Treasury finalizes wage, apprenticeship rules for clean energy jobs

The Treasury Department and the Internal Revenue Service released prevailing wage and registered apprenticeship requirements Tuesday for clean energy projects and jobs to qualify for tax credits under the Inflation Reduction Act.

The rules represent the first time the federal government has ever offered tax breaks for paying prevailing wages, hiring registered apprentices and using project labor agreements. If employers pay prevailing  wages to laborers and mechanics and hire registered apprentices for projects supported by most  of the Inflation Reduction Act’s clean energy tax incentives, then they can claim a larger tax credit equal to five times the base incentive for the credit. That applies to projects claiming the investment and production tax credits for financing utility-scale wind, solar, and battery storage projects, along with tax credits for carbon capture, utilization and storage, and clean hydrogen projects.

“The law takes a government enabled but private sector led approach with an unprecedented 10 plus years of clean energy tax credits,” said John Podesta, senior advisor to the President for international climate policy, during a press conference. “That approach is working. Since President Biden took office, private companies have announced more than $410 billion in new clean energy investments in nearly every state in America. But the Inflation Reduction Act doesn’t just build more clean energy, it’s building it the right way. Woven into the fabric of those tax credits are game-changing incentives for companies to create good-paying union jobs. When developers pay prevailing wages and hire registered apprentices, they get five times the value of the credit. No developer will leave that money on the table.”

The Treasury and the IRS are releasing final rules for the IRS prevailing wage and registered apprenticeship requirements to give clarity and certainty to developers and the workers they employ for clean energy jobs. The final rules require that determinations of prevailing wage rates be made by the Department of Labor, consistent with  the Davis-Bacon Act. They incentivize practices to encourage contemporaneous compliance and implement strong recordkeeping requirements. The final rules guarantee that taxpayers with projects covered by qualifying project labor agreements don’t need to pay penalties. They also clarify apprenticeship requirements such as clearly defining what constitutes as a request for qualified apprentices, what constitutes as a response, and when the good faith effort exception applies.

“The Inflation Reduction Act’s prevailing wage and apprenticeship provisions are key to making sure the clean energy jobs are good-paying jobs and that American workers have pathways to them,” said Treasury Secretary Janet Yellen. “Since the Inflation Reduction Act was passed, we’ve seen hundreds of billions of dollars in private sector investments. To achieve our climate and economic goals and meet this private sector demand, we need skilled carpenters, electricians and construction workers, among others.”

She noted that prevailing wage and apprenticeship requirements have existed for over 100 years and have long applied to projects supported by federal contracts, but for the first time the Inflation Reduction Act has applied prevailing wage and registered apprenticeship requirements to clean energy tax incentives. “This is a major step to put American workers at the center of the clean energy economy,” said Yellen. “It will help to attract and strengthen a skilled workforce in partnership with our nation’s labor unions and private sector companies, and it will help make sure this workforce is well paid.”

The Treasury made a priority of providing initial guidance on worker protections only months after the IRA passed in 2022, she added. The final rules provide employers and workers with more clarity, such as on what’s required for recordkeeping and incentivize employers to adopt worker-friendly practices such as project labor agreements. IRS Commissioner Danny Werfel committed to providing strong enforcement in this area, according to Yellen, and is releasing informational materials, along with the final rules, so companies adhere to them, and workers get the pay and opportunities they deserve. 

“All of this is key to our strategy to support people and places where potential exists, but opportunity often hasn’t,” she added. “And it seems to be working. Treasury Department analysis shows that since the Inflation Reduction Act was passed, investments in the clean energy economy are going disproportionately to counties with higher unemployment rates and lower college graduation rates. Workers on these projects will be able to benefit from better pay and new opportunities, thanks to the prevailing wage and apprenticeship provisions now supported by the final rules released today. The American economy is more productive when all Americans and communities can realize their full potential. And the Inflation Reduction Act’s incentives are working in concert to help make that happen.”

The Department of Labor worked closely with the Treasury and other parts of the Biden administration on the new rules, as well as labor unions. “You can see the Department of Labor’s work in today’s announcement,” said Acting Secretary of Labor Julie Su. “By incentivizing the use of registered apprenticeships, prevailing wages and project labor agreements in President Biden’s signature piece of legislation, we’re delivering on his promise to be the most pro worker, pro union administration this country has ever seen. First, with registered apprenticeships, these are the gold standard for making sure workers, especially people who have been left out of good opportunities in the past, can connect to good, in demand jobs in their communities. Second, project labor agreements make sure that projects are done on time, safely on budget, and sometimes under budget. And they’re done with union contracts, union wages and with highly skilled workers. Third, prevailing wage rules provide a wage floor for the workers who will be taking on the jobs in this growing sector.”

“Since the passage of the inflation Reduction Act, we’ve worked diligently to put this rule together.,” said Sean McGarvey, president of North America’s Building Trades Unions. “This has been a 25-year crusade for us.”

Underlying the rules are lucrative tax credits to incentivize employers to adhere to the wage and apprenticeship requirements. 

“This tax bonus is the first time ever the federal government is providing a tax benefit for paying prevailing wages and hiring registered apprentices and using project labor agreements, marking another important chapter in President Biden’s agenda to invest in American workers and our clean energy future,” said National Economic Advisor Lael Brainard, director of the National Economic Council. “This fivefold tax credit for paying prevailing wages and hiring registered apprentices is a win, win, win, good for workers, good for investors and good for our clean energy future. We know paying fair and competitive prevailing wages helps attract and retain high-quality workers. We know proven ‘learn as you earn’ registered apprenticeships builds strong and diverse pipelines of workers for the green energy economy, giving Americans alternative pathways to family sustained careers that don’t require a four-year college degree. And we know proven best practices like project labor agreements help deliver projects on time and on budget by securing a reliable supply of high-skilled and trained workers to tackle large, complex, clean energy construction projects. These tax incentives put American workers at the center of the clean energy transition and provide opportunities for workers in the historic energy communities that have powered our nation for generations.”