CHIPS Act and the IRA – What’s Good?

September 2, 2022

Good news, everyone! The U.S. Congress has passed two bills that have significant implications for environmentalists (and, you know – the environment): the CHIPS and Science Act and the Inflation Reduction Act – known colloquially as CHIPS and the IRA.

There’s a bit of good news for once in the climate change sphere! But the truth is that, as with many similarly large bills, there’s a lot to each that gets missed and glossed over. 

Keep reading for a straightforward breakdown of the most critical changes CHIPS and the IRA will bring – and why we think they’re pretty cool! 

CO2ign person shrugging emote

If you’ve been wondering “what’s in the new bill” or “what even is the CHIPS act”, then you’re in the right place!

The Inflation Reduction Act (IRA)

We’ll start with the big-picture stuff first: What is the Inflation Reduction Act (IRA), what is its goal, and what will it achieve?

According to the White House, the IRA will “lower costs for families, create good-paying jobs for workers, and grow the economy from the bottom up and the middle out.” 

While that’s great to hear, it really doesn’t mean anything until you know what’s attached to it. The White House has broken down the IRA into four major categories:

  • Creating clean energy jobs
  • making the tax code fairer,
  • revitalizing American manufacturing, and
  • lowering healthcare costs.

Primarily, we’ll be focusing on the bits that are relevant to environmentalism and energy topics because, well… that’s our thing.

Remember that many of these changes were made with a larger scale – specifically, corporate scale – in mind. That means that, while these changes are certainly for the better, not all of them will affect the average layperson. 

First things first, though – what impact could this have on a more personal level?

IRA: Big Impact, Smaller Picture

Beyond the obvious cool possibility of getting tax breaks for buying solar panels or an electric vehicle for yourself, there are other, more big-picture things at play here. We’re going to be talking about labor, wages, manufacturing, science, and research – complex topics with complex reach. 

So first, beyond the “big impact” (clean energy that’s manufactured in America), what is the smaller picture? How will this affect non-corporations – you know, people?

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While it’s likely that hearing “Made in America” has gotten old, there’s a good reason for it in this case. When clean energy and the infrastructure, technology, and labor behind it are all in America, the country as a whole has a clear reason to see clean energy succeed – because their jobs are tied to it. 

This is something you’ll see in coal and oil communities; many of the people who defend coal and oil do so because it’s what puts a roof over their heads, not because they just love mining coal or drilling for oil. If given the opportunity, more Americans will not only be rewarded for using clean energy, but can build a life because of clean energy.

Creating Clean Energy Jobs

So what does this first bit mean? The basic idea is that tax credits will be used to incentivize companies to create jobs. Jobs that help further clean energy and pay a competitive living wage, and that are, importantly, in America.

1 – Promoting better wages

Businesses that use energy-efficient vehicles or buildings while also paying their employees a quality wage – called a prevailing wage, here – are eligible for these credits.

Another element is that companies that don’t follow through will be penalized. In other words, companies can no longer continue to kick the can down the road forever.

Per the Department of Justice, prevailing wage is defined as “the average wage paid to similarly employed workers in a specific occupation in the area of intended employment.” In other words, it’s a competitive and liveable salary or wage.

2 – Promoting American-made

American businesses that make equipment for clean energy production will be offered better tax credits. They can get even more credits if they use a registered apprenticeship program and pay a prevailing wage.

Revitalize American Manufacturing of Clean Energy Tech

This is where the really good stuff begins – the manufacturing section. The IRA aims to encourage American production of clean energy technology and provide incentives for everyday Americans and businesses alike to invest in clean, renewable energy. 

This ties back to our “BISP” point above – giving Americans a good financial reason to care about clean energy is a fantastic step towards creating a sustainable, clean energy and transportation infrastructure.

The biggest points are:

1 – Tax incentives for battery, solar, carbon capture, and offshore wind component manufacturers.

2 – Provide clean energy tax credits for specific projects.

3 – Increase clean energy tax credits by 10% for communities that previously relied on fossil fuels that switch to clean energy.

In theory, this would bring jobs and development to communities that need them dearly while also improving the national clean energy infrastructure.

Tax Credits

Now it’s time to break down all of the tax credits that came along with the IRA. These are awesome for a few reasons – first off, probably everyone loves having to pay less in taxes. But second, those out there who love to avoid taxes the most are large corporations. Giving specific, targeted tax breaks to corporations encourages them to do what’s in the public’s best interest.

In this particular case, the tax credits encourage manufacturers to make affordable electric vehicles and reward people for buying them. And then there are the incentives for home and small business owners to kit their business out with solar or other clean energy – it’s all excellent news.

Here are the two overarching categories of tax credits and incentives:

Electric Vehicle Tax Credits! 

A summary can be found here, but the basic idea is that American-made electric vehicles will get tax credits to encourage their use, while non-American vehicles (BMW, Hyundai, Kia, Toyota) will lose their tax credits by 2024. EV Batteries sourced with minerals from outside the US will also lose their tax credits. 

Among the most interesting changes for the average citizen are the following tax credits and changes:

1 – Up to $4,000 tax credit on used EVs

For electric vehicles put into service past December 31, 2023. Notably, this is the first tax credit for used EVs in American history. That makes this a win not only for the environment but for lower-income Americans that want an EV.

2 – Up to $7,500 tax credit on new EVs

3 – Removes tax credits on economically inefficient* EVs

Such as Tesla, Hummer, etc. We say “economically inefficient” (aka “expensive”) because this bill is about empowering the working class to get invested in clean energy and encouraging manufacturers to help.

4 – Takes away tax credits for vehicles not assembled in North America

Multiple Corporate Incentives

Let’s break down a few extra points that will only affect major corporations:

1 – Removes the 200,000 vehicle cap on tax credits for plug-in hybrids from GM, Toyota, and Tesla

This cap stopped auto manufacturers from getting tax credits for making more than 200,000 EVs. Removing this cap will in theory make EVs more widely produced and, therefore, available.

2 – Offer incentives for building and hiring American

3 – Provide tax credits for switching to clean energy (solar, wind, etc.)

4 – Encourage American businesses to create tech for American clean energy infrastructure

5 – Clean hydrogen production incentive with a 10-year timeline

6 – Many, many more – check out this article for the full breakdown of all tax credits that come with the IRA.

Environmental Justice!

This is perhaps the most exciting bit of the IRA (to us, at least). Over $60 billion has been invested in various environmental justice programs across America, including:

1 – $10 billion to establish clean technology manufacturing

2 – $500 million for the Defense Production Act (DPA)

The DPA (1950) allows the federal government to accelerate the production of very specific items. In this case, the Department of Energy will accelerate the production of “(1) solar; (2) transformers and electric grid components; (3) heat pumps; (4) insulation; and (5) electrolyzers, fuel cells, and platinum group metals.”

3 – $2 billion in grants for auto manufacturers – primarily aimed at batteries for electric vehicles.

4 – $20 billion in loans for new clean vehicle creation

5 – $2 billion for upgrades to various National Labs clean energy research projects

The IRA also includes grants and loan programs (roughly $30 billion) to help reduce carbon-heavy energy and manufacturing, funding for rural communities to clean their energy grid, and $5 billion to help forest resilience programs.

CHIPS and Science Act

While a lot of the really big stuff for individuals (such as tax credits for EVs and sustainably-powered homes and businesses) came from the IRA, that wasn’t all that happened in recent news.

The IRA was aimed at both large corporations and individuals alike – CHIPS is strictly science-centered and it has some enormous implications for the long term. It dramatically increases scientific research funding ($200 billion, give or take) and aims to increase the production of American semiconductors for phones, EVs, computers, and more.

While this may not mean much to the average person, it’s really, really good news for people in the clean energy industry. It will allow researchers more funding and time, encourage American businesses to invest in clean energy, and (hopefully) will enable us to improve the national clean energy infrastructure and slowly phase out fossil fuels once and for all.

Final Thoughts

Ultimately, we think the CHIPS act and the IRA are awesome; they fund science and manufacturing, create local jobs, and do so much more that is genuinely incredible for everyday Americans. 

The truth, though, is that these initial steps aren’t enough to stem the tide of global greenhouse gas emissions. CO2ign Art believes that carbon credits are the next best means for everyone to help make a difference – and that’s exactly why 50% of every purchase made on the platform goes towards funding high-quality carbon credits. 

By supporting our platform, you’re helping the planet, supporting independent artists, and showing that sustainability is the way forward. If you love the environment as much as you love art and the people that make it, you’ll fit right in. So swing by and find your next favorite artist and help fund carbon reduction efforts across the world in one easy action.