Two States Are Ramping Up Clean Energy Incentives. That Was the Inflation Reduction Act’s Point

Colorado passed new laws offering state tax credits for adopting clean energy technologies to add to existing federal ones. Minnesota is set to pass similar legislation.

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Workers install solar panels on the roof of an apartment complex in Colorado. Credit: Marty Caivano/Digital First Media/Boulder Daily Camera via Getty Images
Workers install solar panels on the roof of an apartment complex in Colorado. Credit: Marty Caivano/Digital First Media/Boulder Daily Camera via Getty Images

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Two states are set to significantly ramp up the financial incentives to adopt renewable energy and electric vehicles under new laws that mimic federal clean energy tax credits provided under the Inflation Reduction Act. It’s a sign that the Democrats’ marquee climate law is doing what its authors intended: spur additional public and private investments to speed up the nation’s clean energy transition.

On Tuesday, Minnesota lawmakers agreed on a $2 billion budget bill that dedicates hundreds of millions of dollars to cutting greenhouse gas emissions, including through tax rebates that incentivize the adoption of solar power systems, electric home appliances and electric vehicles. The bill is now expected to pass the Democrat-controlled state legislature and get signed into law by Gov. Tim Walz—also a Democrat.

Minnesota follows in the footsteps of Colorado, where Democratic Gov. Jared Polis signed a series of bills last week that allocate as much as $120 million in state tax credits for heat pumps, electric vehicles and even electric lawn equipment, like lawn mowers and leaf blowers.

That means that residents in Minnesota and Colorado who end up installing solar panels on their homes, renovating their offices with energy-efficient heat pumps or buying new electric vehicles could soon claim credits from both their state and the federal government, greatly reducing the cost of those clean energy technologies. Some of those tax breaks will also stack on top of existing state credits.

The Minnesota bill will also help to spur private developers “that have projects that could access federal funding and just need a little boost to make sure that they’re fully competitive,” Justin Fay, a policy strategist with the clean energy advocacy group Fresh Energy, told Minnesota Public Radio.

Once passed, Fray said, that legislation will earmark more than $30 million to place solar panels on schools and other public buildings, $16 million for electric vehicle rebates, $13 million for electric school buses, $13 million for grants and rebates to install electric heat pumps in homes, $6.5 million to install electric panels that allow homeowners to add electric stoves and other appliances and $20 million for the state’s green bank. Green banks specialize in leveraging a relatively small amount of public investment in clean energy to spur broader buy in from private investors.

Colorado’s suite of bills, while similar to Minnesota’s, are geared more specifically toward direct consumers. Those laws allow Colorado residents to tap new state-level tax credits, including up to $7,500 for anyone buying a qualified electric vehicle, up to $450 on qualified electric bicycles and between $500 and $3,000 for various electric heat pumps.

Democrats had always expected states to do the heavy lifting for the implementation of the Inflation Reduction Act. That’s why analysts have given widely varying estimates for exactly how much federal money that law will inject into clean energy projects—from $369 billion to $800 billion, to as high as $1.2 trillion.

“Though the legislation is transformative, the IRA is not sufficient on its own to achieve the promise of rapid emissions reductions in the electricity sector. State action is also essential,” Mike O’Boyle, electricity director for the nonprofit think tank Energy Innovation, said during a webinar back in December. “Whether the utilities are compelled to invest in clean energy resources that are now extremely cheap depends on state policy, particularly the legislation and regulation to which utilities are subject.”

Not only do state lawmakers have the power to direct utilities to reduce their carbon emissions through legislation, O’Boyle said, but state regulators and governors have the power to direct energy providers to more aggressively pursue renewables through executive orders and energy procurement plans, among other tools.

Earlier this month, for example, New York lawmakers passed a law that directs the New York Power Authority—one of the nation’s largest public power authorities—to plan, construct and operate renewable energy projects that would meet the state’s renewable energy goals. And clean energy advocates in Michigan are pushing their state legislature to raise a cap on how much utility customers can save on their energy bills when using private solar systems—a limit that they say can make home solar systems unattractive to residents, even with tax incentives.

Still, the laws in Minnesota and Colorado stand out because they create actual funding pools that give teeth to the states’ climate goals.

“These exciting money savings … for Coloradans mean reliable, lower energy costs and good-paying  jobs, as we continue to fuel the innovation that makes Colorado a national leader in clean energy,” Colorado Gov. Polis said in a press release last week. “We are cutting red tape, creating good paying jobs and improving air quality as we continue to make bold progress towards achieving 100 percent renewable energy by 2040.”

Corrections: A previous version of this newsletter misspelled the name of Justin Fay of Fresh Energy. It also incorrectly priced some of the tax credits offered by Colorado for clean energy purchases. Colorado residents can earn up to $7,500 for buying a qualified electric vehicle and up to $450 for qualified electric bicycles.

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