Using Smart Policy Design to Reap Funding’s Full Rewards
A shorter version of this piece was first published in Penn IUR’s Expert Voices 2023: Landmark Legislation, New Opportunities on January 19, 2023. It is reprinted with their permission.
The Inflation Reduction Act and the Infrastructure Investment and Jobs Act (the common addition of “Bipartisan” to the latter is worth avoiding since the process of breaking the contents into two bills and omitting altogether much of the original proposal belies any meaningful bipartisanship) are two of the best designed and therefore potentially most impactful pieces of federal legislation since the 1990 amendments to the Clean Air Act and perhaps in since Medicare and Medicaid Act of 1965.
Good policy design derives from identifying solution mechanisms that can be well-matched to public problems. Both the IRA and the IIJA do this for a large set of interrelated problems, and I will focus here on just one design idea: how the IRA provides households with certainty over a long horizon for energy decisions they make, which in turn will help determine the U.S. role in mitigating climate change.
The consumer tax credits for purchases in energy production, like solar panels, and energy consumption, like induction cooktops, are guaranteed in the IRA for ten years. This ten-year planning horizon is applied to a broad set of potential purchases from constantly changing technologies that optimize differently for different households. The certainty of the ten years of tax credits helps households overcome the complexity and make home upgrades at a more familiar pace.
Over $40 billion in mostly refundable tax credits are made available to U.S. consumers for purchases of electric vehicles, energy-efficient appliances, rooftop solar panels, energy storage, geothermal, insulation and sealing, and more powerful home electrical equipment. Households can make these changes in any order and at any pace over the decade guaranteed by the IRA. The policy design aligns the investment horizon and options with decision-making in a way that best suits the needs and means of varied households.
To take full advantage of these opportunities, cities will need to engage in some smart policy design of their own. A key mechanism of policy design, especially at the local level where the rubber meets the road, is ensuring that actually solving a problem is actually someone’s job.
Over the past fifty years or so, we have learned the important role played by intermediaries in the sectors such as affordable housing and community health, and early childhood. These institutions get up every day with a mission to solve a problem and, if they are lucky, with access to a resource base sufficient to meet their mission. The IRA and IIJA provide such a resource base and cities need to make sure it is someone’s job to accelerate the clean energy transition by acquiring and leveraging those funds. Many of the energy provisions of the IIJA have community-scale funding opportunities, for example.
The Philadelphia Energy Authority is one example of a local intermediary designed to support a local energy transition. Created during the Nutter Administration, the Authority has an extraordinary board and staff led by Emily Schapira, the founding executive director and now President & CEO. Within a mission-driven frame, the Authority has innovated continuously and developed new programs over the past decade.
A number of U.S. cities are fortunate to have agencies and/or authorities that have developed significant organizational capacity from promulgating sustainability and climate plans and creating programs to meet goals and targets. This capacity will serve these cities well as resources begin to flow from the IRA and IIJA.
I was the City of Philadelphia’s chief recovery officer during the Obama/Biden stimulus spending, which the then-Vice President personally directed. I recognize much of the “shovel-ready” tempo from ARRA in the recent legislation. Cities that started then will be best positioned now to make use of the largest flow of federal support in a generation.