The Inflation Reduction Act of 2022; Impacts on Prevailing Wage and Other Requirements

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Last week, Senate Democrats released the draft of the Inflation Reduction Act of 2022 (the Act), which is intended to achieve deficit reduction and fight inflation. The Act includes several provisions connected to renewable energy tax incentives. If adopted, it would expand the number of eligible construction projects, impact prevailing wage requirements, and could alter how businesses qualify for tax credits.

Essentially, the Act would reestablish the full investment tax credit (ITC) rate of 30% for ITC-eligible facilities that satisfy the prevailing wage and apprenticeship requirements. It also extends the production tax credit (PTC) rate of 1.5 cents per kilowatt-hours for construction projects beginning before January 1, 2025.

The Act would also adopt new provisions extending the ITC and PTC for projects placed in service in 2025 or later in which construction begins before 2033. Finally, the Act defines “projects” as those with zero greenhouse gas emission rates.

Furthermore, the ITC and PTC would implement additional requirements to qualify for the full credit. These other requirements include (1) satisfying specific prevailing wage requirements for wages paid to employees (contractors and subcontractors alike) for the construction and maintenance of facilities and (2) minimum thresholds for employment of apprentices (for both contractors and subcontractors) in connection with the construction and maintenance of facilities.

At this time, Senate Democrats intend to vote on the Act through the budget reconciliation process, permitting the legislation to pass with a majority vote in the Senate. President Biden has announced his support of the Act, but it still needs to garner enough support to pass both chambers.