4 Ways The “Inflation Reduction Act” Could Impact Supply Chains

By Alyssa Sporrer, by American Shipper

As its name suggests, the Inflation Reduction Act of 2022 (IRA) signed into law by President Joe Biden earlier this month is designed to reduce inflation, but it also includes $300 billion worth of grants and incentives for clean energy and initiatives to combat climate change. 

The goal of the incentives is to accelerate electric vehicle adoption, green ports, increase renewable energy capacity and support products made in the U.S. There are also tax reforms and provisions for health care.

The climate legislation is supposed to help the U.S. lower greenhouse gas emissions by 40% by 2030 compared to 2005 levels.

1. Incentives for electric trucks

The tax credit for purchasing an EV covers the price difference between a diesel truck and an electric truck, or 30% of the truck’s purchase price, whichever is lower. But it’s capped at $40,000 per vehicle purchase.

New heavy-duty electric trucks can cost over $300,000, so it’s unclear how much this tax credit would incentivize fleet owners to invest in EVs.

The tax credit may be “geared more toward incentivizing the purchase of smaller vehicles, such as cargo vans or box trucks used for short-haul package delivery in urban areas,” Beia Spiller, director of the transportation program at the nonprofit research group Resources for the Future, which studies the implications of vehicle electrification, told FreightWaves in a previous interview.

The IRA also includes a credit for building EV charging infrastructure of up to $100,000 per charger.

2. Renewable energy incentives

The IRA includes production and investment tax credits for battery storage and renewable wind and solar energy. This should make it greener and cheaper for supply chain companies to power their warehouses, distribution centers and stores.

Independent environmental and energy research nonprofit Resources for the Future projects the act will reduce electricity costs for the retail industry by 5.2% to 6.7% over the next decade, saving electricity consumers $209 billion to $278 billion. 

These estimations were based on expected natural gas prices. One of the benefits of more clean energy is it insulates electricity consumers from volatile natural gas prices.

The nonprofit predicted the GHG emissions from the electricity sector would drop between 70% and 75% by 2030 below 2005 levels. Without the IRA, those emissions were estimated to decrease by about 49% in the same time frame.

“As the nation looks to increase production of renewable energy and the sustainability of the supply chain, these new public investments will help support more solar, more electric trucks and new clean-energy technologies and infrastructure,” Susan Uthayakumar, chief energy and sustainability officer at Prologis, said in a statement.

3. Supporting domestic supply chains

The IRA is expected to drastically increase the demand for components needed in solar panels, wind turbines and EVs. This could create more jobs in the clean energy and manufacturing sectors. 

But there’s a catch. Some of the incentives hinge on a certain amount of raw materials being sourced in the U.S., the final product being constructed in the U.S. or meeting worker training and competitive wage standards.

While these conditions support domestic supply chains and labor rights, some experts think it may slow the adoption rate of EVs and renewable energy. Domestic supply chains for EV and solar panel production are not mature right now. 

It’s unclear whether these incentives will spur the expansion of these domestic supply chains or how fast that may occur.

The National Association of Manufacturers “remains staunchly opposed to the IRA. It increases taxes on manufacturers in America, undermining our competitiveness while we are facing harsh economic headwinds such as supply chain disruptions and the highest rate of inflation in decades.”

4. Greening ports

The IRA includes $3 billion in grants and rebates for port authorities and marine terminals to purchase zero-emission cargo-handling equipment until September 2027. The goal is to address air pollution in and around ports.

But it defines zero-emission port equipment and technology as being “human-operated equipment or human-maintained technology” and therefore excludes automated technology from being grant eligible.

Zero-emission cargo handling equipment or technology must emit no air pollutants or GHGs, or it must capture 100% of those emissions produced by vessels at berth to qualify for the grants.

“This would go a long way to help seaports meet their emission reduction goals,” said Elaine Nessle, executive director of the Coalition for America’s Gateway and Trade Corridors. “Freight projects often have economic benefits for the entire country, but they can also negatively impact local communities, so it’s good to have resources at the federal level to offset those negative impacts.”