This report contains a correction.
Introduction and summary
One year ago last month, Congress passed, and President Joe Biden signed into law, the nation’s greatest investment to confront climate change and build a more just, equitable, and prosperous American clean energy economy. Through the Inflation Reduction Act and the previously enacted Infrastructure Investment and Jobs Act (IIJA), the federal government is poised to deploy hundreds of billions of dollars in public investments in clean energy and climate solutions over the coming decade.1 It is projected that these initiatives will help reduce U.S. climate pollution by as much as 40 percent below 2005 levels by 2030—making significant progress toward meeting the nation’s commitment to a 50 percent to 52 percent reduction in that time period.2 Since the Inflation Reduction Act was enacted last year, more than $270 billion in new public and private investments have been announced nationwide, supporting more than 170,000 new jobs in red, blue, and purple states alike.3 However, realizing the full promise of these bills—in reducing greenhouse gas pollution and advancing equity, good jobs, and growth in new and strategic economic sectors—rests in large measure on the actions of the federal, state, and local government agencies tasked with their implementation. State and local leadership will play a critical role in whether the United States fulfills or falls short of its climate commitments in this decade.
State and local leaders have significant obligations, and significant opportunities, in Inflation Reduction Act and IIJA implementation, particularly because of their broad jurisdiction in transportation planning, economic development, environmental protection, and oversight of electric utilities and built infrastructure. Not only are state and local agencies eligible for a significant portion of new and expanded federal grant and financing programs, but they will also be key players in the uptake of federal clean energy tax credits. Moreover, for the first time, state and local agencies are eligible for direct payments commensurate with these tax incentives for which private entities have long qualified. Actions at the state and local levels will determine whether historic new federal investments are maximally benefiting their constituent communities, companies and consumers, and the climate. However, state and local implementation of new federal investments, and new subnational climate leadership, also entails real challenges. These include: a lack of state and local administrative capacity to successfully pursue and effectively deploy federal funding; siloed climate expertise in certain agencies; inaccessible or poorly suited technical assistance; a time and prioritization deficit for advancing complementary state and local policies; and misunderstood or underresourced community engagement.
Furthermore, if the United States is to avoid the worst effects of climate change and to seize the full opportunities available to it in a 21st-century clean energy economy, state and local governments will need to maximize the investments available through these bills and at the same time advance the next generation of American climate policy. According to one recent report from the Rhodium Group, roughly one-quarter to one-half of the greenhouse gas emissions reductions needed to meet U.S. climate commitments by 2030 must come from new state and local policies.4 As important as state and local climate leadership has been to date, more progress will be needed in more places and faster than ever before.
Read the shorter fact sheet
The fact sheet summarizes the recommendations detailed in this report.
This report examines state and local implementation challenges and offers recommendations to assist states, local governments, federal agencies, and other interested parties in working together to advance climate leadership at the state and local levels. This report offers five key recommendations:
- Build state and local climate capacity for the long haul: State and local governments need more staff and cross-agency coordination to help them implement most effectively.
- Enhance technical assistance infrastructure: Federal agencies, nongovernmental organizations (NGOs), and philanthropic organizations should help provide more and better technical assistance (TA) to state and local agencies.
- Maximize federal investments with complementary policies and consumer awareness: State and local governments can maximize federal investments through complementary policymaking and by helping to raise consumer awareness of available opportunities.
- Address equity gaps, workforce needs, and siting and permitting barriers: Effective and equitable implementation means state and local governments should prioritize investment in disadvantaged communities, support good jobs, and address challenges in siting and permitting.
- Raise ambition with the next generation of U.S. climate policy leadership: State and local governments must maximize the effect of the Inflation Reduction Act and IIJA and use them to lead the next generation of ambitious climate policy.
A hallmark of the federalist U.S. system of government is experimentation, innovation, and flexibility by state and local governments—including in implementing federal policies and programs. At its best, this system can ensure that the diverse needs and circumstances of communities across the country are considered while maintaining progress toward the vision and goals set by the federal government. This is the path that climate action in the United States has followed: States and local communities are leading the way through innovative policy approaches that have built models for others to follow, paving the way for eventual federal action.5
The combination of these new federal bills, and unique American cooperative federalism, now positions federal and subnational governments together in individual and collaborative leadership roles to build a clean energy economy. Together, state, local, and national leaders must chart a path forward for effective implementation of these initiatives, turning the raw material of historic federal investment into the policies, programs, and projects that can produce a better and more sustainable future for all American communities.
Build state and local climate capacity for the long haul
State and local governments often lack the capacity to effectively implement and manage new federal climate funding. This lack of capacity is especially challenging considering the vast array of new competitive and formula grant funding and tax incentive and financing opportunities under the Inflation Reduction Act and the IIJA. Many states lack the personnel resources to advance climate efforts across agencies. Likewise, local governments—sometimes representing small or disadvantaged communities—are stretched thin, often with limited or no bandwidth to identify, apply for, and manage new federal climate and environmental justice resources.
Inflation Reduction Act and IIJA programs also invite climate leadership from new and different state and local agencies than those that may be accustomed to incorporating such focus in their day-to-day work. These agencies may not lack capacity at all, but they instead lack a focus or a prioritization on climate change, seen in their decisions on energy resources or transportation infrastructure, for example. In addition, implementing many of these new federal opportunities requires crosscutting coordination across agencies that state and local governments, lacking effective infrastructure, can find challenging. Most state and local governments need to enhance their implementation capacity to take full advantage of this moment and to seize the new policy opportunities that this implementation window can unlock. To that end, state and local governments should take the following actions.
Prioritize investment in internal capacity
State and local governments should increase staff and administrative capacity investments within the agencies responsible for Inflation Reduction Act and IIJA implementation. In addition to staffing challenges linked directly to climate implementation, many state and local governments are understaffed from turnover from the COVID-19 pandemic and age-driven retirements. With adequate human capacity, state and local agencies will be able to track the myriad new funding opportunities, engage with stakeholders, develop program design, write grant applications, and deploy and manage the implementation of new funds. Government capacity produces results; a recent novel study conducted by researchers at Yale Law School, Columbia University, and the University of California at Berkeley found that government capacity investment can substantially increase government service delivery efficiency.6
Furthermore, the Inflation Reduction Act and the IIJA also provide state and local governments with novel investment opportunities. For example, the elective pay provision in the Inflation Reduction Act’s clean energy tax credits opens these incentives to a new universe of public agencies and nonprofit entities.7 The Inflation Reduction Act and the IIJA also feature transformational investments developing new clean industries—from battery and solar manufacturing incentives to new regional green hydrogen hubs—which provide opportunities for state and local economic development organizations. This also includes funds for innovative climate-smart and equitable transportation infrastructure programs, community-led sustainability, and environmental justice strategies.
Therefore, while greater investment in traditional energy and environment agencies, such as state energy offices, departments of environmental quality, and public utility commissions (PUCs) is vitally important, so too is prioritizing climate-focused capacity in other state and local agencies. This includes agencies responsible for economic development, transportation planning, workforce development, and housing and infrastructure finance. State energy offices as well as state and local economic development agencies may need to expand their in-house capacity to help their companies and communities take advantage of new and expanded tax incentives. Moreover, expanded in-house capacity may allow these state agencies to act as program sponsors given their new eligibility under these bills. State and local departments of transportation need to increase or elevate climate-focused officials—even in the greenest jurisdictions. Also, community and stakeholder engagement are vital to identifying the best projects and equitable investment opportunities and to ensure communities are supportive of the rapid-scale economic transformations that climate change requires and that these bills empower.
Some state and local governments are already investing in the capacity building needed for implementation efforts. For example, in 2023, Minnesota created 30 new programs with dozens of new positions to help the state maximize its uptake of federal dollars.8 Some of these new positions include energy navigators tasked with assisting communities to go after federal funds. Oregon increased its state Department of Energy budget by $3 million in order to hire more staff—particularly to help Tribes, environmental justice communities, and individual homeowners access new federal resources.9 In addition, Washington state enacted the Clean Manufacturing Leadership Act, which creates a state industrial policy adviser role tasked with tracking “federal and other funding opportunities to transform and strengthen existing Washington manufacturers and promote the growth of new and emerging industries.”10
This challenge of building state and local government capacity should also be considered an invitation for advocacy before state legislatures, governor’s offices, city halls, county commissions, and more. Jurisdictions must be positioned to take full advantage of these historic investments.11 The federal government, NGOs, and philanthropies must also help to complement governmental capacity and provide TA, which this report details below.
Build interagency coordination
In addition, state and local governments should work to increase coordination across agencies on implementation, which is especially important given the amount and variety of new clean energy, environmental justice, and other climate investment opportunities available in these laws. The different Inflation Reduction Act and IIJA programs could be most effective if implemented in a coordinated way.12 Some models exist and can be replicated to enhance interagency coordination—both for implementing new federal investments and advancing a whole-of-government climate agenda.13
For example, following passage of the IIJA, the Biden-Harris administration worked with states to establish infrastructure czars tasked with coordinating new federal infrastructure investment opportunities within each state.14 Some of these czars have since taken on responsibility for coordinating Inflation Reduction Act implementation. While the model is well intended, there has been significant variance in the czars’ level of effectiveness and the usefulness of this governance structure. Therefore, state and local governments, and those supporting them, should look to spread best practices. For example, Pennsylvania created PENNVEST—the Pennsylvania Infrastructure Investment Authority—to coordinate new investment opportunities across the state through a team of point people in key state agencies.15 On a local level, cities such as Saratoga Springs, New York, established task forces charged with maximizing Inflation Reduction Act and IIJA funding and looked specifically at increasing internal capacity to implement federal programs effectively.16
Meanwhile, some states and cities have leaned into a whole-of-government approach to climate action and are using that same coordinating infrastructure to deploy federal investments effectively. In Massachusetts, Gov. Maura Healey (D) signed an executive order creating the nation’s first state cabinet-level climate chief, who leads the newly developed Office of Climate Innovation and Resilience within the governor’s office. This ensures climate change considerations are incorporated into each Massachusetts state agency and will maximize implementation opportunities.17 Certain statewide coordination models for low-income energy assistance have also proved effective for organizing and streamlining resources across multiple sources. In California, New Jersey, Colorado, and Massachusetts, entities such as PUCs, community action agencies, and housing agencies have worked together to this effect.18
Cities nationwide have developed climate action plans, often reflecting a high degree of interagency coordination to meet municipal, county, and statewide climate goals. In 2021, New York City passed legislation mandating that every 10 years, the city develop and publish climate adaptation plans that include input from the Office of Long Term Planning and Sustainability as well as departments of city planning, environmental protection, transportation, housing preservation and development, education, citywide administrative services, buildings, and parks and recreation.19 Honolulu, Los Angeles, and Seattle also adopted legislation at the municipal level to establish and update climate plans reflective of input from departments citywide.20 Many of these cities’ climate plans have increasingly involved substantial community outreach and explicit focuses on climate and equity within their climate action plans.
State and local governments should also focus on enhancing their coordination inside states and regions to leverage each other’s capacity and resources to go further together.
Take advantage of federal funding for capacity building
Within the Inflation Reduction Act and the IIJA, there are some programs that can support state and local government capacity building. These include the Environmental Protection Agency’s (EPA) Climate Pollution Reduction Grants (CPRG) program, the Department of Energy’s (DOE) State Energy Program, the Energy Efficiency and Conservation Block Grant program, the Grid Resilience State and Tribal Formula Grants program, and more.
Some federal agencies also have placement programs to directly augment staff capacity in state and local agencies. For example, the DOE Clean Energy Innovator Fellowship allows institutions such as PUCs to host recent graduates for up to two years to work on energy policy.21 The DOE has also launched new initiatives to help build state and local capacity around particular policy challenges, such as the Renewable Energy Siting through Technical Engagement and Planning (R-STEP) program that will award grants to state-based collaboratives to expand their capacity around state and local renewable energy siting and planning.22
The CPRG program, administered by the EPA, is particularly important for building state and local government capacity.23 Through it, the EPA has offered all U.S. states, and Washington, D.C., and Puerto Rico, a $3 million noncompetitive planning grant that can be used for personnel and administrative costs, including contractors and third-party support. The largest metropolitan statistical areas (MSAs) in the country are also eligible for $1 million planning grants, and U.S. territories and Tribal nations are eligible for funding as well. The EPA recognized the need to quickly deploy planning grants to help state, local, Tribal, and territorial governments build the necessary capacity to apply for larger CPRG implementation grants and also to take greater advantage of other climate investments throughout the Inflation Reduction Act and the IIJA. In addition, the EPA used an innovative program design wherein if a state chooses to forgo its $3 million planning grant, those dollars become available to local governments within the state and elsewhere in the country.24 In spring 2023, 46 of 50 states applied for planning grants.25 All but two eligible MSAs nationwide have pursued planning grants.26
In late 2023, the EPA will open a $4.6 billion implementation grant competition to support implementing policies, programs, measures, and projects in some of the subnational climate action plans created in the planning stage of the program.27 The implementation grant funding competition allows the EPA to further support state and local government capacity and challenge subnational governments to develop the next generation of innovative climate and clean energy policy strategies.28 The EPA should use CPRG implementation grants to do both: first, by planning to make small implementation grants available to all planning grant recipients who complete necessary steps under the planning grant process and demonstrate how they will use such further funding to build additional capacity to carry out their climate plans, and second, by using the bulk of its general competition implementation grant funding to award larger grants for state and local governments with plans to produce the maximum additional, permanent, and verifiable reductions in greenhouse gas pollution and achieve equitable outcomes and support good union jobs. Local governments should also be eligible to apply for funding directly for strategies covered in their state’s plans.
Ultimately, throughout Inflation Reduction Act and IIJA implementation, federal agencies should look to provide state and local governments with the ability and flexibility to use federal dollars to expand their in-house capacity to help address this ubiquitous challenge.
Enhance technical assistance infrastructure
Another critical component of effective implementation is TA support for state and local governments to help them execute and optimize these investments toward climate, equity, and economic goals. The federal government should take steps to enhance the availability and flexibility of its TA support for state and local governments. This includes building greater regional infrastructure to support state and local implementation.
Many NGOs and other entities, including academic institutions and private sector companies, also operate as TA providers, and more groups are increasingly entering this space, given the importance of implementation. State, local, and federal agencies, as well as philanthropic organizations, should provide resources to leverage the efforts of TA providers. In addition, TA providers should focus on clearly articulating their services, identifying concrete deliverables for state and local partners, and coordinating with one another to avoid duplicative efforts.
To be clear, TA is not a skeleton key that can unlock doors barred by lack of prioritization of, or political opposition to, climate action at the state and local levels. Advocates and elected leaders have opened the aperture for greater climate leadership across the country and must continue to do so. But more and better TA is necessary to turn hard-won policy changes into investment decisions and pollution reductions. To achieve success, the federal government, philanthropic organizations, and other interested parties should consider the following steps.
Provide more flexible and accessible federal TA
The surge in available Inflation Reduction Act and IIJA funds through new and expanded programs creates increased demand for federal to help state and local governments design and implement effective and equitable programs. The Biden-Harris administration is making progress to fill this need, and state and local governments should take full advantage of these TA resources. Federal agencies can also do more to ensure TA resources better fit the needs of state and local officials.
Throughout 2023–2024, state and local governments can pursue competitive grants in a wide range of federal programs covering numerous economic sectors and emissions sources. These include CPRGs, the Charging and Fueling Infrastructure Grant Program ($2.5 billion), the Promoting Resilient Operations for Transformative, Efficient, and Cost-saving Transportation (PROTECT) program ($8.7 billion), the Reconnecting Communities and Neighborhoods Grant Program ($1 billion), the RAISE program ($2.2 billion), Grid Resilience Utility and Industry Grants ($5 billion), the Home Energy Rebate Program ($9 billion), and the Greenhouse Gas Reduction Fund (GGRF)’s Solar for All program ($7 billion), to name a few.29 State and local agencies are also working to deploy formula grants, such as surface transportation funding, that come with wide-ranging flexibility and can be better deployed toward clean and low-carbon infrastructure. The Inflation Reduction Act and the IIJA also contain novel federal programs, opening new types of federal assistance to state and local governments. For example, elective pay provides access to federal clean energy tax credits to a new universe of entities that do not usually file tax returns—including state and local agencies that lack significant federal tax and project finance expertise.
Federal agencies must work to provide TA that is responsive in real time to the evolving needs and questions posed by state and local agencies. Federal response should be tailored within regions and individual states to suit on-the-ground circumstances as best as possible. And it should help state and local agencies design and execute programs that center equity.30 There are new federal resources to support greater federal TA for state and local governments, including CPRG program noted above. In addition, the EPA has created a Climate Action Funding Resource Guide for state and local governments.31 The CPRG program also contains $142 million in administrative funding for the EPA and other federal agencies that support state and local climate implementation needs. The DOE Office of State and Community Energy Programs offers a range of new state and local TA resources.32
In addition, the Biden-Harris administration has already deployed effective new models for TA that are focused on supporting disadvantaged communities. The Thriving Communities Technical Assistance Centers (TCTAC) program directly addresses capacity shortfalls in disadvantaged communities by providing training and other assistance for navigating federal grant application systems, writing grant proposals, and administering grants management, to reduce barriers and increase accessibility for environmental justice communities.33 TCTACs may provide lessons and opportunities for cross-connection to aid state and local TA needs. Federal agencies should ensure TCTACs and the existing field of nonprofit, philanthropic, and consulting TA providers work together to provide efficient and aligned TA for state and local governments.
The federal government can also help state and local governments by addressing their paperwork burden. Templatizing and streamlining federal grant application processes should be viewed as the federal government’s contribution to capacity building because it allows state and local governments to focus limited resources on implementation, rather than on time-consuming application and reporting requirements. Federal Inflation Reduction Act implementing agencies should continue their burgeoning efforts to streamline lengthy, time-consuming, and resource-intensive application processes.
Build greater regional federal infrastructure
Federal TA capacity support deployed at the regional level will better serve state and local governments. While it is true that federal program staff in Washington, D.C., and at agency headquarters contribute invaluable TA for state and local agencies, regionally located federal staff can have greater knowledge of that region and better relationships with state and local officials and other key stakeholders. The different U.S. regions feature different economic and political conditions and different strengths, weaknesses, and needs in their energy economies, further meriting more regionalized federal infrastructure. More federal staff capacity, oriented in a position of partnership with subnational governments, could better support state and local climate action.
Past administrations recognized the need for greater regional federal infrastructure in states, cities, and communities—from state-level industrial councils established during the New Deal, to place-based initiatives led by the Obama administration such as the Detroit Federal Working Group, the California Desert Renewable Energy Conservation Plan, and the Puget Sound Federal Leadership Task Force.34 The Biden-Harris administration has also made progress with place-based initiatives, such as the Coal Communities Interagency Working Group, the Commerce Department’s Build Back Better Regional Challenge program, and the regional specialist program established by the DOE.35 Advocates have used these current and historical models to propose additional forms of federal infrastructure that the Biden-Harris administration could construct to advance a just and equitable clean energy transition. These types of initiatives range from state-based climate mobilization councils to better coordinate on-the-ground federal agency efforts with state and local climate leadership, to energy transition task forces focused on assisting states, communities, and utilities through power-sector transformation in different regional transmission organization/independent system operator regions.36 Given the heterogeneous challenge of clean energy investment across geographies with different resources, regulatory schemes, and more, place-based teams can better appreciate specific regional needs and opportunities, ensuring federal programs can achieve climate goals.
The Biden-Harris administration should pursue these models for greater federal regional infrastructure and invest in more EPA regional office staff and greater DOE regional capacity. The administration should focus on regional coordination to achieve climate outcomes among disparate agencies that include the EPA, the DOE, the U.S. Department of Agriculture’s (USDA) Rural Development Administration and Natural Resources Conservation Service, the U.S. Department of Commerce’s Economic Development Administration, the Department of Transportation’s (DOT) Federal Highway Administration, and the Small Business Administration. Federal agencies should also ensure that state and local governments receive consistent and coordinated information from federal agency headquarters and the offices in their region.
Tap into nongovernmental resources for TA
In addition to investing resources into capacity-building strategies, government agencies can leverage nongovernmental and philanthropic resources for TA. Organizations that function as TA providers include NGOs, community-based organizations, academic institutions, and private sector consultants. Agencies at all levels of government already rely on such TA providers to design and implement myriad programs, and the capacity challenges associated with implementation may mean these needs will only increase.
Implementation partners can help state and local governments identify and coordinate complementary policies with capacity, funding, convenings, thought leadership, and advocacy. Initiatives such as the State Funding Readiness Project (Hua Nani Partners), the Technical Assistance Directory (Atlas Public Policy), the pro bono Capacity-Building Technical Assistance Program (Environmental Protection Network), the Decarbonization and Climate Resilience Funding Clinic (Lawyers for Good Government), the State Deployment Initiative (Conveners Network), and the Technical Assistance Fund (U.S. Climate Alliance) are just a few innovative examples of nongovernmental entities providing direct capacity to state and local governments to tackle the urgent tasks posed by implementation.37 These initiatives can provide services at no cost. State and local TA providers should coordinate their efforts, enhance efficiency, share best practices, and avoid duplicative work.38 Furthermore, most of these providers offer TA services focused at the state level, and many should expand their services to include local governments, particularly in states without significant climate leadership.
Federal agencies can also support nongovernmental TA providers. For example, screening and prequalifying TA providers who meet program requirements could allow states to select qualified providers and reduce otherwise lengthy procurement processes. The EPA could, for example, expedite deployment by enabling recipients to identify external—private, philanthropic, and nonprofit—resources to supplement grant writing, program design, and implementation needs. Federal agencies could also consider funding nongovernmental partners as regional assistance providers serving state, local, and Tribal governments, such as the TCTAC program.39
Maximize federal investments with complementary policies and consumer awareness
New Inflation Reduction Act and IIJA programs build upon decades of state and local government-driven climate policy advances. Fully maximizing these program’s climate, equity, and economic opportunities means pairing federal investments with further state and local policy action—including complementary investments and investment-forcing standards, as well as new and more robust state and local financing institutions. Complementary policy can help subnational governments use public investments to leverage greater private sector capital for climate solutions.
In addition, state and local officials should focus on raising consumer awareness of the Inflation Reduction Act’s generous new and expanded rebates and tax incentives meant to flow directly to individual homeowners and vehicle owners. Greater consumer awareness can help maximize the uptake of these cost-cutting and pollution-reducing measures.
Pass complementary investments and investment-forcing standards
State and local governments can help maximize federal investments in their jurisdictions by advancing complementary investments. They can also do so via performance standards that hold companies responsible for using the generous new federal incentives now available to them. Notably, many federal programs have match fund requirements that present substantial burdens for low-income communities, requiring creative solutions and state-level investments to ensure the benefits of these programs reach communities most in need. Already, some state and local governments are showing how this is possible.
Colorado passed a package of investments that seek to layer on, or stack, with Inflation Reduction Act incentives, as well as complement and extend beyond them, to position the state to maximize its uptake of new federal resources and reduction in climate pollution.40 These include state tax incentives—some of which could be more accessible than the federal incentives—for light-duty and heavy-duty electric vehicles (EVs), clean hydrogen, sustainable aviation fuels, and industrial decarbonization. It also includes funding for a new school bus electrification program that can pair with and leverage federal funds toward the same goal, as well as further investment in the state’s IIJA cash fund to help communities plan for and match funding for federal grant applications. Colorado’s investment package also includes new state incentives for areas not provided with federal tax credits under the Inflation Reduction Act, such as electric bikes, lawn equipment, and geothermal electricity.41
Another way state and local governments can incentivize greater uptake of federal incentives and investments is to hold companies accountable for using these incentives to cut energy costs and pollution for residents. State and local governments have long used sectoral performance standards to hold electric utilities, automobile manufacturers, and building developers responsible for using more renewable energy, EVs, low-carbon fuels, and energy efficiency. By doing so now, state and local governments can help maximize federal funding and leverage even greater private sector investment in their communities.
The use of sectoral standards to drive uptake of federal dollars has been a feature of state policymaking since the Inflation Reduction Act passed. In the spring of 2023, Minnesota adopted a 100 percent clean electricity standard, with advocates and electric utilities alike pointing to Inflation Reduction Act incentives for clean energy, positioning the state to meet its goals and save Minnesotans money in their energy bills.42 In Michigan, Gov. Gretchen Whitmer’s (D) administration has championed a legislative package that includes a 100 percent clean electricity standard and other measures to draw down more federal funds, cut household energy costs, and support the creation of as many as 160,000 jobs.43 Other states have advanced policies requiring zero-emissions new vehicles and building appliances. The success of sectoral standards and related requirements on private firms to reduce pollution or increase their use of zero-emissions technology has helped inform a “standards, investment, and justice” paradigm in U.S. energy and climate policymaking.44 These standards, and other federal standards—especially those under the Clean Air Act—will continue to play an important role in the next generation of state, local, and federal climate policy leadership, further discussed below. (see “Raise ambition with the next generation of U.S. climate policy leadership”)45
Build state and local programs to leverage federal financing
Beyond grant programs that state and local governments are accustomed to applying for and deploying, subnational governments can now take advantage of clean energy tax credits directly, as well as new and expanded federal financing programs such as the EPA’s GGRF and the DOE’s Loan Programs Office (LPO). State and local governments should seize on all these opportunities and may need to create new state and local programs or financing institutions to do so fully.
Under the new elective pay provision in the Inflation Reduction Act, a significant number of clean energy tax credits can be claimed as cash payments from the U.S. Treasury Department by state and local governments, along with others without federal tax liability.46 A related tax transferability provision allows entities to transfer all or a portion of the credit to a third-party buyer in exchange for payment. These open a new avenue for state and local agencies to help finance and build, and even to own, new renewable energy-generation projects and other climate solutions. State and local governments—and state energy offices, in particular—should establish new programs that can work alongside renewable energy developers, corporate buyers, disadvantaged communities, and others to finance new projects. Already, some states such as New York have established new programs to help them take advantage of elective pay and to do so in a way that advances publicly owned clean energy generation.47
Also, while the EPA’s GGRF contains an important $7 billion Solar for All grant program for which state and local governments are eligible grantees, the bulk of GGRF funding, $20 billion, is available through two competitions for which state and local agencies are not directly eligible: the $14 billion National Clean Investment Fund competition and the $6 billion Clean Communities Investment Accelerator competition.48 Still, state and local governments should work with eligible entities, and/or establish new nonprofit financing institutions, to take advantage of this capital. Several states—including Wisconsin, Pennsylvania, New Mexico, and Minnesota—have already advanced executive orders, legislation, or both to stand up nonprofit green banks or clean energy funds.49 Some state and local governments are charging their existing public energy, infrastructure, and housing finance authorities to engage with program-eligible entities to develop ecosystems of equitable green finance.
In addition, amendments passed in the IIJA clarified that projects receiving support from state energy financing institutions (SEFIs) are eligible for financing from the DOE’s LPO, with greater flexibility than is afforded a typical project.*50 This means SEFIs can leverage the LPO’s massive financing authority for clean energy and advanced manufacturing projects in their jurisdictions. And, if the SEFI is a co-investor, the LPO can waive its “innovative technology” requirement that limits other types of projects that the LPO can finance to those featuring new technology and without widespread commercial adoption.51 States should focus SEFIs on this opportunity with the LPO.
The transformational federal financing opportunities for state and local governments do not end there, either. The Inflation Reduction Act created a new Energy Infrastructure Reinvestment program (Section 1706) that allows state and local governments to work with their utilities companies to retire fossil fuel infrastructure and replace it with clean energy.52 Finally, the USDA’s Rural Development Administration contains two new programs worth approximately $10 billion in funding to finance clean energy transformation for rural electric cooperatives.53
Promote consumer awareness
Many of the Inflation Reduction Act’s most important investments are available directly to consumers and companies through incentives for clean energy technologies, household electrification, and energy efficiency improvements. Approximately $43 billon in Inflation Reduction Act tax credits and rebates are available directly to consumers to boost access to EVs, heat pumps, solar panels, and home batteries. Potentially, more may become required, since this number will need to be much larger if the United States is to deploy the clean technologies necessary to achieve its climate goals. While some consumers might be aware of opportunities made available from the Inflation Reduction Act, most are unaware of how to reap those benefits. Research by the Yale Program on Climate Change Communication found that one-third of registered voters say that they know “nothing at all” about the Inflation Reduction Act.54 To fully achieve the legislation’s goal, it is important to raise public awareness of the Inflation Reduction Act’s benefits for consumers across the country. This is an important opportunity for governors, mayors, and other state and local officials who have established communications infrastructure and can effectively spread messages to their constituents as individual consumers.
Some states, such as Indiana, have committed to launching statewide education campaigns to boost electric EV access for underresourced communities.55 Federal agencies and implementation partners can play a key role too; for example, the White House has uplifted organizations promoting consumer awareness of EVs, such as Climate Power, Sierra Club, and the Electric Vehicle Association.56 State and local officials, federal agencies, and implementation partners should all consider increasing public awareness of tax credit and rebate opportunities that are available directly to consumers.
Address equity gaps, workforce needs, and siting and permitting barriers
State and local governments must take proactive steps to address structural and economic barriers to deploying federal investments. State and local policy action will be especially important to ensure equitable investment reaches disadvantaged communities. State and local governments must also fill key investment or policy gaps, such as workforce development and good jobs, and address barriers such as siting and permitting regimes for renewable energy projects and manufacturing facilities.
Prioritize equitable investment for disadvantaged communities
It is not enough for state and local governments to simply want to maximize their federal investments; they should also be focused on ensuring these investments reach disadvantaged, low-income, and environmental justice communities. These are the communities that most need these investments and are the least likely to receive them under a business-as-usual approach. The Inflation Reduction Act and the IIJA involve a novel federal focus on environmental justice and equity—itself inspired by state and local policy leadership—that can empower this effort. But state and local agencies also need support and partnership to realize intended results.
President Biden has modeled prioritized investment in disadvantaged communities with his Justice40 Initiative, informed by New York state’s Climate Leadership and Community Protection Act and California’s leadership before that.57 This federal initiative aims to ensure that at least 40 percent of the benefits of critical federal climate programs target disadvantaged communities.58 Likewise, state and local leaders must prioritize new investments in disadvantaged communities. These leaders can do this in partnership with the communities in at least three ways: first, by zeroing in on specific equity-focused programs; second, by prioritizing community benefits plans and agreements; and third, by focusing on systemic implementation of Justice40. Implementing agencies at all levels should also consider the Justice40 requirement as a floor and significantly exceed that number, ensuring these investments reach where they are needed most.
There are Inflation Reduction Act and IIJA programs designed to specifically benefit disadvantaged communities, and some of these require or would be well served by state and local agency partnerships with communities. For example, the EPA’s Environmental and Climate Justice Grant program allows community-based organizations to enter partnerships with local governments or academic institutions to advance environmental and climate justice in communities overburdened by pollution and climate change threats. The GGRF’s Solar for All program is available to state, local, and Tribal government programs, along with eligible nonprofit entities, and 100 percent focused on serving disadvantaged communities. The DOT’s Neighborhood Access and Equity Grant program allows state and local agencies, metropolitan planning organizations, and others to partner with community-based organizations on projects advancing equity, safety, affordability, and sustainability and improve livability and access to economic opportunities in communities that were negatively affected by previous transportation infrastructure projects. Each of these opportunities provides unprecedented resources specifically for advancing pollution reductions and economic opportunities in disadvantaged communities. All these opportunities would be well served by state and local government partnership, as well as complementary investments. And successful examples exist. For example, the Charge Up New Jersey program, now in its fourth year, used an infusion of EV funding from the Inflation Reduction Act’s direct EV incentives and the IIJA’s National Electric Vehicle Infrastructure program to announce increased state funds to address EV cost barriers and direct program benefits toward disadvantaged communities.59
As part of its commitment to equitable economic opportunity and environmental justice, the Biden-Harris administration has also prioritized community benefits plans and community benefits agreements, as well as project labor agreements, that can assure meaningful benefits reach disadvantaged communities.60 In practice, this has meant requiring, or giving preference to, project or grant applications that include these plans or agreements.61 State and local agencies should replicate this commitment, and help attract investment in their states, by helping companies, community organizations, and other project sponsors develop these plans and execute such agreements. And federal agencies and other TA providers should assist them.
Some state and local governments have also taken steps to replicate the Justice40 commitment at the jurisdiction level. South Carolina legislators were the first to introduce legislation, and Delaware lawmakers became the first to enact a state-level Justice40 oversight committee to “locate and help organize disadvantaged communities” in order to maximize their long-term investments coming from federal implementation of the Inflation Reduction Act and the IIJA.62 In February 2023, the mayor of Albuquerque, New Mexico, signed the first city-level executive order also establishing a Justice40 oversight coordinating committee to prepare and implement the five-year City of Albuquerque Justice40 Equitable and Just Administration Plan.63 These sorts of actions, which are being advanced or considered in a number of other jurisdictions, demonstrate how state and local governments can establish governance structures that maximize federal funding opportunities for long-term and sustained investment in a just and equitable clean energy economy.
For its part, the federal government should consider state and local governments as partners in Justice40, and in equitable funding implementation. To date, state governments have struggled to understand federal program requirements. Definitions to identify disadvantaged communities vary at both the federal and state levels, and multiple federal maps, datasets, and varied program criteria have created confusion. Federal agencies can provide clarity by regularly sharing information with state, local, and community leaders on Inflation Reduction Act, IIJA, and Justice40 funding opportunities that benefit disadvantaged communities as well as on associated application requirements.
Address clean economy workforce needs
The infusion of federal funds available to accelerate sustainable infrastructure, renewable energy, and advanced manufacturing jobs also creates significant workforce challenges. America needs workers to fill its fast-growing clean economy industries. For example, in 2022, 44 percent of solar energy industry employers said it was “very difficult” to find qualified applicants to fill open positions.64 The BlueGreen Alliance and E4TheFuture estimate that the Inflation Reduction Act will generate 49,000 full-time jobs in energy efficiency alone and that without well-leveraged workforce development investments, these positions will be challenging to fill.65 There are also persistent disparities in workforce demographics across certain clean energy industry sectors. In manufacturing, for example, women and young workers are underrepresented, while Black and Latino or Hispanic workers are overrepresented in the lowest-paying jobs.66 Furthermore, some clean energy jobs in certain regions of the country do not offer the wages and benefits, and rates of unionization, that will ensure that they are good jobs. Addressing these challenges demands cross-sectoral, public-private, labor-management, and interagency coordination at the state and local levels.
A February 2023 report from the National Association of State Energy Officials proposed a three-pronged approach to prioritizing job quality and inclusive workforce practices at the state level,67 including: 1) deepening cross-agency coordination, especially between infrastructure, energy, and workforce agencies; 2) augmenting workforce development funding, since only a modest amount of federal workforce development funding is available under the Inflation Reduction Act and IIJA, compared with the need; and 3) embedding job quality, inclusion, and accountability into state procurement processes. These offer a starting point for state and local governments that will, as ever, carry the unique burden of policy leadership matching workforce and economic development.
Some elements of the Inflation Reduction Act and the IIJA already support good jobs in building America’s clean energy economy. They are inspired by lessons from state and local policy leadership, and state and local leadership can leverage them further.68 The Inflation Reduction Act’s clean energy tax credits borrowed from state climate leadership in tying clean energy tax credits to new requirements that project developers pay prevailing wages and utilize registered apprentices. State and local governments can now complement that by supporting apprenticeship programs that project developers can utilize to meet new eligibility requirements for these federal incentives and that can ensure pathways for their residents into good union jobs. Throughout clean energy and construction projects, states should partner with unions, as the Biden administration advises, specifically through project labor agreements and community benefits agreements, as well as language stipulating free and fair access to collective bargaining.69
Some states are out in front, modeling investment in workers. In July, Gov. Josh Shapiro (D-PA) signed an executive order requiring Pennsylvania to reserve at least 3 percent of all Inflation Reduction Act and IIJA dollars to fund workforce development and on-the-job training, investing as much as $400 million over the next five years in workforce training to support 10,000 new jobs.70 Also in 2023, state leaders in Maine enacted legislation ensuring that the build-out of the offshore wind industry includes the creation of good jobs for residents.71
Elsewhere at the federal level, recent collaboration between agencies demonstrates prioritization of workforce development opportunities, in which federal agencies should engage state and local actors. In July, the U.S. Department of Labor and the EPA signed a memorandum of understanding (MOU) committing to promoting good union jobs that support the green economy and develop training and career pathways into these jobs for all workers.72 The MOU acknowledges the opportunity to leverage Inflation Reduction Act and IIJA job growth incentives to promote job quality in the environmental sector and attract a diverse workforce.73 A similar MOU signed between the Department of Labor and U.S. Department of the Interior further indicates an accelerated federal commitment to addressing the substantial hurdles surrounding good jobs and the clean energy economy and a commitment to addressing historic disparities.74
Streamline siting and permitting
With federal investments from the Inflation Reduction Act and the IIJA now flowing into projects and communities, the inadequacies of siting and permitting regimes have come acutely into focus. State and local governments must find more effective ways to site and permit clean energy projects and related infrastructure that too often languish in bureaucratic waiting queues and red tape for years, unnecessarily adding time and cost to projects—at times killing projects altogether. These challenges extend, in different ways, to siting and permitting advanced manufacturing facilities, sustainable transportation projects, and housing infrastructure.
While federal action is also needed in this area, especially to build more interstate transmission infrastructure, state and local reforms in siting and permitting policies are paramount.75 To be clear, these reforms should not become an excuse for undercutting environmental and community protections.76 Some states have shown how: In 2020, New York state passed legislation to create a first-of-its-kind Office of Renewable Energy Siting designed to consolidate a permit application and review process under one department.77 Earlier this year, Illinois enacted legislation that standardizes permitting for renewable energy facilities in an effort to streamline and hasten progress for clean energy infrastructure.78 Washington state has also taken steps to limit unjustified attempts to block clean energy projects, enacting a law earlier this year that creates a coordinated and streamlined permitting process and a statewide environmental assessment of utility-scale solar, utility-scale wind, green hydrogen, and battery storage.79 The Evergreen State’s new law also invests in staff capacity to conduct continuous coordination among project applicants, relevant agencies, local jurisdictions, Tribes, and overburdened communities. Elsewhere, California adopted a major permitting reform package this year that will make an impact by “streamlining permitting, cutting red tape, and allowing state agencies to use new project delivery methods.”80 And in summer 2023, Michigan Gov. Whitmer and the state Legislature enacted the $30 million Renewable-Ready Communities program to incentivize communities to host utility-scale renewable energy projects.81
More state and local governments should turn to leadership on siting and permitting policy reform to achieve emissions reductions, attract clean energy investment, and ultimately save consumers money. Again, the vital need for these reforms should not be used to undercut environmental reviews nor limit community input. The federal government can help design good programs through new initiatives such as the DOE R-STEP program. Nongovernmental TA providers can assist too. Many states are already modeling what successful policymaking can look like.
Raise ambition with the next generation of U.S. climate policy leadership
While the Inflation Reduction Act and the IIJA represent historic progress and unprecedented federal action in addressing the climate crisis, further state, local, and federal policy action is required to meet the U.S. commitment to cut greenhouse gas pollution by 50 percent to 52 percent below 2005 levels by 2030 and reach net-zero emissions by midcentury.82 State and local governments, as they have done over the past two decades, must continue to lead a new generation of climate policy action in the coming decade. They must continue to show how climate policies should work for working people through robust labor and equity standards.
As Gov. Jay Inslee (D-WA) said recently, “The [Inflation Reduction Act] is not the culmination of climate action, but the inspiration for further climate action.”83 Indeed, a new wave of subnational action has begun and with it come additional opportunities for state and local governments to step up. This is important—perhaps most important—for states, regions, and various sectors of the economy that have not historically been on the leading edge of pollution reductions and energy transformation. This new generation of ambitious U.S. climate policy can be led with targeted sectoral strategies, performance standards, and economywide climate programs.
Use sectoral strategies and performance standards to cut energy costs and pollution
State and local governments have long used targeted sectoral strategies, often featuring performance standards alongside complementary policies, aimed at transforming various economic sectors to improve environmental outcomes and lower energy costs for their residents. For example, for more than 40 years, states have implemented renewable portfolio standards, clean electricity standards, and energy efficiency resource standards, requiring electric utilities to utilize greater amounts of renewable energy, carbon-free electricity, and energy efficiency, respectively. States were the first movers in adopting tailpipe pollution standards for automobiles, even before the first federal standards were put in place.84 And local and state governments have utilized building codes to achieve better energy efficiency in new building construction and are now using this tool and others to drive building electrification. Often, standards have been paired with complementary investments or been part of a broader multitool sectoral strategy. Now, with greater federal incentives and investments flowing into each economic sector, state and local governments can use performance standards and sectoral strategies to maximize federal and private sector investment and hold companies accountable for using new investments in ways that reduce pollution and energy costs in their communities.
The electricity sector accounts for one-quarter of U.S. climate pollution, and although it has featured some of the fastest progress in the transition to clean energy—especially driven by state and local leadership—it still has a long way to go to meet short- and long-term climate goals. More than 20 states, and more than 200 local governments, have committed to a goal of achieving 100 percent clean, carbon-free electricity.85 And at least 15 states have embraced a goal as a firm requirement upon their electric utilities, most often in the form of clean electricity standards. Some of those and other states are members of the Regional Greenhouse Gas Initiative, a 12-state cooperative in the northeast United States that prices electricity-sector carbon pollution and reinvests those revenues in emissions reductions. More states and regions must embrace a faster transition to 100 percent clean electricity. Like in the case of Minnesota’s recent breakthrough, and in Michigan’s developing story, they can now use Inflation Reduction Act and IIJA investments—clean electricity investment and production tax credits, in particular—to do so faster and with even lower costs for their constituents.
The transportation sector is by far the largest contributor to climate pollution in the United States, and state and local governments have powerful jurisdiction over the nation’s transportation systems. States have long used vehicle emissions standards to reduce pollution. Recently, six states followed California’s next-generation leadership by adopting Advanced Clean Cars II standards that require 100 percent zero-emissions new light-duty vehicle sales by 2035.86 Several other states have joined California’s leadership with the Advanced Clean Trucks Rule that requires manufacturers to significantly increase sales of zero-emissions trucks—between 30 percent and 50 percent by 2030 and 40 percent and 75 percent by 2035.87 More states should join these lists. However, standards on new vehicle sales will also need to be complemented with other ambitious and creative transportation strategies, especially since without them, federal funding may flow to the same old carbon-intensive transportation projects. Indeed, many states—including some traditionally known as climate leaders—have already deployed IIJA transportation funding in ways that could increase, not decrease, climate pollution.88 Other states are plainly moving in the wrong direction. For example, Texas recently approved a plan to spend $100 billion on highways over the next 10 years.89 And North Carolina’s Legislature prohibited its transportation department from using federal funds for transit, biking, and pedestrian infrastructure.90 Still, some states are beginning to show what next-generation transportation policy looks like. Colorado, Connecticut, and Minnesota have advanced new policies that force state agencies to comprehensively incorporate climate change into infrastructure planning and investment decisions comprehensively.91 And local governments, through metropolitan planning organizations, will play an essential role in partnering with and pushing states to invest in transit and other low-carbon transportation infrastructure.
Regarding the buildings sector, local leadership has been at the forefront. Cities and states have long used building codes and appliance and construction standards to raise energy efficiency requirements. They are now deploying those same measures to confront the costly pollution and dependence on methane gas appliances. In addition, dozens of cities have banned new gas hookups, providing examples for others to follow.92 Likewise, more state and local governments should follow the lead of Denver, Colorado, New York state, California, and Washington state, which use appliance standards, building codes, building performance and clean heat standards, and other measures to aid decarbonization efforts.93 States and localities can do so with the tailwinds provided by new Inflation Reduction Act Home Energy Rebate Program, tax credits for residential and commercial energy upgrades, and greater investment through the IIJA in the Weatherization Assistance Program. However, several states have moved in the opposite direction by banning local jurisdictions from taking these necessary steps.94
The industrial sector, especially, invites novel state and local climate leadership; its emissions are projected to overtake those of all the other sectors by the end of the decade.95 Adding to the challenge is that no state or local government has developed an effective comprehensive approach to transforming this sector. Furthermore, the Inflation Reduction Act and the IIJA provide major investments in advanced manufacturing and industrial decarbonization—offering raw materials with which state and local leaders can design next-generation policies. There are also some points of progress upon which to build. For example, Colorado and New Mexico have used standards to confront methane pollution from oil and gas operations, and state and local governments have advanced “Buy Clean” policies to use their procurement power to drive emissions reductions.96 Now, some states, such as Colorado and Pennsylvania, have further pinpointed the industrial sector in the next phase of their climate policymaking, including using federal funds such as CPRG.97
Finally, the agriculture, forests, and lands sectors also combine some progress points of state and local climate leadership and considerable new federal investments, with a need for more comprehensive and prioritized sectoral strategies.98
Adopt economywide climate programs
While sectoral standards and strategies have produced significant progress across the country, several state and local governments have taken the next step, with economywide programs to reduce greenhouse gas pollution. As more state and local governments advance their climate policy engagement and implement effective sectoral policies, they can turn Inflation Reduction Act and IIJA economywide investments and whole-of-government climate planning into measures that reduce climate pollution throughout their economies.99
Economywide state climate policies have generally taken the form of cap-and-invest programs that place a legally binding and annually declining limit on emissions across different economic sectors and raise revenue through the auction of a portion of those emissions allowances. These revenues can then be reinvested in complementary climate and environmental justice strategies. And these revenues can be especially important for state governments, which, unlike the federal government, are generally required to balance their budgets every one or two years. Furthermore, economywide programs can double as the most effective or politically viable strategies for decarbonizing certain economic sectors, particularly those whose emissions may be most responsive to a carbon price signal—for example, industry—versus those that may be less so.
California is unique in that it adopted the nation’s first economywide climate program, with A.B. 32 in 2006. It has since augmented its climate policies with more targeted sectoral strategies and performance standards such as the Low Carbon Fuel Standard, clean electricity standards, and more.100 Several other states have embraced specific strategies for one or more sectors during this time. Recently, however, a few states that started with sectoral strategies have graduated into economywide programs. Washington state launched its cap-and-invest program in early 2023 and recently held a successful auction that raised nearly $1.5 billion in revenue.101 New York state recently revamped its newly created cap-and-invest program to incorporate emissions reduction goals made through the Inflation Reduction Act.102
State and local governments are creating successful models using Inflation Reduction Act/IIJA investments to their maximum advantage. These are models that others can and should follow.
The passage of the Inflation Reduction Act and the IIJA allows state and local governments to receive and leverage hundreds of billions—perhaps trillions—of dollars in new federal climate investments and unlock even greater private sector investment. As state and local governments look to leverage these dollars and continue their leadership on climate action, there are challenges to which they, their federal partners, and supporting parties should all be attentive. State and local governments struggle with a lack of capacity and steep learning curves to understand and act on the opportunities in front of them and chart a road map for continued climate action.
However, the challenges facing subnational governments have solutions. Alongside this, additional coordination on a regional scale supports state and local governments to rapidly take advantage of new opportunities and may alleviate some of the burden-creating capacity concerns. Finally, through continued dedication to addressing gaps and committing to leadership on climate action, state and local leaders can chart the course for the future of equitable, enduring climate action that ensures all communities have clean air to breathe and share the benefits of a clean energy economy. As we enter the second year of the Inflation Reduction Act and continue to focus on the implementation of this historic legislation, in addition to ongoing implementation of the IIJA, state and local governments are a crucial factor in the success of the Biden-Harris administration’s bold climate action plan. Subnational governments must capitalize on these opportunities to move the nation toward just and effective climate action.
The authors wish to acknowledge the review and/or suggestions provided for this report by Shannon Baker-Branstetter, Kevin DeGood, Trevor Higgins, Cathleen Kelly, Jerry Parshall, and Mike Williams from the Center for American Progress; Ryan Finnegan from the World Wildlife Fund and America Is All In; Kate Johnson from C40 Cities; Timothy Profeta from Duke University’s Nicholas Institute; and Kathryn Zyla from the Georgetown Climate Center.
The authors also wish to thank all state, federal, and other participants in the State-Federal Climate Convening hosted by CAP and Hua Nani Partners, in Washington, D.C., in April 2023, which helped inform the recommendations discussed in this report.
* Correction, September 15, 2023: This report has been updated to clarify that projects receiving support from SEFIs are eligible for financing from the DOE’s LPO.