The passing of the Inflation Reduction Act marks a significant turning point for the United States in combating climate change. While less far-reaching than the Build Back Better Act proposed last year, it is still the largest climate investment in U.S. history, and puts the United States on a path to reduce its emissions by 40% by 2030.
In addition to a significant extension of the Affordable Care Act and deficit reduction, the bill includes a $370 billion commitment to energy and climate provisions focused on lowering consumer energy costs, supporting the production of clean energy, decarbonizing the economy, investing in disadvantaged communities and environmental justice, and advancing solutions for rural and coastal communities on the forefront of climate change.
So what does this mean for commercial real estate? On the whole, the bill has taken a carrot-vs-stick approach, which means expanded tax credits for owners of energy efficient commercial buildings, more rebates for energy saving projects, new clean electricity and electric vehicle incentives, and expanded grants to state and local governments, among others.
Specific highlights include:
Tax Deduction for Energy Efficient Commercial Buildings
Tax Credit for Large Multifamily Residential Buildings
Clean Electricity Incentives
Federal Building Upgrades
Electric Vehicle (EV) Incentives
Grants for State and Local Governments to Adopt and Implement Building Energy Codes
Greenhouse Gas Reduction Fund
Overall, the expanded credits and rebates are good news for real estate, as they will encourage owners and developers to build more energy efficient buildings and invest in energy efficiency and carbon-reducing projects for existing buildings. However, there are still some bigger-picture questions that remain unanswered.
For one, in the absence of more stringent regulation, will the bill’s expanded incentives and tax credits be enough to garner the level of mass participation needed to really move the needle? We can look to Texas and other states and cities that have taken this participatory approach to climate and energy policy, and the evidence points to varied results. Furthermore, is the signal from the federal government in supporting carbon-reducing activities strong enough to encourage states and cities to go even further, and initiate legislation in the vein of Local Law 97 in New York?
Other more specific questions include: will the supply of more electric vehicles meet or exceed the infrastructure needed to store and charge said vehicles? Will the 10 year extension be enough to encourage building owners to participate in the incentive programs?
Only time will tell, but regardless – the possibilities that this bill introduces are good steps in the right direction. Now it will be up to us as real estate professionals to leverage these new resources to continue to improve the performance of our buildings – and with major target emissions deadlines growing closer each day, there is no time to waste.