In an email to CleanTechnica this morning, Bloomberg Green says some of the details embedded in the federal tax credits designed to promote more clean energy resources in America may cause headaches for project developers. In order to get the full value of a 30% investment tax credit for the construction of solar power, fuel cell, and other clean energy projects, developers must pay workers at least a wage level set by the US Department of Labor and use a minimum share of labor from workers who are in registered apprenticeship programs, Bloomberg says.
Projects that don’t meet those requirements only get a 6% base rate. The rules apply to other Inflation Reduction Act credits as well, including a production tax credit commonly used for wind projects, tax incentives for carbon capture projects, and new tax subsidies for hydrogen and nuclear power. Meeting the pay and hiring thresholds, which go into effect for new projects on January 29, isn’t going to be easy, say renewable energy and construction trade associations.
“Those [apprenticeship] goals are nearly impossible to meet,” said Brian Turmail, a vice president with the Associated General Contractors of America. Companies that fail to fulfill them could potentially lose out on millions. Uncertainty around the fine print risks delaying projects and making it harder for developers to find financing.
$1 Trillion In Federal Tax Credits
Leah Stokes, a political science professor at the University of California Santa Barbara, estimates the total amount of the tax credits contained in the Inflation Reduction Act could amount to more than $1 trillion if fully maximized. Yet the rules could prevent all that money from being applied to make the goal of the legislation — an America that is powered mostly by non-polluting renewable energy — impossible to achieve.
Abigail Ross Hopper, president of the Solar Energy Industries Association, said the provisions are “workable” but the industry needs more guidance from the federal government and that “there must be some recognition that in some parts of the country the infrastructure is not yet set up, and there may not be sufficient apprenticeship programs in some states.”
Under the law, in order to get the full value of the credit, 12.5% of a project’s labor hours must be from “qualified apprentices” participating in an apprenticeship program registered with the Labor Department or a state equivalent. The threshold increases to 15% next year. The apprentice requirement is designed to ensure those federal tax credits are used for paid on the job and classroom learning as the law brings about job growth in the clean energy sector, said Jason Walsh, executive director of the BlueGreen Alliance, a coalition of environmental and labor groups that backs the new standards.
“While solar, wind and other renewable energy sectors have been some of the fastest-growing sectors in our economy, they have not always consistently delivered family-sustaining jobs, particularly in the construction industry,” Walsh said. “We think it is entirely appropriate that in exchange for the credits there are requirements in place that lead to high quality jobs.”
Michael Kikukawa, a spokesperson for the White House, says the requirements are a “bet on American workers. President Biden is committed to helping working families access good paying jobs and is proud that the Inflation Reduction Act incentivizes prevailing wages and hiring apprentices, prevents companies from ripping off workers, and boosts American manufacturing and competitiveness.”
But developers in the clean energy and construction industries are balking at the rules, which they argue are unrealistic because of the limited number of apprentices available to fulfill the requirements of the law. According to the Labor Department, there were close to 600,000 active registered apprentices in all industries in 2021, but the numbers varied significantly from state to state.
“We are not going to have workers that meet that requirement,” said Allison Nyholm, a vice president at the American Council on Renewable Energy, a trade group that represents renewable project developers such as NextEra Energy and Orsted. “We were already in need of qualified workers and this just exacerbates the need for workers to build out projects.”
The legislation does provide a “good faith” exception for the apprenticeship requirement if companies are either rejected by a registered apprenticeship program they approach for hiring or if the program fails to respond within five days. But questions about the logistics of that exception remain. That in turn may have a chilling effect on which projects get built. People who are putting up millions of dollars want to be certain their investments will pay off as expected. The Treasury Department says it plans to issue additional guidance and regulations on the rules.
Tax Credits & Fairness
The intent of the IRA is to help restore America’s manufacturing base. For decades, the US has been only too happy to see jobs that used to be done by Americans go overseas to whoever was willing to work for less money. There was a time when labor unions devoted a lot of time and energy to training new workers, but America has largely turned its back on the labor movement, which means there are fewer training programs available today. Now the taxpayers have to pony up federal dollars to do what used to be done for free by the unions, a price the captains of industry never told us about when they disparaged unions.
In a sense, the Inflation Reduction Act is doing what private industry failed to do over the past several decades. The prevailing economic system has allowed the profits generated by commerce to flow into private hands while the burdens of doing business — education, disposing of pollutants, and providing for the essential needs of workers — are foisted off on society at large.
Hundreds of millions of words have been written about whether humans are independent actors responsible only for themselves or whether they are best served by forming cooperative communities that promote the welfare of all members equally. There was a fellow about 2000 years ago who had some thoughts on this issue, but that message has lost its allure and has been replaced by a social construct that sees life as a cage-fighting match where the strong prey upon the weak while the rest of us cheer the winners.
The IRA seeks to rebalance the scales a bit by providing opportunities for those who might otherwise be excluded from the blessings of gainful employment that rises above the level of subsistence living. The issue is no different than the alarms being raised by opponents of the transition to electric transportation. There’s not enough lithium! All those batteries will end up in landfills! There aren’t enough EV chargers!
There is some truth to all those complaints, but we as a society can either wring our hands or get to work finding solutions. The IRA is challenging us to do more, to get outside our comfort zone, to dare to dream. There are going to be challenges but as John F. Kennedy so famously said, “We do these things not because they are easy but because they are hard.” Let’s go, America. We can do this.
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