The Inflation Reduction Act of 2022 provides billions of dollars in direct funding and tax incentive opportunities that health systems can use to finance climate resiliency and renewable energy infrastructure projects.
The funding is still becoming available, with several tax and grant opportunities rolling out this year. Significantly, the Inflation Reduction Act enables tax-exempt entities, such as nonprofit organizations and local governments, to receive direct payments for qualified investments. The window to take advantage of certain cost-sharing arrangements will close at the end of 2024.
“The reason this is really a game-changer is that tax-exempt entities will, for the first time, be able to receive payments equal to the value of tax credits for renewable energy projects, including microgrid controllers,” said Dr. John Balbus, acting director of the Health and Human Services Department's Office of Climate Change and Health Equity.
Investments in renewable energy could allow healthcare facilities to save money long-term, freeing up resources for increased investments in patient-centered activities, Balbus said.
Tax incentives
The Inflation Reduction Act expanded existing tax deductions related to energy-efficient buildings and added credits to encourage investments in renewable energy generation equipment, energy efficiency, emission reduction and electric vehicles.
Providers can maximize their return by meeting certain conditions. Deductions and credits are greater when health systems meet federal wage thresholds and domestically source project materials, for example. Health systems in low-income communities where at least 25% of local tax revenues are related to coal, oil or natural gas receive even higher payouts.
- Investing in renewable energy sources: Tax credits are available for investments in renewable energy projects, including fuel cell, solar, geothermal, small wind, energy storage, biogas and microgrid controller. The Inflation Reduction Act provides credits ranging from 6% to 50% of costs for qualified renewable energy projects that begin construction by Dec. 31, 2024.
- Producing renewable energy: More credits are being offered for generating electricity from eligible renewable sources that could be sold to third parties, including wind, biomass, geothermal, solar, small irrigation, landfill and trash, hydropower, marine, and hydrokinetic energy. This year, health systems could receive credits ranging from 0.55 cents per kilowatt to 2.75 cents per kilowatt of power produced. Those amounts will be adjusted for inflation annually and apply to projects that commence construction by Dec. 31, 2024.
Healthcare organizations serving low-income communities may qualify for bigger credits related to solar and wind projects when at least 50% of the savings are shared with households with incomes below 200% of the federal poverty level, which is $49,720 for a family of four in the contiguous U.S. and higher in Alaska and Hawaii. - Expanded opportunities for energy efficiency: The Inflation Reduction Act greatly enhanced tax incentives for healthcare organizations that improve energy efficiency for their facilities and vehicles. The statute increased the maximum deduction five-fold for facilities that meet American Society of Heating, Refrigerating and Air-Conditioning Engineers efficiency standards for interior lighting, heating, cooling, ventilation and hot water. The new deduction started this year and has no expiration date.
Healthcare organizations can collect more under a tax credit for energy-efficient vehicles. The federal government will provide up to 30% of the cost of vehicles not powered by gas or diesel and up to 15% of certain hybrid vehicles that meet efficiency requirements. The credit is capped at $7,500 per vehicle under 14,000 pounds (about the weight of a full-sized ambulance) and $40,000 per larger vehicle. There is no cap on the number of credits an organization can claim and this benefit is available through Dec. 31, 2032.
Grant opportunities
The Inflation Reduction Act created grants to support renewable energy systems, greenhouse gas emissions and pollution reductions, disaster relief, and climate resiliency projects, particularly in rural and low-income communities.
- The Rural Energy for America Program: Small healthcare organizations in rural communities can use guaranteed loan financing and grant funding to cover 50% of the cost to construct or renovate renewable energy systems, high-efficiency heating, ventilation and air conditioning units, insulation, LED lighting, refrigeration units, and new doors and windows. The $1.7 billion fund will expire on Sept. 30, 2031.
- The Greenhouse Gas Reduction Fund: The Inflation Reduction Act created a $27 billion pool to encourage private investments in clean energy and emission reduction, with 40% of the dollars earmarked for low-income and historically disadvantaged communities. Healthcare organizations pursuing projects that assist communities in reducing greenhouse gas emissions and other forms of air pollution may apply to the Environmental Protection Agency. The funding is available until Sept. 30, 2024.
- The Environmental and Climate Justice Program: In partnership with community-based organizations, health systems may apply for grants to fund initiatives that monitor and reduce indoor and outdoor air pollution, improve community climate resiliency, and build internal reporting infrastructure. The Inflation Reduction Act makes $3 billion available for this program, which will be distributed until Sept. 30, 2026.
- FEMA funding: The Inflation Reduction Act authorized the Federal Emergency Management Agency to provide financial assistance to healthcare facilities prone to climate emergencies to finance low-carbon building or construction materials through the Stafford Disaster Relief and Emergency Assistance Act of 1988. Health systems must work with state and local officials to seek funding, and extra support is available to applicants from coastal communities, tribal lands and U.S. territories. This program does not expire.
Lauren Berryman contributed to this story.
