States Must Act to Bring IRA Benefits to Communities Most Affected by Climate Change

Two years after the passage of the Inflation Reduction Act (IRA), the law is driving transformation across a range of climate priorities. States have a critical role to play to ensure that the law achieves its full potential to direct IRA benefits to those most impacted by climate change.

For the first time, well-funded programs are dedicated to bringing the health and economic benefits of climate pollution reduction and climate resilience-building to communities across the country. However, evidence is mounting that IRA dollars aren’t reaching the places they’re most needed: communities that experience historic and ongoing discrimination and lack of public investment — including Black and Indigenous communities, other communities of color, and low-income communities — leading to disproportionate climate impacts and fewer resources to respond. 

States have a critical role to play in getting the IRA’s formula funding, competitive grants, financing, and tax credits where they’re needed most. A large share of IRA climate funding flows through state programs (such as the Home Energy Rebate programs), is directly available to states (such as the Climate Pollution Reduction Grant Program), or depends on state-level policies to implement projects it funds (such as Empowering Rural America and Direct Pay).

To equitably and effectively steward IRA dollars, states must:

• build political will and administrative capacity to avoid leaving money on the table; 

• establish and act on priorities that get money where it’s needed most; and 

• use the newly available federal funds to both address urgent issues and focus on the future. 

States should take advantage of the available IRA money and ensure local governments, nonprofits, and households can too. At a minimum, states need to accept IRA formula funds. Iowa, Florida, South Dakota, Wyoming, and Kentucky each turned down $3 million for climate planning, making them ineligible to compete for the $4.6 billion the Environmental Protection Agency is about to award in implementation grants. Some formula grants and many competitive grants are open now; communities will miss out if states don’t take advantage of these funds.

States also need to increase administrative capacity to submit grant applications and monitor new climate funding programs. Policies like the one passed in Virginia this year — which requires the state’s Department of Energy to identify and monitor federal funding that furthers energy efficiency goals — can mandate that state agencies identify and take steps to secure funding opportunities. However, state agencies also need adequate capacity to fulfill such mandates. 

States also play a role in making sure local governments, nonprofits, and households don’t leave money on the table. Many local governments and community-based organizations lack the capacity to conduct even the early-stage work that would help them identify a project eligible for federal funds. These entities need state programs like Michigan’s Justice40 Accelerator to help them take advantage of federal funds the state passes to them (“pass-through funds”), direct pay tax credits, and competitive grant opportunities.

States need to set climate and energy priorities that center communities in which there’s been underinvestment and people who are impacted first and worst by climate change. Because states have so much discretion in how to allocate pass-through funding to projects, they significantly affect which groups and areas reap the IRA’s benefits or may be impacted by its related costs (for example, air pollution created by an IRA-funded carbon capture and storage facility). Clear priorities co-developed with community members like those established through Washington’s 2021 Healthy Environment for All Act let states create goals, carveouts for specific groups, incentives, or requirements that steer program benefits where they’re most needed.

States should use IRA funds to build long-term capacity to equitably transition to a clean energy economy and to adapt to the impacts of climate change. Some IRA programs are designed for this, such as the Neighborhood Access and Equity Grants, which fund long-range resilience- and equity-centered transportation planning. However, states can increase the sustainability of all IRA-funded projects by designing them with future conditions in mind. For example, North Carolina now requires that state infrastructure projects align with the latest science on climate-induced flood impacts. 

IRA funds will also go further if states use them for solutions with a range of benefits across multiple localities, like those the National Oceanic and Atmospheric Administration (NOAA) is funding for its regional climate resilience grants. This approach requires states to incentivize cooperation across local governments and enable regional approaches. One such example is California’s Regional Climate Collaboratives that enable cooperative climate action across jurisdictions and sectors.

The IRA has immense promise for climate action. To maximize its potential, states must not leave available funds on the table, direct money where it’s needed most, support localities and nonprofits to access funds, and build for the future. By effectively leveraging IRA funds and increasing their capacity to administer them, states can help drive long-term resilience, an equitable clean energy transition, and robust climate adaptation, ensuring a healthier and more sustainable future for all.