June 2, 2023
The Inflation Reduction Act (IRA), passed on August 16, 2022, is by far the most significant action the U.S. federal government has ever taken to combat climate change. Between grant programs, loan and other financing programs, and tax benefits, the Congressional Budget Office estimates that the law will provide $369 billion towards climate and clean energy. Meanwhile the REPEAT project out of Princeton University models that the Act will reduce climate emissions by 42% by 2035. With respect to local governments in particular, ICF has identified approximately $17B in available grant funding for programs supporting things like GHG reductions, electric vehicles, energy efficiency, and building electrification.
So, after nine months how close are we to seeing the impacts of this major policy opportunity?
The answer is that, while there has been a lot of action, not much money has started flowing to local governments from the IRA grant programs yet. As many of us have seen, major policy changes cannot be made reality overnight, especially when several of the critical agencies still need to ensure they have all the resources and subject matter expertise that can rise to this momentous challenge of implementing this law. It doesn’t help that the agencies tasked with implementing IRA are, by and large, the same agencies that were just starting to get their feet under them in implementing the 2021 Investment Infrastructure and Jobs Act (IIJA) also known as the Bipartisan Infrastructure Law (BIL).
So what is the latest status on the key grant programs for local governments and what are we expecting to see next? Here is the status of three of the most important local government opportunities:
- The biggest IRA grant program available directly to local governments is a portion of the EPA’s Greenhouse Gas Reduction Fund. Of the $27 billion included in that program, $7 billion is accessible directly to local governments. This program is on a fast track relative to other IRA programs because the law requires that EPA get the grants out the door by September 30, 2024. We have received some significant guidance from EPA on how this program will operate, but more details are being left to the Notice of Funding Opportunity (NOFO) expected to be released this summer.
- Another significant funding opportunity for local governments is the EPA’s Climate Pollution Reduction Grants program. Under this program states and large metropolitan areas will be allocated funding to develop GHG reduction plans and then, later, have the opportunity to compete for funding to implement those plans. Because at least the first phase of this program will use a formula, as opposed to a competitive allocation, EPA has been able to stand up this program more quickly. Guidance has been issued and major metropolitan areas will be required to complete their application packages by May 31, 2023. We are still waiting on guidance for the more significant, competitive, second phase of the program.
- The $3 billion Environmental and Climate Justice Block Grant program is being split by EPA into smaller opportunities with more specific missions. While the bulk of the funding has yet to be parceled out, three specific grant opportunities are currently open or have recently closed. The $70 million Government-to-Government Program accepted applications until April 14, 2023. Two other opportunities (the $550 million Environmental Justice Thriving Communities Grantmaking Program and the $30 million Environmental Justice Collaborative Agreement Program) are not directly available to local governments. However, that still leaves a lot of funding left for EPA to allocate. Responses to an EPA request for information seeking thoughts on how the money should be allocated were due on April 10, 2023 and we can expect more guidance and funding opportunities over the next several months.
There are certainly a lot of steps and potential pitfalls between where we are now and getting the money into the hands of local governments, but the federal government is not standing still. Expect to see more announcements of federal funding opportunities over the next several months, as well as actual allocations later this year. 2023 seems to be shaping up to be the year of IRA paperwork for both the federal agencies and potential grantees, but hopefully the paperwork will also serve as groundwork for 2024 to be a year of progress and positive change.