Cities Stand to Win Big With the Inflation Reduction Act. How Do They Turn This Opportunity Into Results?

The passage of the Inflation Reduction Act last fall was like turning on full-blast spigots of money for city governments to help pay for climate and energy programs that they’ve long wanted and needed.

But many cities and other local governments lack the expertise to identify the programs available, or to navigate the sometimes arduous process of applying for a share of an estimated $391 billion. And, the programs are a moving target as the federal government is still in the process of writing and updating rules.

So the spigots are there, but they’re difficult to operate, and the owner’s manual is a work in progress.

“Cities are really central implementers of the IRA,” said Amy Turner, a senior fellow at the Sabin Center for Climate Change Law at Columbia Law School.

She explained that the law was written in a way that empowers local governments, with provisions that allow for “direct pay” of tax credits, which means that an entity with no tax liability—like a local government—can receive credits.

This is different from the way major clean energy tax credits have worked in the past. Before direct pay, cities needed to do projects in partnership with companies that would receive the tax credits. Cities can still work with outside developers, but now they have flexibility to consider more options than before.

So what should cities do to respond to this opportunity? They need to work hard and fast, and brace for a lot of paperwork.

“It’s a great problem to have,” said Erick Shambarger, environmental sustainability director for the city of Milwaukee’s Environmental Collaboration Office. “But it is a real challenge.”

Milwaukee has some built-in advantages because the Environmental Collaboration Office had a wish list of projects that existed before the IRA, and its staff knows how to navigate the application process.

One example of a project: The law includes grants for urban forestry that could be used for a tree-planting initiative.

“This is an opportunity to plant thousands and thousands of new trees in the city of Milwaukee and help address a lot of environmental justice issues, like urban heat islands and things of that nature,” Shambarger said.

To put together an application, the city government reached out to community groups, public schools and others to meet and draft the specifics of what a project would look like.

This is one of eight applications related to the IRA and the 2023 Bipartisan Infrastructure Law that his office is working on, and that number is likely to grow. Others include applications for climate pollution reduction grants and EV charging infrastructure. 

Meanwhile, many other cities aren’t large enough to have staff that can devote the time needed to explore opportunities and apply for grants.

“In my opinion, cities need to look at sustainability staff as a core function of their work now,” Shambarger said. “And that’s not just large cities. I think there’s a huge opportunity in cities across the country. Climate change is a major threat, as is [a lack of] environmental sustainability, and cities of all sizes can stand to allocate some staff to these issues.”

Residents can play a role by asking what their local governments are doing related to the IRA and advocating for the kind of staffing that Shambarger is talking about.

Universities and nonprofits can help cities that are smaller or have fewer resources. The Wisconsin Local Government Climate Coalition, a partnership between some of the state’s city and county governments, is an example of the kind of organization that can be essential.

Turner wrote a blog post for the Sabin Center last week that explores some of the challenges for cities related to the IRA. She expects that all but the largest cities are not going to be able to fully commit to getting the most from the law. If too few cities and other entities step up, then the actual spending on the law could be less than the projected $391 billion.

“The vast, vast majority of our communities around the country” are starting at a disadvantage, she told me.

The inequity goes beyond size and resources. Some local governments are in states that have restrictions on clean energy projects, or cumbersome processes for getting projects approved (and some state governments, like in South Dakota, are making a point of refusing to participate in some IRA initiatives).

This dynamic of some cities being more forward-thinking than their states on climate issues is nothing new, although the potential for negative consequences is greater than before.

The larger point, and a recurring theme in much of what I’ve written about the IRA these last few months, is that there is a vast amount of work ahead for the country to come anywhere close to taking full advantage of the law.

Other stories about the energy transition to take note of this week:

Auto Dealers’ Convention Shows Challenges for EV Transition: The country’s auto dealers are wealthy and Republican-leaning and stand to lose a large share of their income in the transition to clean energy. Alexander Sammon writes for Slate about his visit to the National Automobile Dealers Association convention in Dallas, with vivid details about a boozy party for business owners who have a vested interest in sticking with internal combustion engines as long as possible. The shift to EVs is a threat to dealers because  they have much lower maintenance costs and dealers rely on selling parts and service for a large share of their profits. Also, companies like Tesla have business models that sidestep independent dealers by selling directly to customers. Car dealers have immense power at the state and local levels and their resistance to EVs is going to be a recurring theme as the transition away from gasoline accelerates.

Clean Energy Dodges a Bullet in the Texas Legislature: The Texas Legislature has adjourned without passing several proposals that would have harmed clean energy companies, as Jeff St. John reports for Canary Media. The bills failed to pass thanks to the work of a ​“remarkable coalition of environmentalists, industry organizations and business groups,” said Doug Lewin, president of a Texas-based energy consulting firm. Lewin wrote a roundup of the session that explores what passed, what didn’t and why.

Debt Ceiling Deal Avoids Cuts to Clean Energy Programs: Congressional Republicans had hoped to cut tax credits for clean energy as part of an agreement with the Biden administration to raise the country’s ability to borrow to cover its debt. The administration refused in a deal reached over the weekend, but the agreement contains other provisions that make environmental advocates cringe, including a commitment to completing the Mountain Valley natural gas pipeline in West Virginia and Virginia, as Nidhi Prakash reports for E&E News. The tax credit extensions and expansion in the Inflation Reduction Act were a ripe target for the GOP and probably will continue to be, despite the substantial benefits that are being steered toward red states.

How Dueling PDFs Explain a Fight Over the Future of the Grid: A report from Brattle Group argues that competition in the building of transmission lines is a good thing that should lead to savings for consumers. Meanwhile, a report from Concentric Energy Advisors says competition hasn’t worked. These two reports, paid for by companies with interests in the policies, are showing up in statehouse debates across the country over transmission line “right of first refusal” proposals that would limit competition, as I wrote this week for ICN. But this tit for tat distracts from a larger reality: Energy analysts and economists who have studied this issue are mostly critical of right-of-first-refusal laws.

Minnesota Emerges as the Midwest’s Leader in the Clean Energy Transition: Illinois was the Midwest’s leader in clean energy policies, but following an eventful legislative session Minnesota is now out in front, as my colleague Aydali Campa reports. Illinois passed a landmark clean energy law two years ago, and now is going through the difficult steps of implementation. Minnesota is earlier in this cycle, having just passed a landmark clean energy law, and the state will surely have some implementation challenges of its own. But for now, Minnesota has tremendous momentum.

Grid Interconnection Delays Threaten States’ Clean Energy Goals: A report from the Natural Resources Defense Council finds that states in the PJM Interconnection grid region are going to have a difficult time meeting their clean energy goals because of bottlenecks in approving grid hookups for new wind and solar projects, as Kari Lydersen reports for Energy News Network. This is a nationwide problem, but it’s especially bad in the PJM region, which runs from Chicago to New Jersey. PJM’s management knows it needs to pick up the pace, but that’s easier said than done, and it will take years to clear out the accumulation of projects seeking grid connections.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].