The IRA’s Labor Provisions Look Like They’re Working

Two years in, union leaders say Biden’s big climate law is making a difference.

This article was originally published on Heatmap.

By Emily Pontecorvo | Aug 15, 2024

The Inflation Reduction Act is by far the most important climate law ever passed in the U.S. But it also may go down as one of the most important labor laws of recent history. Overnight, jobs installing solar farms that were largely performed by an itinerant, low-wage workforce had the potential to become higher-paid positions occupied by skilled tradespeople — maybe even union jobs.

That’s because in order to qualify for a 30% tax credit on their investment or operating costs, clean energy developers now have to follow two key labor standards. They have to pay construction workers the federally determined prevailing wage for their region, plus hire a designated number of apprentices, who are provided with paid classroom instruction in addition to on-the-job-training.

“I don’t think people have a sense of the scale and the scope of what this law has done and is going to do,” Rick Levy, the president of the Texas AFL-CIO, told me. “From our perspective, putting community well-being and labor standards in the very fabric of this industrial expansion is going to pay dividends for generations.”

On the eve of the IRA’s two-year anniversary, a new report provided exclusively to Heatmap has identified 6,285 utility-scale clean energy projects planned, under construction, or already operating, that are likely candidates for these tax credits. Together, they represent an estimated 3.9 million jobs, according to the Climate Jobs National Resource Center, a nonprofit that supports unions fighting for worker-centered climate action, which compiled the data.

There’s no way to know, at least right now, how many of the projects still in progress will actually get built, or how many have or will adhere to labor standards. Safe harbor provisions in the law also allow developers to claim the full tax credit without adhering to the rules as long as they started construction by the end of January 2023, so the full effect of the provisions will take some time to be realized.

But the report reveals the vast potential for the law to create higher-quality jobs in clean energy all over the country. Based on my reporting, that potential is starting to materialize. Union leaders told me they’re now having conversations with developers who never returned their calls before. And renewable energy developers and tax credit consultants told me it was a no-brainer to meet the labor standards, even though they create substantial administrative burdens. Otherwise, they’ll only be eligible for a 6% credit, leaving a huge amount of money on the table.

“The lawyers are scaring everyone about this”

Mike Fishman, the executive director of the Climate Jobs National Resource Center, told me that when he first started advocating for high-road climate jobs, he found that many trades workers were afraid of clean energy. “If they had a good job in the fossil fuel industry, then saying, we’re going to reach these goals and shut down all the fossil fuel plants, that was very scary to people.” But since the IRA passed, he’s seen a change in workers’ attitudes about supporting climate action. “It creates a sense that there’s a future for everyone — an economic future, as well as a climate future,” Fishman said.

The IRA’s potential to spur well-paid jobs and training opportunities is actually even larger than the Resource Center’s estimate indicates. The report only covers clean energy generation projects like wind and solar farms, but the law also tied labor standards to tax credits for the construction of clean energy manufacturing plants, EV chargers, carbon capture projects, hydrogen plants, clean fuel factories, and new, energy-efficient buildings.

The standards are likely to affect each of these industries in different ways, but it’s instructive to look at what’s already happening in renewable energy development. To do so, you first have to understand that developers sit near the top of a ladder of companies involved in bringing an energy project into the world. Above them sits investors; below, a series of contractors and subcontractors who manage the project on the ground and hire the workers who ultimately build it.

Before the IRA, everyone along this ladder had an incentive to keep costs as low as possible. At the top, developers are competing for power contracts with utilities. Contractors would try to win bids by quoting the lowest construction costs. Staffing agencies would source temporary workers from all over the country and negotiate wages and benefits on a case by case basis. An investigation into solar work by Vice found that it was “common to have two workers doing the same job for vastly different pay and living stipends.” Some would travel to a new place for a gig and “pile into motel rooms with other workers on the same projects in order to save money.”

The IRA disrupts that incentive structure, creating a new regime whereby the top priority is getting that 30% tax credit. The law also extended the ladder, creating new rungs of accountability thanks to new tax credit transferability rules that allow developers to sell their tax credits to third parties. That means there are a host of other companies looming over developers’ shoulders with a stake in making sure they don’t cheat the rules. Tax credit buyers don’t want to end up in a situation where the IRS audits the developer who sold them the credits, finds that there weren’t enough apprentices on the project, and claws back the money. The risk is serious enough that buyers also purchase insurance for these transactions, adding another layer of oversight.

“The lawyers are scaring everyone about this,” Derek Silverman, the co-founder and chief product officer of Basis Climate, a startup that matches tax credit buyers and sellers, told me. For example, the law contains a loophole for companies to claim the credit without hiring the required number of apprentices as long as they show they made a “good faith effort.” Treasury defines that as having reached out to at least one registered apprenticeship program in the area every year the project is operating. Silverman said he’s seen lawyers challenge companies that are trying to get around the requirement, asking them who they reached out to and berating them if it wasn’t a legitimate effort.

“They’re saying, you have a huge part of your capital stack that’s based off this tax credit,” said Silverman. “It’s not worth the downside of the government questioning through an audit that you didn’t meet these requirements, and then, boom, you owe them $20 million when it would have cost you $100,000 to do the documentation and get that all square.”

The upside is valuable enough that it’s generated a whole new cottage industry in tax credit compliance. Empact Technologies, for example, is a software company that collects and evaluates payroll data from contractors to make sure they are paying the correct wages and have the right number of apprentices. “Then we have to go back and essentially fix all of the mistakes that they made every single week” — like classifying workers incorrectly and paying them the wrong amount, or falling behind on apprenticeship hours — “which every single contractor does. It’s insane,” Charles Dauber, Empact’s founder, told me.

All of this has added much complexity — and cost — to renewable energy development. David Yaros, who co-leads Deloitte’s US Tax Sustainability Practice, told me that the cost of compliance, including hiring companies like Empact and Deloitte to compile all the documentation, could eat into 5% to 20% of the tax benefits.

“This has raised our costs,” Rodrigo Inurreta Acero, a government affairs manager at the international developer EDP Renewables, confirmed, referring specifically to the added cost of consultants rather than the mostly negligible cost of paying prevailing wages. “But, we are very, very happy to comply with this, because the juice is worth the squeeze.”

Building a union pipeline

There’s clear incentives for developers to do everything in their power to meet the labor standards. The key question is whether these two little provisions — prevailing wage and apprenticeships — are strong enough to “build a strong pipeline of highly-skilled workers” and “ensure clean energy jobs are good-paying jobs,” as the Biden administration has said.

The need is definitely there. A census of U.S. solar jobs in 2022 found that 52% of solar installation and project development companies found it “very difficult” to find qualified workers, with electricians and construction workers being among the most difficult positions to fill.

But even if armies of lawyers are scaring companies into making serious efforts to hire apprentices, that doesn’t mean they are actually finding them. “It’s not clear at this stage whether apprenticeship programs are scaling up fast enough to match labor supply to project demand,” Derrick Flakoll, a policy associate at BloombergNEF told me. He pointed to an announcement made by the White House just last month of $244 million in grants to expand the Registered Apprenticeship system throughout the country. “I’d be skeptical that apprenticeship programs have been able to scale up yet,” said Flakoll.

There’s a catch with the wage requirement, too: “Prevailing wage” doesn’t necessarily mean a living wage, and it can vary dramatically from place to place. The rate is determined by surveys sent out to contractors and labor organizations, and is typically higher in jurisdictions with active labor unions. For example, in Falls County, Texas, where the 640 megawatt Roseland Solar project is under construction, prevailing wage for a general laborer is $8.75 an hour. In Sangamon County, Illinois, where the 800 megawatt Black Diamond Solar project is being built, prevailing wage for a laborer is $34.04 an hour plus benefits worth $29.26 an hour.

Nico Ries, the lead organizer for the Green Workers Alliance, which organizes solar and wind workers, told me solar wages seem to have only increased in places with higher union density. That’s because unions are now on a more even playing-field to compete for jobs in those areas, since their typical rates have become the de facto minimum.

To be clear, the prevailing wage and apprenticeship provisions do not require developers to hire union workers to build their projects. And there are plenty of non-union, registered apprenticeships. Ries told me that the temp staffing agencies that have served the solar industry in the past are quickly standing up apprenticeship programs to stay on top of the market under the IRA. The main problem with that, they said, is that unlike union apprentices, these workers have no representation.

“There’s a lot of misinformation,” Ries said. “People think they are joining an apprenticeship and it’s going to be a whole thing, but it’s really just a little training or two, and then they slap a sticker on your hard hat.”

Nonetheless, unions are starting to make inroads in solar in places that have long been hostile to organized labor. Ethan Link, the assistant business manager for the Southeast Laborers’ District Council, which has members in right-to-work states throughout the south, told me that before and after the IRA was like “night and day.” For the first time, solar developers are calling the union directly to talk about projects on the horizon and to figure out how to work with them. As a result, the union is investing in more solar-specific training for its apprenticeship instructors.

“The Inflation Reduction Act is one of the most consequential and, I think, also most innovative ways of inducing the market to have broad based benefits for the community,” Link said. “The way I’ve experienced it, it’s changed the landscape on the ground with these developers within a matter of months, rather than a matter of years.” He said they don’t yet have a lot of workers actually assigned to projects, but “we’re really optimistic about where things sit right now.”

Kent Miller, president of the Wisconsin Laborers’ District Council, told me his union has been able to double its apprenticeship program from around 300 to 400 students a few years ago to closer to 700 to 800 post-IRA. It’s now looking to build another training campus to expand its capacity. Not all of that growth is thanks to renewable energy, he said, but the union now has a significant portion of its membership that just works in utility-scale solar.

Earlier this year, Wisconsin’s four biggest electric utilities pledged to employ local, union labor on all future renewable energy projects. Miller doesn’t think this would have happened without the incentives in the IRA. Though every wind farm in Wisconsin has been built by union labor, the more nascent solar industry was starting to bring in non-union workers from out of state to build projects. The IRA incentives gave Miller’s union leverage in negotiations with the utilities, because future projects were going to need to be able to find registered apprentices. “Unions run the best registered apprenticeship programs,” he said. “It was showing what we could do, what we could bring to the table.”

There is one more small but potentially powerful incentive for developers to work with unions. The Internal Revenue Service has said that if companies sign a project labor agreement — an agreement with one or more unions, made prior to hiring, that establishes wages and benefits — then they are less likely to be audited, and won’t have to pay penalties if they are found to be non-compliant.

A post-post-industrial future

To Levy, of the AFL-CIO in Texas, and others in the labor movement, getting workers to support clean energy is essential to tackling climate change. “Unless workers see themselves and their interests reflected in these new energy technologies, there’s never going to be the kind of political support that we need to be able to do the things we need to do to save the planet,” Levy said. The first step to achieve that, he said, is making sure these jobs are “good union jobs.”

The Climate Jobs National Resource Center connected me with Kim Tobias, a union electrician in Maine, as an example of how union jobs can change lives. Tobias used to work in call centers, providing customer service for healthcare software companies, before leaving to join the International Brotherhood of Electrical Workers. She was making $16 an hour in her last call center job after more than 10 years in the field, and was fed up after getting passed over for a promotion. When she started as an electrical apprentice in 2019, she essentially doubled her salary overnight once benefits were taken into account.

Today, in part because of the IRA, but also because of a state law that requires developers to pay prevailing wage on all large renewable projects in Maine, Tobias mainly works on solar projects. The work isn’t always ideal — she told me she once had to commute 75 miles away for a solar job — while she was pregnant, no less. “Then again, a year and a half later, I worked a solar job that was 0.9 miles away from my house. So it’s give and take,” she said.

But Tobias also said she sees potential to create high-quality clean energy jobs beyond solar in Maine, where, she lamented, “people under the age of 30 are leaving in droves.” She noted that an old paper mill in Lincoln, Maine, is being turned into an energy storage site, and the developer has already said it would establish a collective bargaining agreement with the Maine Building and Construction Trades. Illustrating Levy’s point about political support, the union is also now advocating for the construction of a new port to support the offshore wind industry, which would have to be built with union labor under a recent state law.

Even if the IRA’s labor provisions are starting to work, which it seems they are, they contain one significant weakness. The rules only apply to the construction of projects — not to their operations. It’s an improvement to have labor standards for construction jobs. But once they are built, wind and solar farms don't take many people to operate. The federally subsidized clean energy manufacturing plants springing up around the country due to the IRA will create a lot more jobs, but, at least right now, those jobs don’t have to be “good.”

“I think that people need to understand the opportunity here,” said Levy, and make sure that we continue to build on it and not turn back.”

Editor’s note: This story has been updated to clarify the “good faith effort” exception to the apprenticeship provision and that both provisions apply only to construction.