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The Inflation Reduction Act’s Clean Energy Tax Credit Labor Standards Set the Stage for a Union Clean Economy

By September 19, 2023September 22nd, 2023No Comments

September 19, 2023

When the Inflation Reduction Act passed in 2022, it was groundbreaking. In terms of tackling climate change, the law puts us on a path to reduce the emissions driving climate change by up to 48% by 2035. The investments in the Inflation Reduction Act will create more than 9 million jobs over the next decade—an average of nearly 1 million jobs each year. Perhaps the most impactful piece is the labor and community standards that were—for the first time—attached to the clean energy investments in the law to make sure the jobs created are good, safe jobs in the areas that need them the most—like energy communities and low-income communities.

In short, the Inflation Reduction Act demonstrates that we don’t have to choose between good jobs and a clean environment—as some falsely claim—we can support both.

Using the Tools in the Toolbox

The Biden administration is working overtime to make sure the labor standards attached to the clean energy tax credits in the Inflation Reduction Act are followed. The U.S. Department of the Treasury is overseeing the implementation of these rules and recently released their guidance on how the standards need to be followed. For most of the Inflation Reduction Act tax credits, companies need to meet both prevailing wage and registered apprenticeship requirements to receive the increased credit or deduction amount. Treasury’s latest guidance lays out more details about the requirements that need to be met and what developers need to do to access the full value of the credit. This comes on the heels of the U.S. Department of Labor (DOL) strengthening rules for prevailing wage.

What does this mean for good jobs in the clean economy?

Well, let’s start off by defining the two main standards attached to these tax credits, what they mean for workers, and what other tools in the toolbox can be used to lift the quality of the millions of jobs that the Inflation Reduction Act will create.

Prevailing wage

Prevailing wage standards help set a “wage floor” for each occupation that contractors employ on a project. That means the company must pay at or above that floor, preventing a race to the bottom in wages. Prevailing wages help attract high-road contractors employing skilled professionals, which ensures the best project outcomes and environmental benefits. Recent updates from the DOL and the Treasury have made it clear that construction jobs in wind, solar, and other clean energy sectors qualify as construction jobs under Davis Bacon.

Registered apprenticeships

Registered apprenticeship programs allow an individual to work in a job and go to school at the same time not only at no cost, but also while earning a wage. These programs have a proven track record of creating pathways to the middle class for hard-working people. These programs can also increase diversity in the construction workforce by including women, veterans, Native Americans, those that have been through the justice system, and people of color into the trades. The Treasury updated its guidance on the use of registered apprenticeship programs to ensure that a developer has a standing relationship with a registered program.

In addition to those standards, the Treasury is incentivizing the use of Project Labor Agreements (PLAs). These are collective bargaining agreements that are negotiated in advance of a project. They usually specify:

  • wages, fringe benefits,
  • worksite conditions,
  • dispute resolution protocols that restrict lockouts and strikes, and
  • ensure health and safety protections.

PLAs on federally funded projects is not a new policy. President Biden signed an executive order in February 2022 stating that, “it is the policy of the federal government for agencies to use project labor agreements in connection with large-scale construction projects to promote economy and efficiency in federal procurement.” Using them for clean energy projects just makes sense if we want to get the most out of the tax incentives in the law and ensure workers are free to exercise their right to collectively bargain, are paid a fair day’s wage for a fair day’s work, and are safer on the job. In addition, PLAs help union apprenticeship programs to train more workers. With a PLA, a union apprenticeship program gets surety they can take on more people because they know what type of work is needed on projects. The new Treasury guidance incentivizes PLAs by reducing or eliminating penalties for private developers who are organized under a PLA if they incorrectly report wages or apprenticeship hours. This feature will incentivize developers to have an established agreement and open communication with a labor organization prior to construction.

Lifting Up Workers and Communities

Inflation Reduction Act investments are already delivering for Americans, especially for blue-collar workers who have been on the hurting end of economic changes and bad trade policies in this country for decades. The Inflation Reduction Act also promotes investment in the areas that need it the most, like communities that have seen jobs shipped overseas, communities impacted by energy transition, and communities of color. That also means we’re seeing some investments being made in states where union density and job quality are lower. But’s let’s be clear about a fundamental fact. Every worker in this country has the right to organize into unions so they can collectively bargain with their employers for better wages, benefits, and working conditions. And that right will be protected and enforced because it is the law of the land.

The intent of the Inflation Reduction Act was clear. It was designed—from the start—to create good-paying, safe, union jobs in a growing clean economy. The new guidance by the Treasury Department goes a long way to making that promise a reality.