The Economic Tides Just Turned for States
We uncover the surprising, transformative benefits of the Inflation Reduction Act and clean energy for US states.
States across the country have a massive new opportunity to boost their local economy through the Inflation Reduction Act (IRA) — and now, for the first time, that opportunity is quantified. Thanks to historic investment in clean energy technologies, low-carbon alternatives for energy, transportation, appliances, and manufacturing are cheaper than ever, sometimes already undercutting their fossil fuel counterparts.
States can capitalize on this opportunity and support the use of new tax credits and rebates that will allow individuals and businesses to buy new electric vehicles, heat pumps, renewables, energy efficient equipment, and more while saving money. More than that, it’s creating thousands of clean technology and energy jobs in the United States right now, reinvesting in parts of the country where manufacturing once thrived, and stimulating what could be a global climate and clean energy “race to the top.”
Our first-of-its-kind analysis shows the potential benefits of the Inflation Reduction Act state by state. Most of the financial incentives that will be used from the IRA will be in the form of tax credits, which means keeping billions of new investment dollars in-state and lowering the federal tax burden of residents across states. Taking full advantage of the IRA can also lead to a flood of private sector funding as industries and clean energy developers look to build new projects.
Unlocking Investment Dollars
RMI analyzed the level of money that could be invested in states thanks to the Inflation Reduction Act, if consumers and businesses adopt clean technologies at the pace and scale needed to meet national climate targets (which we call a “Climate Ambitious Scenario”). We found that states could secure between $1,500 to $12,000 per capita per state and $1 billion to $130 billion per state cumulatively between now and 2030.
States with strong renewable energy potential and industrial activity have the most to gain per capita by taking full advantage of the numerous provisions in the IRA.
Most of these states, such as Wyoming, Montana, and Louisiana, are located in the Great Plains and the South, and have significant rural and industrial communities that will uniquely benefit if states take urgent, ambitious action by deploying clean energy technology and infrastructure.
States can take advantage of several key Inflation Reduction Act provisions and financial incentives. Just a few examples of these provisions include:
- Clean energy tax credits for new renewable energy projects
- Rebate programs to support low- and moderate-income households to electrify their homes
- Grants for climate reduction projects — any project, activity, or technology that aims to reduce carbon emissions
- And many more
RMI also analyzed which funding mechanisms from the IRA could yield the most investment in individual states — tailoring the analysis to each state’s unique economy and source of emissions.
In Wyoming, for example, tax credits — like those for new clean energy projects, efficiency in commercial buildings, electric vehicles, and green hydrogen — could account for as much as 89 percent of the federal investment (as opposed to grants, loans, and rebates) coming from the IRA.
Creating Jobs and Improving Public Health
But for state governments and their residents, there are even more benefits to unlock beyond investment dollars. RMI’s analysis shows that each state could see between 2,000 and 100,000 new jobs (measured in job-years) and avoid between 4,000 and 300,000 negative health outcomes (ranging from reduced activity days to avoided death) in 2030 under a scenario where states ambitiously use the provisions in the IRA.
Our Energy Policy Simulator for states — a free data tool we created with partners at Energy Innovation to simulate the impacts of more than fifty different climate and clean energy policies — consistently shows that ambitiously investing in the clean energy transition creates jobs and improves public health.
Making the Most of This Historic Federal Funding
The bottom line is that the IRA is a tremendous opportunity for states to lower pollution, create jobs, and increase revenue — ensuring communities can celebrate every benefit of transitioning to a low-carbon economy.
States should focus on three key areas in their policy plans to make the most of the Inflation Reduction Act in the next years and see these projected economic benefits:
- Using the wide range of financial incentives available in the IRA to their maximum potential
- Educating and promoting use of the IRA tax credits to their residents
- Implementing statewide policies that capitalize on the funding from the IRA and ensure that the tax credits are being used, such as EV charging infrastructure investment, clean electricity standards, electric vehicle sales targets, and building appliance sales standards
The Future is Bright
No longer do clean energy policies need to be a burden, thanks to how the IRA’s financial support has made the energy transition even more economically feasible. What was once controversial — adopting ambitious climate and clean energy plans— is now about ensuring that the state isn’t leaving economic development opportunities on the table. And for those communities committed to taking action to avoid the pollution and extreme weather of climate change, these actions will support those goals as well. This is the partnership between the private sector and policy that we need to drive forward ambitious climate action this decade. We'll need individuals and businesses to rapidly adopt electric and clean technologies at the same time state governments are pursuing effective climate legislation to keep the momentum happening at a systems level.
Taking full advantage of the numerous rebate programs, tax credits, grants, and loans offered through the IRA will not happen automatically. Leadership from organizations and governments will determine whether states miss out on or capture the wide range of benefits. State governments play a pivotal role in the United States clean energy transition — and all eyes are on them.
Methods
Click here to access a full methodology file.
The funding portion of this analysis was carried out by separating provisions in the IRA by funding mechanism.
- For tax credits, we found the technology level by 2030 per state that is consistent with a Climate Ambitious level of action and used the dollar value of the credit to calculate the investment possible through the provision.
- Others were calculated by downscaling the Congressional Budget Score of the provision at the national level to the state using parameters that are related to the provision.
The public health and jobs benefits calculations leverage Energy Innovation’s national modeling of the IRA carried out in the United States Energy Policy Simulator and downscales the co-benefits to the state level by population.
This work was made possible by generous support from the Rockefeller Brothers Fund, Bloomberg Philanthropies, and the Colorado Energy Office. The opinions and views of the authors do not necessarily state or reflect those of our funders.