The Inflation Reduction Act Will Help Boost Offshore Wind Production
The Inflation Reduction Act offers new and bolsters existing pathways for the development of clean energy sources. These steps will make strides toward achieving the Biden administration’s goal of a 50 percent to 52 percent reduction in greenhouse gas pollution from 2005 levels by 2030. In particular, offshore wind energy will be critical for building America’s clean energy economy—and building it right.
Until recently, federal policy has privileged the fossil fuel industry and its noncompetitive leasing schemes, oil spills that destroy habitats and livelihoods, abandoned infrastructure congesting federal waters—and, notably, its blockade of the necessary clean energy transition. This story has already been changing, and the Inflation Reduction Act is helping give it a rewrite by promoting responsible clean energy that also advances equity and community-led economic development.
By passing the Inflation Reduction Act and multiple administrative actions over the past two years, Congress and the Biden administration have begun to set the stage for developing responsible offshore wind leasing, promoting good union jobs, and prioritizing environmental justice communities. Offshore wind is a more cost-effective energy source than oil and gas, and the Inflation Reduction Act contains provisions that allow the United States to make progress on the goal of achieving 30 gigawatts of offshore wind by 2030—a necessary and timely investment in the effort to transition away from volatile fossil fuels.
This column outlines seven ways that proper implementation of the Inflation Reduction Act will boost domestic offshore wind development, workforce, manufacturing, and equity.
1. Providing long-term certainty for offshore wind through extended tax credits
The Inflation Reduction Act provides tax credits for both developers and manufacturers. On the project development side, an effective 30 percent tax credit is available for projects that meet basic criteria to ensure high-quality job creation. Given that projects can take a few years to transition from the initial permitting stages to getting steel in the water, this credit will aid timely development by helping lock in consistent financing thanks to the long-term extension of tax credits.
To ensure these investments create good jobs, this tax credit begins at 6 percent but includes a fivefold increase to the base credit if the facility meets prevailing wage and registered apprenticeship requirements. Furthermore, a facility will receive a 10 percent bonus credit if it meets certain domestic content standards.
The law also establishes a new advanced manufacturing production tax credit based on domestic production components for offshore wind energy structures and vessels associated with them, providing a direct credit for producing key materials in the clean energy economy. Specifically for offshore wind, a 10 percent credit is available for the production or retrofit of vessels needed for offshore wind build-out. A similar credit is available for the domestic production of key components, such as blades, nacelles, towers, and foundations.
2. Prioritizing marginalized communities in the Inflation Reduction Act’s offshore wind incentives
Funneling clean energy investments toward locally defined and resilient economic benefits is central to the successful implementation of the Inflation Reduction Act’s offshore wind incentives. The administration’s coordinated leasing, capacity building, and technical assistance programs make up the whole-of-government, mission-driven approach to solving climate, equity, and economic development problems. The Inflation Reduction Act targets incentives toward communities most likely to be affected by the transition away from fossil fuels due to job losses and to be harmed by legacies of pollution from energy facilities by offering a 10 percent credit to developers who conduct their clean energy venture in energy communities. Providing investment credits to developers that work in energy communities is further bolstered by incentives, available through the Bureau of Ocean Energy Management’s (BOEM) competitive leasing process, for developers that enter into community benefits agreements with affected communities.
3. Creating and fostering offshore wind jobs for the future
The Inflation Reduction Act is expected to contribute an astonishing 9 million good jobs over the next 10 years and sustain millions of jobs in the clean energy economy. Investments in clean energy and manufacturing alone will contribute to almost 6 million of those jobs, helping the United States to develop a workforce for a just transition. To ensure the industry is creating high-quality jobs and economic opportunities, the law links the tax credits to registered apprenticeship programs, which will ensure that each newly built offshore wind project will help train the workforce of the future. Additionally, the Inflation Reduction Act invests $10 billion in the advanced manufacturing tax credit, which provides direct support for qualifying manufacturing facilities that build offshore wind components.
4. Preparing for transmission planning and increased capacity
The Inflation Reduction Act grants $100 million for planning, modeling, and analysis of interregional electric transmission generated by offshore wind and $760 million in grants for onshore and offshore interstate transmission lines. This is a necessary step toward implementing an intentionally and well-designed transmission plan that will create jobs and minimize impacts in environmental justice communities.
5. Increasing staffing to reduce delays in developing offshore wind projects
A large barrier to permitting offshore wind energy projects has been the lack of staffing available to review and approve applications, environmental assessments, and other related materials. The Inflation Reduction Act authorized $700 million to implement the National Environmental Policy Act (NEPA), which will contribute to more staff from agencies such as BOEM and the National Oceanic and Atmospheric Administration (NOAA) to review construction and operation plans appropriately as well as to begin the environmental impact statement of the largest offshore lease sale held to date, which was in the New York Bight. To use these funds efficiently, the U.S. Office of Personnel Management should work with BOEM and NOAA to prioritize the hiring of more full-time employees on a timely basis to meet President Joe Biden’s goal of reviewing 16 construction and operations plans by 2025.
6. Ending the Outer Continental Shelf energy leasing moratorium
The reversal of President Donald Trump’s withdrawal of offshore wind leases in the southeastern United States and eastern Gulf means that the potential of offshore wind development can continue to grow and benefit all coastal communities. In addition, the Inflation Reduction Act will expand the Outer Continental Shelf leasing area to include areas near U.S. territories; if these areas are deemed to have sufficient offshore wind development potential, this expansion will require consultations with territorial governors and pave the way for more reliable energy in some of the areas that need it most. Now it is incumbent on BOEM to take advantage of this opportunity, which the agency can kick-start by designating multiple lease areas off the North Carolina coast in 2023 as a part of the upcoming Central Atlantic lease sale.
7. Increasing the offshore oil and gas royalty rate
The royalty rate for some leases will be raised from 12.5 percent to 16.67 percent. Royalty rates will continue to increase each year over the next 10 years and must be maintained at no lower than 16.67 percent and no higher than 18.75 percent. This is a necessary step in leveling the playing field for renewable energy development and providing more value to the American public.
Managing royalty revenue in ways that reduce dependence on continued oil and gas development and facilitate a just and equitable energy transition is a remaining policy priority that Congress should center in future legislation. While these actions in the Inflation Reduction Act will surely strengthen progress in the offshore wind energy industry, the law also includes provisions that require the continued leasing and production of fossil fuels that threaten front-line communities in the Gulf of Mexico and Alaska. This is an unfair burden on communities that have already suffered a great deal of harm stemming from the fossil fuel industry; they must no longer be treated as sacrifice zones. Long-term, offshore wind will continue to expand and build a more equitable and resilient economy while helping to lower energy costs. It is critical to stop the harm and uplift front-line communities to achieve a just and equitable energy transition.
The Inflation Reduction Act delivers good jobs, health, and climate through its incentives and investments in offshore wind energy. The energy matrix is changing for the better, and the Biden administration, Congress, and state governments must continue to lift and create meaningful programs that build climate resilience, create good jobs, and strengthen the very way of American life.
The authors would like to thank Shannon Baker-Branstetter, Mark Haggerty, Miriam Goldstein, and Shanée Simhoni for their contributions to this column.
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Former Research Associate, Ocean Policy