The Build Back Better framework looks to improve American’s livelihoods through improved climate change efforts. It is the largest effort in American history, with a $555 billion investment in clean energy for the country. The United States has goals to reduce greenhouse gas emissions by 50-52% by 2030.
What it means for our clients
Among many benefits, the bill aims to fight climate change, conserve energy, and reform legislation for the §45L Tax Credit and §179D Tax Deduction. The act significantly extended and expanded incentives for homebuilders and commercial building owners. For applicable residential rental developments, the incentive and deduction can now be used concurrently. Internal Revenue Code Section 45L which previously expired in 2021, has now been extended through the end of 2032, and retroactively extended for 2022. The Inflation Reduction Act also provides a higher credit of $2,500 for EStar-certified and $5,000 for ZERH-certified single-family and manufactured homes beginning in 2023.
Due to these changes, §45L Tax Credits will be applicable to all multifamily developments, regardless of height. Additionally, multifamily projects that are four or more stories tall will be eligible for both §179D Tax Deduction and §45L Tax Credits.
The maximum deduction amount for Section 179D energy-efficient commercial building benefits has been increased to $5/square foot (previously $1.88/square foot). In addition, tax-exempt building owners will gain the ability to allocate §179D Tax Deductions to those who designed a building’s energy-efficient system, such as architects, engineers, and designers.
With the Inflation Reduction Act, eligibility has been expanded to include:
- Real Estate Investment Trusts (REITs)
- Commercial building owners
- Architects, Engineers, and Designers of Buildings owned by:
o Government entities
o Not-for-profit organizations
o Churches and other religious organizations
o Tribal organizations
o Not-for-profit schools and universities
Read more about these changes from our Green Energy Code Enforcement and Adoption article.
Scientists have warned that climate change has been a persistent issue for many years, affecting not only human health but also wildlife, agriculture, ecosystems, and the overall global environment. The purpose of the Build Back Better is to deliver new economic opportunities while reducing climate change impact.
Here is a breakdown of the Build Back Better framework:
- Through consumer rebates and credits, the average American middle-class family can save hundreds of dollars per year on energy costs by shifting to clean energy and electrification. This will also provide rural communities with access to clean energy opportunities through Department of Agriculture grants and loans.
- Clean energy technology developed in the United States will not only boost industry competitiveness but will also create more job opportunities for Americans. Steel, cement, and aluminum production will drive capital investment in carbon reduction for American manufacturing. Electric vehicles, solar panels, wind turbine blades, and other alternative energy sources reduce carbon dioxide emissions. A total of $12.5 billion in grants and loans were made available to accelerate the transition to widespread zero-emission vehicle use.
- Creating a new Clean Energy and Sustainability Accelerator that invests in projects around the country, including disadvantaged communities, will advance environmental justice. As part of the President’s Justice 40, 40% of the benefits of investment will go towards the under-resourced communities.
- Cleaner transit, buses, and other forms of transportation can be deployed by funding port electrification. Programs that incorporate low-carbon materials into their transportation projects, such as cars and planes, in order to develop low-emission fuels and advance clean energy and technology implementation.
- The framework also includes the creation of a new Civilian Climate Corps, which includes over 300,000 diverse new workforce members who will address the changing climate, as well as preserve our public lands and strengthen community resilience. By withdrawing the Arctic National Wildlife Refuge and federal waters in the Pacific, Atlantic, and Eastern Gulf, our country’s public resources and lands will be protected from further oil and gas drilling.
- In an effort to cut emissions, landowners of forested areas, farmers, and ranchers will be given the tools they need. As a result, forests, soil, and coastlines will be restored and preserved. As well as helping to meet farmer demand, the investment in climate-smart agriculture will raise awareness of the possibilities and advantages of climate in agriculture. This framework may potentially affect as many as 240,000 farms or about 130 million acres of crops annually.
- Researching climate and clean energy development will accelerate the adaptation of clean energy. Forecasting and weather observation, wildfire research, and climate-smart agricultural innovation are all ways that will assist in gauging the changing climate and the next steps to take to prevent further disasters.
As the Build Back Better Act faded into the background, the Inflation Reduction Act of 2022 was passed and signed into law as a new compromise on the initial Build Back Better Act. The Act is considerably more comprehensive than the reconciliation proposal agreed upon, but it contains significantly less than what the party previously advocated in Build Back Better. It is the biggest climate change package in US History, as Biden signed the $430 billion bill.
Below are the highlights of the Inflation Reduction Act of 2022:
- Expansion of Medicare benefits by reducing the price of insulin and capping out-of-pocket drug costs, as well as providing free vaccines
- Cut energy bills by $500-$1,000 per year
- Lower health care costs, thus saving the average enrollee $800 per year in the ACA marketplace
- Creation of domestic clean manufacturing jobs
- Investments dedicated to cleaning up pollution and reducing environmental injustice in disadvantaged communities
- Close tax loopholes used by the wealthy
- Protect families and small businesses making $400,000 or less
There is expanded awareness of company’s ESG efforts specifically related to GHG (greenhouse gas emissions) and sustainability. KROST’s Environment, Social, and Governance (ESG) Reporting and Consulting can help organizations go further together. Environmental, social, and governance, referred to as sustainability, is more than environmental impact. It’s about creating economically sound processes that have a positive impact on your organization. A by-product of ESG is better employee retention, community engagement, and product development. By redefining sustainability, we identify ways that can put money back into your pocket. ESG Reporting is your story. Your ESG story can be more than required disclosure; it can be a glimpse into why customers buy from you, why employees stay with you, and why vendors sell to your company. Transparency into your ESG helps attract top talent, customer engagement, and identify efficiencies in your supply chain.
Contact us with any questions you may have on the Inflation Reduction Act, 45L Tax Credit or §179D Tax Deduction, or guidance on Environment, Social, and Governance (ESG) Reporting and Consulting.