The U.S. health care sector contributes 8.5 percent1 of the total greenhouse gas emissions in the country and approximately 25 percent of global health care emissions. Given the myriad ways climate change potentially threatens the health of patients,2 many hospitals and health care systems are working to reduce their emissions — halving them by 2030 and reaching net zero by 2050.3 But the costs of making sustainable decisions, including making changes to energy or infrastructure upgrades, have slowed some progress.
The Inflation Reduction Act (IRA),4 signed into law in August 2022, included $369 billion5 in a combination of financial incentives for investments that ultimately may help to reduce pollution, expand clean energy production, and address health inequities with bonus credits for investments located in low-income communities and other census tracts. For the largely nonprofit health sector, the IRA creates opportunities for health care organizations to work toward a zero-emissions future.6 While previous incentives were inaccessible or harder to access by tax-exempt entities, the IRA opens the door for nonprofits through “direct-pay” provisions that provide federal funds as a payment for eligible entities that don’t pay taxes. These tax benefits help fund investments that can strengthen organizational resiliency by making health care organizations better able to prepare for, recover from, and adapt to climate events and reduce financial risks7 while cutting down on greenhouse gas emissions.
The IRA provides tax credits for three key areas relevant to health systems that are seeking to reduce emissions:
- Transportation efficiency8: Limit transportation-related emissions via adoption of alternative fuel vehicles (e.g., electric or hybrid) and increasing accessibility to alternative refueling options.
- Energy efficiency9: Designing infrastructure and facilities to optimize for efficiency and introduce green, energy-efficient technology into operations.
- Renewable energy10: Powering operations through renewable energy sources, such as solar or wind, through on-site energy generation.
Health systems can consider specific funding provisions within the IRA that make it more affordable to make progress on these efforts.
Qualified Commercial Clean Vehicle Credit
Health care organizations that rely on vehicle fleets (e.g., for patient transportation, delivery of medical supplies, mobile care units, or home health care services) can lower the total cost of ownership through the section 45W Qualified Commercial Clean Vehicle Credit.11 The credit incentivizes fleet decarbonization (i.e., the introduction of electric and hybrid vehicles) and can be used to lower the total cost of ownership. Specifically, the credit provides a tax credit of up to $40,000 per vehicle for new purchases of plug-in hybrid or battery electric and fuel cell (hydrogen) vehicles, with certain requirements based on vehicle type and weight but no limits to the number of credits that can be applied.
Alternative Fuel Vehicle Refueling Property Credit
Alternative fuel vehicle refueling properties, such as electric car charging stations, can help health care organizations cut costs by reducing the amount spent on traditional gasoline or diesel fuels. The shift toward alternative fuels and improving access to alternative fuel refueling stations for community members can further lower greenhouse gas emissions, which may result in long-term cost savings and contribute to a cleaner environment for the local community. The section 30C Alternative Fuel Vehicle Refueling Property Credit12 helps health care organizations make the shift to clean transportation and reduces their dependency on fossil fuels. The provision provides a tax credit for 6 percent or 30 percent of the cost (credit capped at $100,000 per property) of refueling and charging stations in eligible locations for alternative fuels such as electricity, hydrogen, and biodiesel.
Energy Efficient Commercial Buildings Deduction
The section 179D Energy Efficient Commercial Buildings Deduction13 can help organizations seeking to improve the energy efficiency of existing commercial buildings, such as retrofitted health care facilities, as well as new construction projects. It provides a tax deduction for energy efficiency improvements of interior lighting systems; heating, cooling, ventilation, and/or hot water; or the building “envelope” — that is, anything that separates the internal building from the external environment, including the roof, doors, windows, floors, and wall.
Energy Investment Tax Credit (ITC)
Renewable energy can reduce dependency on traditional power sources, dramatically increasing the resilience of health care facilities in the face of climate-related risks while lowering costs during peak usage times and cutting emissions. For areas that are already facing the effects of climate change, such as California, Louisiana, and other coastal areas with frequent power outages, flooding, or wildfires, it is even more important to pivot to more sustainable sources of energy. The section 48 Business Energy ITC14 can help health care organizations reduce their energy procurement costs. The credit ranges from 6 percent to 70 percent of the upfront cost of a “qualifying energy property,” such as solar and wind electricity generation and standalone battery storage projects.
Renewable Energy Production Tax Credit (PTC)
Renewable energy production can enable health care facilities to return energy to the community. The section 45 Renewable Energy PTC15 is beneficial for health care organizations that generate a portion of their electricity through renewable sources to offset the costs of energy procurement. It provides a 10-year tax credit ranging from 0.3 cents to 1.5 cents per kilowatt-hour (kWh) for electricity generated by renewable energy resources and sold to an unrelated party after a facility is placed in service.
While many of the tax incentives included in the IRA are available into the 2030s, interested health care organizations should consider acting now. Some credits, including those that are part of the Energy ITC and Renewable Energy PTC, will decrease gradually over time, based on factors such as when construction begins16 and whether certain requirements are met. It is critical to organize efforts and internal and external stakeholders as soon as possible.
By taking advantage of these newly available financial incentives, health leaders can advance their decarbonization goals through efficiencies and renewables and achieve greater resilience, savings, and community value.
