What Passage of the Inflation Reduction Act Means for Businesses

On Friday afternoon, the Inflation Reduction Act passed in the House of Representatives along party lines, advancing the country’s most significant climate legislation to date. The Act, which raises $700 billion through corporate tax increases and prescription drug savings and offers nearly $370 billion on climate and clean energy investments, can tip the scales in favor of climate action for those who are poised to seize the opportunity.

Last week, The Climate Board published a summary of key themes and provisions of the Inflation Reduction Act (IRA), with a particular focus on the implications for the private sector—follow this link to access our nine-page briefing. To recap, the Act’s climate provisions are concentrated on renewable energy incentives, electric vehicle purchasing, decarbonization of key domestic industries, and improving environmental justice and equity for disadvantaged communities. The private sector should be aware of which provisions it is eligible to utilize.

Key Themes and Implications

Renewable energy. The IRA the scope of major federal tax credits for the investment and production of renewable energy and battery storage. In addition, manufacturing tax credits will incentivize production of major clean energy components and critical minerals on U.S. soil. These credits will be most advantageous for companies in the energy technology value chain. Not only will they be eligible for the credit, but their customers will be better able to afford new energy systems. While the energy investment and production credits are capped well below utility-scale projects, smaller facilities may benefit from renewable energy systems within the capacity limit and see shorter payback periods than if the credits continued to sunset. Additionally, companies may be able to pursue tax equity strategies to invest in small-scale renewable energy systems. These energy-related credits will likely have more impact on Scope 2 emissions in areas of the country where the grid still relies heavily on fossil fuels, and on companies that choose to generate their own renewable energy rather than participating in utility-managed PPAs.

Electric vehicles. The Act added EV manufacturing incentives and made sweeping changes to the existing federal EV tax credit program, increasing the incentives for both purchasers and manufacturers of EVs. Along with funding for manufacturers to retool automobile facilities and a redesign of the consumer-facing EV credits, the Act establishes a commercial clean vehicle credit of $7,500 for vehicles weighing under 14,000 pounds and $40,000 for vehicles over 14,000 pounds. The commercial clean vehicle credits would significantly bring down the cost of fleet electrification, especially for vehicles over 14,000 pounds (for example, a Tesla electric semi-truck would come down in price from $150,000 to $110,000). Progress toward full commercial fleet electrification has been hamstrung by high costs, lack of scale, and limitations on electric alternatives for more specialized vehicle types. To combat these obstacles, the IRA will increase production and lower sticker prices, accelerating the EV transition.

Decarbonization of domestic industries. Another undercurrent of the Act is a focus on the strengthening and development of key domestic industries and infrastructure. Through billions in funding and a variety of credits, the IRA incentivizes investments in agriculture, construction with low-carbon materials, biofuels and sustainable aviation, and heavy/advanced industrial processes, like production of steel and glass. Companies in these industries now have the opportunity to retool factories, ramp up production and use of lower-carbon material options, and communicate with customers about new timelines. For those purchasing large amount of agricultural and industrial products, Scope 3 emissions reductions could be on the horizon.

Environmental justice. Organizations that serve or operate in low-income and disadvantaged communities may be qualified to take advantage of the IRA’s provisions on environmental justice. Some programs are entirely dedicated to environmental justice outcomes, such as $3 billion to Environmental and Climate Justice Block Grants. Others—including the clean energy tax credits, technology accelerator, and consumer home energy rebate programs—are not exclusively directed to environmental justice initiatives but contain incentives to drive investments in disadvantaged communities. For example, the extension and modification of energy credits offers a 10 percent bonus credit for clean energy projects in low-income communities. While many of the funds are eligible for use only by non-profit organizations and government entities, some are accessible for private sector use.

The Big Picture 

With the exception of the fee imposed for methane leaks on the oil and gas industry, the IRA is largely designed as a package of incentives rather than penalties. Realizing the projected 40% reduction in greenhouse gas emissions by 2030 will require businesses to take full advantage of these credits and programs to further their own decarbonization. Rather than waiting for mandates and penalties, the private sector must work proactively to make use of the IRA’s incentives.

Taken alongside the CHIPS Act, which passed a few weeks ago with provisions for energy R&D, these bills serve as a massive development finance push that has the potential to nurture domestic production of advanced energy technologies. By ensuring U.S. businesses are at the forefront of new climate and energy solutions, this legislation opens the door for companies to partake in the windfall that will accrue to early actors in the energy transition. It will not happen immediately, and businesses should not expect major changes to rapidly take shape. Like any take-off, progress will begin slowly and accelerate with time.

The Climate Board is offering custom consultations for companies interested in learning how the IRA’s provisions can and should impact corporate climate action decision-making and investments. Though this service is currently only available for our members, we’ll continue to share insights and developments relating to the IRA. Stay tuned for more updates from our team by subscribing to our blog and joining our mailing list, or feel free to reach out to inquire about an IRA mapping consultation.

 

 

 

 

 

Press Release: Friction Points in Fashion & Textiles

New study from The Climate Board and Textile Exchange reveals friction points and sustainability solutions for Fashion & Textile companies

Washington, DC:
The Climate Board, in partnership with Textile Exchange, announces the release of its climate change study Friction Points in Fashion and Textiles: Removing Barriers and Accelerating Climate Action. Working with 40 leading, global retailers, brands, and suppliers, the new study highlights critical industry findings and successful practices in the fashion industry to address climate change.

“The study is filled with timely recommendations for Fashion and Textile companies worldwide to accelerate their journey to net-zero. Taking us beyond ‘analysis paralysis,’ it gives context and best practices to create clear actions. This is really powerful,” says La Rhea Pepper, CEO at Textile Exchange.

Friction Points dives into the climate reduction activities of some of the world’s most advanced fashion retailers and suppliers.

Friction Points pinpoints the barriers retailers, brands, and suppliers face and highlights sustainability practices that move the needle,” says Ken Bruder, Co-founder and Head of Research at The Climate Board. “The industry is still nascent, and most companies are just beginning to look at the more difficult reductions in Scope 3.”

Findings include:

  • More than 90% of emissions from Fashion & Textiles comes from indirect (Scope 3) sources. Fiber and materials offer the biggest lever to reduce Scope 3 emissions.
  • The industry is not on track to achieve Scope 3 emissions goals. Early evidence indicates as many as 2/3 of brands and retailers that have announced Scope 3 targets are not on track to achieve absolute Scope 3 emission reductions.
  • Announcing bold climate goals does not correlate with actual carbon reductions. While companies are under pressure from stakeholders to commit publicly to aggressive climate goals, the data does not demonstrate a strong correlation to GHG reductions.
  • Nuanced fiber strategies do correlate with improved carbon reductions. Those that incorporate a more sophisticated definition of sustainability linked to GHG emissions achieve better results.
  • Companies are experimenting with a wide range of methods to reduce fiber- and material-related emissions, acting as a broad, multi-faceted climate solutions laboratory. The study explores 12 of these practices.

Download the Executive Summary at www.theclimateboard.com/frictionpoints

About The Climate Board:

The Climate Board accelerates business action on climate change by empowering corporate executives with practical, cost-effective solutions to climate and sustainability challenges. The organization leverages the experience and insights of industry practitioners, then adds research and analytical expertise to provide implementable best practices, decision-support tools, and actionable data. This work helps leaders absorb and synthesize the torrent of climate information and act swiftly and decisively. The result is authoritative and timely guidance that produces superior climate outcomes.

About Textile Exchange:

Textile Exchange is a global nonprofit that creates leaders in the sustainable fiber and materials industry. The organization develops, manages, and promotes a suite of leading industry standards as well as collects and publishes vital industry data and insights that enable brands and retailers to measure, manage, and track their use of preferred fiber and materials.

To learn more, visit TextileExchange.org.

Media Contact: info@theclimateboard.com

Friction Points in Fashion & Textiles: Transform the Supply Chain

Reducing Scope 3 GHG emissions requires fundamentally transforming existing supply chain relationships and potentially developing new ones. The nascent sustainability ecosystem requires working hand in hand with suppliers in all tiers to drive toward carbon footprint reduction. The Climate Board observes the following friction points that slow progress in reducing GHG emissions in the supply chain.

Supplier goals, practices, and constraints are opaque to their purchasers. Often brands and retailers work with thousands of suppliers, many of whom are too small to disclose publicly or routinely report on their carbon-related activities, targets, and challenges. At the same time, there is an increasing desire to impose carbon-reduction mandates upstream in the supply chain as companies seek to tackle the Scope 3 challenge. For larger purchasing organizations, mandates often come with the hope that their outsized influence is enough to make change happen. What can be missing is an effort to understand the specific practices and barriers that need to be addressed in the supplier’s organization. These might affect the levels, sequencing, and prioritization of goals and create opportunities for purchasing organizations to help address the barriers to broader transitions.

Supplier relationships have traditionally focused on cost and quality rather than sustainability. Sustainability is a relative newcomer among vendor assessment criteria. Often sustainability teams report to the sourcing/procurement function. This placement in the organization can help introduce sustainability criteria into supply chain management and vendor selection processes, but ecological concerns can continue to be drowned out by cost and quality imperatives. Low-carbon fibers usually cost more to produce, and less sustainable virgin fibers often have an edge in quality and performance. There is no easy solution here – easing the friction requires processes and tools to make holistic evaluations and balance the competing imperatives of price, quality, and sustainability.

Large-scale, transformational transitions require large-scale investments. These types of investments are often beyond the ability of individual companies to finance and execute. While government infrastructure, subsidy, and transitional programs can support some, those programs remain in short supply versus the demand. In response, we see the seeds of more collective action among organizations to address transformational needs upstream and accelerate industry-wide progress to net-zero.

Have these friction points affected your organization? The Climate Board provides best practices and practical insights to address challenges like these. Contact us for more information about joining, and subscribe to our mailing list to be alerted when we release new content.

Friction Points in Fashion & Textiles: Mobilize Internally

Once a business has established climate goals based on GHG reduction outcomes, leaders must mobilize their organizations and scale up activity to meet their ambitions. Unexpected reactions and inadequate change management can get in the way of the best-laid plans.

In Friction Points in Fashion & Textiles: Removing Barriers and Accelerating Climate Action, The Climate Board uncovered several challenges in mobilizing organizations to achieve carbon reduction goals.

People lack sufficient knowledge to make the right changes. Transforming an organization for sustainability requires understanding the challenges, risks, costs, and solutions at all levels, from functional roles to the Board of Directors. Of particular concern can be a relatively rigid middle layer of decision-makers with well-established ways of doing things – dislodging entrenched behaviors that have led to success in the past is often the most difficult part of the challenge. Companies that have succeeded in ingraining a sustainability mindset and changing behavior have invested substantial effort in identifying knowledge needs for each level and function, and educating people in every part of their business. They build a common understanding of the state of the industry, the organization’s sustainability strategy, and each individual’s role in contributing to the company’s objectives.

The drive for measurement has resulted in “analysis paralysis. ”There is a constant lament in sustainability circles over the scarcity of industry data, the lack of common measurement standards and systems, and the inadequate frequency of measurement to drive decisions. Each of these is a very real challenge to effecting the fundamental changes required to meet ambitious climate objectives. However, we’ve still seen companies drive significant progress toward their GHG reduction goals. Addressing the measurement challenge requires balancing two directly contradictory imperatives – the need to define, measure, and track progress against objective quantitative targets and the need to move now, even in the face of inadequate measurement. The companies that are excelling have recognized that measurement can be the enemy of the good if it stymies action.

Organizational efforts are fragmented because of operational and information silos. There is a wide variety of excellent practices, innovations, and initiatives in happening in a broad swath of companies. There is also a fragmentation of effort, particularly in multi-brand organizations – innovative approaches are often slow to be shared across brands for more significant impact. This points to an opportunity to build better and faster internal sharing mechanisms for best practices, techniques, and technologies to promulgate and adopt these practices more quickly.

Carbon impact is not integrated into decision analysis. The tools used to make business decisions – primarily financial analysis and budgeting – often do not reflect the costs of carbon emissions. As long as carbon impacts remain an externality, decisions are likely to serve explicit cost and quality objectives best, while giving insufficient attention to environmental considerations. There are various approaches to incorporating the concept of environmental cost in decision-making analyses. These help decision-makers understand the true costs of their activities and begin to explicitly illustrate how their choices impact their contribution to overall emissions reduction goals.

Has your organization encountered these friction points? The Climate Board provides best practices and practical insights to address challenges like these. Contact us for more information about joining, and subscribe to our mailing list to be alerted when we release new content.

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