UC Berkeley Labor Center Evaluates the Inflation Reduction Act Op-Ed Explainer

Starting in January 2023, the Inflation Reduction Act makes a slew of new tax credits available to help individuals and organizations in the United States transition to solar and other forms of clean energy. A key feature of these tax credits is that they include strong incentives for recipients to employ well-trained, well-compensated workers to carry out clean energy projects.¹

The IRA is groundbreaking not only as the first major federal action on climate change, but also because the law makes it clear that we don’t have to choose between having good jobs and reducing greenhouse gas emissions.

The IRA’s workforce provisions will help create quality jobs and clear pathways into them and help ensure that clean energy projects are executed safely and effectively. As we discuss in the UC Berkeley Labor Center report, “Putting California on the High Road: A Jobs and Climate Action Plan for 2030,”² these kinds of standards are essential to maximizing shared prosperity as we fight climate change.

How Does the IRA Benefit Workers?

1. The IRA stimulates the market for clean energy, creating millions of jobs in the United States.

The IRA invests $369 billion³ in energy security and climate change mitigation through such tools as tax credits, loans, grants and rebates. Its investments will dramatically alter the energy landscape in the United States, shifting the market away from fossil fuels and toward cleaner sources.

The law targets multiple sectors, including energy, transportation, manufacturing, construction, agriculture and conservation. It is projected to cut U.S. greenhouse gas emissions by over 40% by 2030 compared to peak emissions in 2005.⁴

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 United States over the next decade.⁵

The IRA incentivizes the use of U.S.-based materials and manufacturing for products 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.

2. 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.⁶

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.⁷

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 for both businesses and homeowners. This expansion of the use of such standards is an important approach to policymaking that states should follow in their own climate change initiatives.

Requirements and incentives for prevailing wage rates benefit workers in many ways:⁸ by leveling the playing field for high-road employers, prevailing wages promote higher local standards for pay, training and 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 disparities⁹ in pay, especially when paired with targeted hiring requirements.

3. The IRA creates career pathways into good jobs through apprenticeships.

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, wage-paying 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, so workers can complete apprenticeships 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 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.

4. 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,¹⁰ 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,¹¹ 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 billion¹² in extended pandemic-era premium subsidies for the Affordable Care Act and expanded prescription drug benefits for Medicare. It makes changes to regulations for prescription drug pricing that will raise revenue, improve health care affordability and reduce prescription drug costs.¹³

The biggest sources of revenue for the IRA’s investments are a 15% minimum corporate tax, a 1% fee on stock buybacks, and enhanced Internal Revenue Service enforcement, which will help ensure that corporations and the wealthy 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 United States 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,¹⁴ and more quickly, to avert catastrophic outcomes. Environmental justice advocates have 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.¹⁵

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,¹⁶ which would have employed tens of thousands of young people on essential climate change-remediation and land-restoration projects.

The full slate of investments in education and children in the initial bill was also cut, including funding for universal preschool and paid family and medical leave.¹⁷ 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 and income and increase local tax revenue.

California’s $40 million Displaced Oil and Gas Worker Pilot Fund, created in 2022, could serve as a model for a worker-support program at the national level.¹⁸ 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 a compromise compared to the initial proposals from the Biden administration, but it is an important first step toward transformation of our economy away from fossil fuels and from low-road business practices. Attaching strong incentives for prevailing wages and apprenticeships to billions of dollars in investment gives high-road employers a fair chance to compete and helps grow good jobs and long-term careers in clean energy construction and manufacturing.

This is an edited version of an article initially published by the UC Berkeley Labor Center. It was reprinted with permission from the author.

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About the Author

Jessie Hammerling is the co-director of the Green Economy Program at the UC Berkeley Labor Center. Her work examines the impacts of climate change and clean energy policy on workers and communities. Dr. Hammerling holds a Ph.D. in geography from the University of California Davis.