of area’s median gross income. The Secretary of the Treasury would need to create a separate program for such boosters that would be capped at an annual 1.8 gigawatt capacity limit for allocating tax credits to qualifying projects. The program would require creation of new guidance from Treasury which may, or may not resemble similar competitive application based tax credit programs like the New Markets Tax Credits (NMTC) program administered by the Treasury. To ensure equity, the Secretary of the Treasury must establish a program within 180 days after enactment to put in place procedures to equitably distribute the tax credits since there is a capacity limit on how many solar and wind projects can receive tax credits. Given the time and effort needed to set up the program and to conduct the application/review process, we anticipate that it will take considerable time for this aspect of the new legislation to actually become operative. For example, under the NMTC process, “allocations” of credit for a specific year of tax credits often are not actually awarded until the following calendar year.
  3. Grants
    1. Allocated $3 billion to the Administrator of the EPA to establish and manage the Environmental and Climate Justice Block Grants program which will provide grants to community led-projects that seek to reduce air pollution, mitigate health risks from extreme heat disadvantaged areas and increase community engagement in Federal programs.
    2. Allocated $15 billion to the Administrator of the EPA for grants to projects that will reduce emissions, like residential rooftop and community solar, in low-income and disadvantaged communities.
    3. Allocated $1.10 billion to Administrator of the Federal Highway Administration to establish and manage Neighborhood Access and Equity Grants to provide grants to various projects including those that seek to reduce pollution and improve air quality disadvantaged and underserved communities near major transportation corridors.
    4. Allocated $60 million to the Administrator of the EPA for grants to projects that will reduce emissions from vehicles servicing goods movement facilities in low-income and disadvantaged communities with negative health impacts because of the toxic emissions.
    5. Allocated $550 million to the Secretary of the Interior for financial assistance including grants for projects that will improve access to drinking water in disadvantaged communities.
    6. Allocated $750 million to the Administrator of the EPA for grants to projects that will reduce emissions and improve air quality at ports located in overburdened communities.

While there are several provisions focused on environmental justice, the Act leans heavily on federal grant programs to provide opportunities for creative and novel

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