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The Inflation Reduction Act charts a pro-climate, pro-worker path

August 19, 2022
By: Jessie HF Hammerling

solar panels and wind turbines

After decades of inaction and failed attempts, the U.S. has finally passed federal legislation addressing climate change. The Inflation Reduction Act (IRA) is groundbreaking not only in its efforts to reduce greenhouse gas emissions, but also in how it demonstrates that we don’t have to choose between good jobs and action on the climate. By including strong labor standards in incentives for clean energy and energy efficiency work, the IRA will help build a high-road green economy, creating good jobs and clear pathways into them.

As we discuss in our 2020 report, Putting California on the High Road: A Jobs and Climate Action Plan for 2030, these kinds of labor standards are essential to maximizing shared prosperity as we fight climate change. California has been a leader in crafting ambitious, pro-worker climate policy, and the IRA presents an important opportunity for the state to build on its prior achievements, and grow good, union jobs in clean energy construction and manufacturing.

How does the IRA benefit workers?

The IRA stimulates the market for clean energy, creating millions of jobs in the U.S.

The IRA invests over $390 billion in clean energy and climate change mitigation through such tools as tax credits, loans, grants, and rebates. Its investments will dramatically alter the energy landscape in the U.S., shifting the market away from fossil fuels and toward cleaner sources. The law targets multiple sectors, including energy, transportation, manufacturing, construction, agriculture, and land conservation. It is projected to cut U.S. greenhouse gas emissions by over 40% by 2030, compared to peak emissions in 2005.

Incentives in the law are designed to stimulate billions of additional dollars in private investment, helping to grow the market for the production and use of clean energy and in the process creating millions of new jobs. Researchers estimate that the combined public and private investments generated by the IRA will create an average of about 912,000 jobs per year across the supply chain in the U.S. over the next decade.

The IRA incentivizes the use of U.S.-based materials and manufacturing for products such as batteries and other components for electric vehicles, solar panels, and wind turbines. It includes additional incentives for renewable energy projects located in communities that have been heavily reliant on fossil fuel production, to support new job growth in areas facing challenges due to clean energy transitions.

The IRA promotes good wages and union jobs

In addition to prioritizing domestic production, the IRA includes strong incentives for employers to pay good wages and benefits. Throughout the law, tax credits for renewable energy and energy efficiency projects are five times higher if work performed by contractors and subcontractors is paid at prevailing wage rates, using registered apprentices and journeymen workers (discussed below).

Prevailing wage rates are a standard rate of wages and benefits for a particular type of work performed in a given local area. The Wage and Hour Division of the U.S. Department of Labor establishes the rates for federally-funded projects. Prevailing wages are usually applied to publicly-funded construction labor, maintenance, and specialized trades work, but can be used for other occupations as well. The purpose of establishing prevailing wage rates is to ensure that public spending does not undercut local wage and benefit standards.

Typically, prevailing wage rates are required on projects that are directly funded by public agencies, but in the case of the IRA, prevailing wages and apprenticeship requirements are attached to financial incentives and tax credits for privately-financed projects, including credits to both businesses and homeowners. This expansion of the use of such standards is an important approach to policy-making that California and other states should follow in their own climate change initiatives.

Requirements and incentives for prevailing wage rates benefit workers in many ways: by leveling the playing field for high-road employers, prevailing wages promote higher local standards for pay, training, and job quality, and protect the gains won by unions in collective bargaining agreements. All this makes it easier for unions and union employers to compete and grow. Research has also shown that prevailing wage laws can reduce racial disparities in pay, especially when paired with targeted hiring requirements.

The IRA creates career pathways into good jobs through apprenticeship

The IRA’s provisions for increased incentives for projects that pay prevailing wages also include a requirement for the use of registered apprentices. This encourages a unionized workforce, promotes best-practices in workforce training, supports employers who participate in registered apprenticeship programs, and opens up more opportunities for new workers to enter good, long-term careers.

Apprenticeship programs are industry-driven and industry-funded, long-term, paid training programs. The most well-developed apprenticeship programs are in the building and construction trades, which are typically run by a joint labor-management committee involving unions and employers. Most programs are four to five years and involve both on-the-job and classroom instruction.

These programs represent the gold standard in workforce training, in particular for jobs that do not require a four-year college degree. Workers who complete apprenticeship programs are recognized as “journeymen” in their trades, which means they have a transferable, industry-recognized set of occupational skills and qualifications. Apprentices are paid good wages and benefits that increase as they advance through their training. Training is funded by unions and employers, as an investment in developing the future workforce. Programs are free for participants, meaning that workers can complete apprenticeship programs without taking on debt to pay tuition.

Because apprenticeships are tied directly to jobs, new spots in programs only open up when there is enough work. Each project requires a combination of journeymen and apprentices, so trainees can learn and develop their skills working alongside skilled workers. The IRA’s incentives for apprenticeships will create more opportunities for employers who participate in these programs, generating more jobs for journeymen and new apprentices.

The IRA provides other benefits for workers and communities

The IRA includes measures that will benefit workers and communities in many other ways, as well. The law includes over $60 billion in investments in communities that are disproportionately burdened by climate change, including $3 billion in environmental justice block grants; investments in infrastructure projects and pollution reduction in historically segregated neighborhoods; and investments in energy efficiency upgrades for low-income households. It also creates a national green bank, providing public financing to help low- and middle-income households switch to clean energy.

In addition to investments in clean energy, the law provides over $98 billion in extended pandemic-era premium subsidies for the Affordable Care Act and expanded prescription drug benefits for Medicare, and makes changes to regulations for prescription drug pricing that will raise revenue and improve health care affordability and reduce prescription drug costs.

The biggest sources of revenue for the IRA’s investments are a 15% minimum corporate tax, a fee on stock buybacks, and enhanced IRS enforcement, which will help ensure that corporations and wealthy Americans are paying more of their share toward responding to climate change and lowering health care costs.

Looking to the future

The IRA is the most far-reaching climate legislation the U.S. has ever passed, but it is still just a first step toward what is required to successfully fight the interconnected challenges of a changing climate and growing inequality.

Given the rapid escalation of the climate crisis, researchers and others have urged that much more investment is needed, and more quickly, to avert catastrophic outcomes. Many have criticized the IRA’s concessions to the fossil fuel industry that were granted to ensure the support of Sen. Joe Manchin (D-WV), including ongoing lease auctions for oil and gas exploration on public lands and expedited permitting for additional fossil fuel infrastructure. Environmental justice advocates have also been critical of the law’s investments in carbon capture and hydrogen production facilities, which they fear will prolong fossil fuel production and worsen pollution burdens in communities near these facilities.

There were many provisions in the Biden Administration’s initial proposal, the Build Back Better bill, that didn’t make it into the IRA. Gone is the Administration’s proposal to create a Civilian Climate Corps, which would employ tens of thousands of young people on essential climate change remediation and land restoration projects. The full slate of investments in education and children from the initial bill were also cut, including funding for universal preschool and paid family and medical leave. These kinds of programs should be a priority to ensure that the cleaner economy we are building is also a more equitable one.

Another important missing piece in the IRA is robust investment in helping workers and communities that are currently heavily dependent on fossil fuel facilities as the economy transitions to cleaner sources. The law’s incentives for new renewable projects in fossil fuel-dependent communities will not be sufficient to help replace lost jobs, income, and local tax revenue. California’s recently-passed $40 million Displaced Oil and Gas Worker Pilot Fund could serve as a model for a worker support program at the national level. Communities will also require support to fill critical budget shortfalls, as well as investments that can help them grow and diversify their economies, and expand opportunities for high-road jobs.

The IRA is undoubtedly a compromise compared to the initial proposals from the Biden Administration, but it is a critical first step toward total transformation of our economy away from fossil fuels. The passage of the IRA is a victory for all of us to celebrate, and an important opportunity for policymakers and unions in California to build upon the new terrain it creates.

Attaching strong incentives for prevailing wages and apprenticeships to billions of dollars in investment gives high-road employers a chance to compete, and gives unions a critical opening to build membership in clean energy construction and manufacturing. California should follow a similar model with its own state-level climate-related incentive programs. The IRA may not get us all the way to where we need to go, but it completely shifts the landscape in which we’re operating, charting a path toward achieving our climate change goals that also can help us fight rising inequality.

Originally posted by the UC Berkeley Labor Center