What’s in the IRA Act for the Vinyl Industry?

On Aug. 7, the Senate passed the Inflation Reduction (IRA) Act, the Democrats’ budget reconciliation package for climate, taxes, and health care on a party-line vote. Vice President Kamala Harris broke the 50-50 tie sending the legislation to the House of Representatives, which will reconvene Friday, Aug. 12, to vote on the bill. Democrats say the bill will raise $739 billion in revenue.

Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) shocked most of Washington by announcing a surprise deal reviving the tax and climate portions of Democrats’ Build Back Better (BBB) agenda on July 27. The bill original agreement would have imposed a 15 percent minimum tax on large corporations and a proposal to narrow the so-called carried interest loophole. After intense lobbying by industry and the help of Senator Krysten Sinema (AZ), the carried-interest proposal was removed, and the Senator was able to push through some changes to the corporate minimum tax to ease manufacturers’ concerns. Democrats added a 1 percent excise tax on stock buybacks to offset some of the revenue. These changes secured Sinema’s support, giving Democrats the 50 votes they needed to pass the bill.

Democrats were forced to drop one of their core provisions after the Senate parliamentarian ruled that they could not include their proposal, which would have penalized drugmakers whose prices are rising faster than inflation in the private insurance market. The ruling resulted in tens of billions less in federal savings than Democrats had hoped for. Republicans also succeeded in stripping out a $45 million Environmental Protection Agency (EPA) “slush fund” to carry out several sections of the Clean Air Act to regulate greenhouse gases and a $35 cap on insulin on the private market. The bill includes a three-year extension of Obama Care subsidies, inflation rebates for Medicare patients, Medicare Part D reforms, and for the first time, the government will be able to directly “negotiate” prices for Medicare prescription drugs. This essentially means that a 95 percent excise tax will be imposed on prescription drugs unless manufacturers accept government-set price controls.

The energy subtitle would make the single largest investment in climate change to date by providing over $369 billion in funding and tax credits to promote clean energy use and security, increase electric vehicle production, invest in new technologies, and reduce carbon emissions by about 40 percent by 2030. Much of this investment will be incentivized through production and investment tax credits. During the negotiations, Sen. Manchin was able to ease rules that he believes limit fossil fuel production and slow the necessary expansion of the electric grid. As part of this agreement, Democratic leadership agreed to pass legislation governing energy permits after the August recess.

WHAT’S IN IT FOR US?

While there are several tax policies that will change the way we do business, we were successful in eliminating tax proposals that would have done great harm to U.S. manufacturing businesses and put jobs in our industry at risk. The bill also includes incentives and provisions that invest heavily in onshoring jobs, increasing domestic production, building clean energy infrastructure and manufacturing facilities, strengthening U.S. supply chains, and direct investment in the development and deployment of low-emitting technologies in the manufacturing sector.

VI has always been committed to being part of the solution when it comes to reducing carbon emissions and generating clean energy. Vinyl and PVC already offer low-carbon, lightweight, advanced materials that are critical to the innovations needed to reduce carbon emissions in the U.S. and provide the country’s clean energy needs. Below is a summary of some of the energy and climate proposals that will benefit members and the possible opportunities that the vinyl industry can best leverage within the Innovation Reduction Act.

Tax Incentives to Promote Clean Energy Production and Investment – The IRA provides billions of dollars to extend, expand, and modify the Production Tax Credits (PTC) and Investment Tax Credits (ITC). The PTC credits are for companies that generate electricity from clean and renewable resources, including solar, wind, biomass, geothermal, municipal solid waste, hydropower, and marine and hydrokinetic energy for facilities. It also extends ITC for the construction of clean and renewable energy properties, including energy storage technology, biogas property, microgrid controllers, dynamic glass, and linear generators. The package also includes tax credits for next-generation technologies, including clean hydrogen and advanced nuclear facilities constructed for carbon oxide sequestration.

The tax credits will spur new construction and retrofits of energy-producing facilities, manufacturing facilities for components, materials, and clean energy products such as wind turbines, as well as spurring new and future construction for energy infrastructure and installations to accommodate a growing clean energy power grid. The investment and growth will also drive demand for vinyl and PVC products in construction, installations, and essential components in the manufacturing and production of clean energy products.

The package reinstates the qualified advanced energy project credit, which would allow DOE to allocate an additional $10 billion in tax credits to qualifying projects. The package provides a production credit for wind turbine blades which use PVC. Other qualifying components include solar polysilicon, wafers, cells, modules, backsheets, longitudinal purlins, and structural fasteners; nacelles, towers, and offshore foundations; inverters; battery electrode active materials, cells, and modules; and critical minerals.

Incentives to Increase Electric Vehicles (EV) Sales and Manufacturing – The bill includes multiple provisions to increase electric vehicle manufacturing and use. The Biden administration has set an ambitious target of 50 percent of electric vehicle sales shares in the U.S. by 2030. Increased production will also bolster the demand for PVC and other lightweight plastics, which are essential to the production of EVs but are also an essential component of the wiring conduit used in EV charging stations.

Provisions include:

• A $7,500 credit for new electric vehicles and a $4,000 tax credit for used ones;
• Extends credits to hydrogen-fueled cars in addition to EVs;
• New credit for buying commercial electric vehicles and extends the alternative fuel vehicle refueling property credit through 2032.;
• Provides $3 billion to the U.S. Postal Service to acquire electric delivery vehicles and purchase infrastructure to support the vehicles, such as charging stations;
• Provides $3 billion for the costs of providing direct loans under the Department of Energy’s Advanced Technology Vehicles Manufacturing program;
• Allocates $2 billion for domestic manufacturing conversion grants from the Department of Energy relating to domestic production of efficient hybrid, plug-in electric hybrid, plug-in electric drive, and hydrogen fuel cell electric vehicles;

Some lawmakers are concerned that consumers may not qualify for the $7,500 credit because it requires that the EV is made with a certain percentage of minerals mined or processed in the U.S. or in nations with U.S. free trade agreements or recycled in North America. Most of the US’s lithium, cobalt, graphite, and nickel are primarily mined, refined, and processed in China or Russia or in non-FTA countries such as the Democratic Republic of Congo and Indonesia. The government will likely need to take further action to remove barriers to mining in order to meet its EV production goals.

Conservation – The conservation subtitle would provide additional funding over four years for four existing Farm Bill conservation programs, including $8.45 billion for the Environmental Quality Incentives Program. The EQIP program provides financial and technical assistance to agricultural producers and non-industrial forest managers to address natural resource concerns, including improved water and air quality. PVC is the ideal material for EQIP’s programs that assist with conserving ground and surface water, improving soil health, and reducing soil erosion and sedimentation, particularly in addressing drought and increasing weather volatility.

Drought Response and Preparedness – Allocates $550 million to the Bureau of Reclamation for water supply projects for communities or households that lack reliable access to domestic water supplies.  $ 4 billion to the Bureau for drought mitigation in Western States Reclamation. The bill also provides $220 million for the Bureau of Indian Affairs for fiscal year 2022 for tribal climate resilience programs. This includes funds for the Bureau of Reclamation for near-term drought relief actions for Native Americans affected by bureau projects that cause drinking water shortages and to mitigate the loss of resources.