College campuses have always been hubs of climate activism, with students joining nationwide movements to protest pipelines like DAPL and Line 3 and to divest from the fossil fuel industry, among other causes. At the same time, students increasingly factor in a school’s own environmental values as they decide where to apply.
And as many universities begin to take a closer look at their climate footprints, the Inflation Reduction Act (IRA) offers a new opportunity to tackle decarbonization projects on campus. This is the chance to swap out any inefficient or outdated infrastructure that feeds into energy-sucking buildings, like dorms and research labs, to not only reduce carbon emissions but also to help cut power costs. By making these green investments, colleges are also showing prospective students their seriousness in shaping the next generation of climate leaders.
Which provision from the IRA can educational institutions tap into?
“Elective pay,” more commonly known as “direct pay,” allows tax-exempt organizations to receive payments from the Internal Revenue Service for qualifying clean energy projects. Previously, incentive tax credits existed for green projects but were only useful to entities that had tax liabilities to offset. This meant tax-exempt organizations, which includes most colleges and universities, were essentially left out of accessing these benefits. Now, a college that, say, switches buildings from running on oil heat to electric heat pumps can get the equivalent of those credits as a cash payment to offset some of the project costs. Another plus is that this funding is not competitive—i.e., colleges don’t have to face a complicated grant application process to cash in.
What kind of clean energy projects qualify?
About a dozen tax provisions are eligible for direct pay. Many colleges and universities will be eager to take advantage of the ones for electric vehicles and clean energy generation. These credits can be applied to a wide range of renewable energy projects, from solar, wind, and geothermal energy development to electric vehicle infrastructure.
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Investment Tax Credit for Energy Property (ITC): Colleges can use the ITC if they are looking to install new clean energy projects on campus. After December 31, 2024, the Clean Electricity Investment Tax Credit will replace the ITC. While the ITC covers an extensive list of technologies, the more flexible tech-neutral replacement will help colleges pay for any power facilities that achieve net zero greenhouse gas emissions. In other words, beyond solarized roofs and wind turbines, it will also apply to things like large-scale battery systems and other emerging technologies.
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Production Tax Credit for Electricity from Renewables (PTC): While the ITC is based on the construction costs for a project, the PTC provision is based on how much clean energy a project generates. This credit can be claimed for the first 10 years a project operates and applies to initiatives to generate renewable energy, similar to those covered by the ITC.
At the end of 2024, the PTC will be replaced by the Clean Electricity Production Tax Credit, which will also more broadly cover any power facilities that achieve net zero greenhouse gas emissions. (Generally, you cannot claim the ITC and PTC for the same project, so it will be up to the organization to figure out which credit will be more worthwhile.)
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Clean vehicle tax credits: Colleges can also tap into a set of two clean vehicle credits if, for example, they want to replace their fleet of gas-powered shuttle vans with electric versions. The Alternative Fuel Vehicle Refueling Property Credit can also be used to install charging stations in qualifying areas (which cover about two-thirds of the United States).
How much can colleges save?
Generally, the maximum refund amount for the direct pay credits is 30 percent of the cost of the project. Depending on the scale of what a college has taken on, to receive the full refund, it may have to first meet a new wage and apprenticeship requirement established under the IRA. The labor standard requires all workers involved in a project, including construction and maintenance crews, to be paid a certain wage (often the same as the union wage for the given position) for a set number of years after the project gets off the ground. Otherwise, the base credit paid out is only 6 percent or less.
The IRA also includes a handful of stackable bonus credits that allow colleges to save an extra 10 to 20 percent (on top of the 30 percent). These can be applied to projects located in historical “energy communities” (such as a college town that has long depended on coal), in low-income communities, or on Indigenous land.
How can colleges and universities take advantage?
Devising a climate action plan will be the first step for any institution. (Receiving a payment is actually the last step, since projects must be completed before funding is reimbursed.)
Most of the IRA credits are currently scheduled to sunset in 2032, which gives colleges eight years to make the most of this opportunity. Now is the time for university officials to commission an energy audit or engineering study to gauge what parts of their campus infrastructure are aging and what needs replacing, particularly as they consider any expected growth in student population or energy usage. Colleges must also identify which credit(s) they want to pursue for the corresponding project.
Among those universities already participating is the University of California (U.C.). Associate Director of Renewable Energy Sam Schabacker noted that the U.C. system was able to mold its decarbonization plans to benefit from the IRA. Among other things, the U.C. commissioned engineering studies on how to transition legacy infrastructure, such as underground steam tunnels, off of fossil fuels using IRA incentives. “We were fortunate in that the U.C. had already been heavily investing in our decarbonization strategy for the last decade,” said Schabacker. “It just so happened we were updating that strategy right as the IRA was passed, and we’ve had the opportunity to look at how we want to continue to advance our goals in light of the legislation.”
The U.S. Department of the Treasury, which is responsible for implementing many aspects of the IRA, is helping other colleges and universities to follow in these footsteps through a team dedicated to outreach and education. Agency staffers are particularly focused on “folks who might not have the expensive tax attorney who can help them navigate the full benefits of the IRA,” explains Shannen Maxwell, policy advisor in the IRA Program Office. The team is also working with consumers, labor organizations, state and local governments, houses of worship, and other tax-exempt entities that are interested in making use of the benefits. “We’re really trying to get into communities and help them to understand how the IRA can make a difference in their lives.”
I am a college student. What’s my role in all this?
Many schools have living lab opportunities where students play an active role in research for campus sustainability initiatives, from measuring transportation emissions to helping craft policy to performing energy audits. These projects can play a role in how a school moves forward with its climate action plan and the IRA.
Maxwell’s team is regularly running campus presentations these days to help spread the word. “We’re speaking with students whenever possible,” she says.
Some students are getting involved through environmental clubs and are putting their climate activism skills to the test by meeting with administrators. “Students have played a role in generating momentum and pushing universities to take action,” Maxwell says. That momentum has driven many universities to make clean energy investments and spurred IRA credit uptake.
With more and more schools pledging to go carbon-neutral, the IRA offers a real chance for them to put those words into action—and to place their students’ futures first.
