In early August, the Senate passed the Inflation Reduction Act of 2022, which now heads to the House of Representatives. The bill aims to reduce U.S. greenhouse gas emissions by 40 percent by 2030. It also holds the potential to transform the built environment—but experts say that depends on how much state and local governments work with the private and nonprofit sectors to use the federal investments as a catalyst.

Editor’s Note: President Biden signed the Investment Reduction Act on August 16.

In addition to providing $64 billion in funding for the Affordable Care Act, the bill offers $369 billion in energy security and climate change–related measures, with tax incentives and grants designed to cut energy costs for consumers, ramp up domestic clean energy manufacturing, reduce emissions in all sectors of the economy, and direct clean energy and other resiliency investments to disadvantaged and rural communities.

Bringing Back U.S. Manufacturing 

The bill also includes $60 billion to support clean energy manufacturing across the United States, including $2 billion in grants to convert existing manufacturing facilities to clean vehicle factories and $20 billion in loans for new clean vehicle factories.

“Growing U.S. manufacturing capacity for things like electric vehicles, wind turbines, solar panels, and heat pumps, those are important to the real estate industry because these are necessary to modernize buildings and modernize infrastructure,” says Harriet Tregoning, director of the New Urban Mobility Alliance at the World Resources Institute in Washington, D.C., and a ULI trustee. “If we have a shortage of these components, if we have to get them from an increasingly hostile foreign country, that’s not so great. This bill will have a positive effect on the supply chain disruptions the real estate community has been experiencing for several years.” 

Michelle Moore, chief executive officer of Groundswell, a nonprofit that builds community power through community solar project, notes that much of the investment in curtailing greenhouse gas emissions over the last several decades has focused on urban environments, particularly large cities, leaving rural communities behind. “There’s potential to consider how this investment, through tax credits and other provisions, can also help address the economic and public health challenges that our rural neighbors are facing,” Moore says. “Many manufacturing facilities are located outside cities, maybe 45 minutes from an airport. Environmental justice doesn’t end at the city limits. How can we think about clean energy as being part of a community economic development strategy in small towns?”

In addition to providing a $10 billion investment tax credit to build clean technology manufacturing facilities, the bill offers a $4,000 consumer tax credit for lower/middle income individuals to buy used clean vehicles, and up to $7,500 tax credit to buy new clean vehicles.

Stephen Engblom, senior managing director at CBRE in San Francisco and a member of ULI’s Global Infrastructure Board, said building and distributing electric vehicles are only part of the equation: integrating charging infrastructure for these vehicles close to where people live and work is vital. “It is important that the people making the decisions place the charging infrastructure where it’s impactful to people’s lives, especially those in marginalized communities, which have historically been an afterthought,” he says. “Most cities and regions have equity regions identified. I hope the people making decisions about this infrastructure funding remember to prioritize those areas.”

New Funding for Environmental Justice 

There are more than $60 billion in environmental justice priorities set aside in the bill, providing block grants for community-led projects in disadvantaged communities and offering clean energy tax credits to support economic development for these communities. Goals include enhancing affordable transportation access and reconnecting communities. “Urban highways, power lines, railroad lines, these have historically divided many communities,” says Paul Angelone, senior director of the ULI Curtis Infrastructure Initiative. “There’s already $1 billion to address this in the Infrastructure Investment and Jobs Act, and now there would be an additional $3 billion.”

The block grants would be given to local governments that partner with nonprofits to address pollution- and climate change-related public health issues. “The bill sends a strong message to encourage local governments to do something they’re not familiar with—partnering with community-based organizations in neighborhoods that have been underserved,” says Tregoning. 

The bill also establishes a $27 billion clean energy technology accelerator—a “green bank”—that would invest in clean energy technologies, particularly in disadvantaged communities.  “Creating a national green bank provides more capital and more innovative business models to finance energy efficiency and renewables,” says Brad Dockser, founder and chief executive officer of Green Generation in Washington, D.C., and a ULI Global Governing Trustee. “I think that’s potentially very positive. That will trickle down and perhaps give a road map for other localities—at the state level or at the city level—to create green banks. That would bring even more capital to finance the climate transition.”

A Down Payment on Future Green Investments

“It’s definitely not everything that people longed for, and when it comes to real estate, it probably offers significantly less than the original Build Back Better bill,” Tregoning says. “It’s a shame that there is not more to incentivize electric bikes and, for that matter, public transit, but the existing investments that have already been made there are pretty extensive.”

Although Dockser also believes the climate bill will not have the same impact as Build Back Better would have, he says, “It provides a very strong signal that the federal government is now catching up, which I believe will provide a further catalyst to municipalities to do even more.” He points to Boston’s Building Energy Reporting and Disclosure Ordinance, New York City’s Local Law 97, and similar laws in Denver and St. Louis. “The energy benchmarking and the mandatory reductions in building energy use intensity, that’s what’s been driving lots of investment in climate transition for real estate.”

“It’s up to all of us to talk to our state and local governments,” says Tregoning. “But this bill is a down payment on future, more substantial investments to come as public sentiment shifts about the need to address climate change.” If the bill’s measures positively transform the built environment in urban, suburban, and rural communities alike, public sentiment may well shift more quickly.

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