Billions of dollars are at stake over a little known provision in President Biden’s signature climate legislation. The bill made headlines for providing more than $369 billion in investments, loans and tax credits to boost new decarbonizing and clean energy technologies. But making progress on these energy projects rests on a crucial but little-discussed provision — the speed at which the federal government can approve new apprenticeships.
The Inflation Reduction Act (IRA) extends production and investment tax credits to incentivize the buildout of new energy projects. But several of these credits offer a bonus for projects that comply with the federal prevailing wage provisions of the Davis-Bacon Act and also ensure a portion of the total labor hours are performed by registered apprentices. For example, the maximum tax credit for carbon capture and sequestering projects jumps from $50 per metric ton to $85, but only if companies meet these labor requirements. Wind, geothermal, gas or solar projects meeting these tests can receive a tax credit five times larger than those that do not.
These new financial incentives will create a surge in demand for a form of workforce development that combines paid on-the-job experience with formal education to help a worker acquire the specific skills and knowledge needed for better paying jobs. Since apprenticeship programs are driven by employer demand, there is a tighter connection between the credentials earned and what employers need. What began primarily as a training model for trades has since expanded to a range of industries, including health care, financial services and technology.
While the IRA created new demand for apprenticeships, it did little to address the supply. The looming question is whether the U.S. Department of Labor can quickly approve enough programs in the occupations and regions hosting these new energy projects. Any bottleneck could threaten to delay the start of these projects or substantially lessen the financial incentive.
Launching new apprenticeship programs can be difficult. An Aspen Institute survey found that the process of developing a program and registering it was complex and time consuming. Sate approval processes can also be cumbersome. New York’s, for example, is so restrictive that it takes months to complete and has resulted in the state having fewer apprenticeships than Indiana.
New innovators are making it easier for companies to quickly stand up high-quality programs. Multiverse, co-founded by Euan Blair, son of former U.K. Prime Minister Tony Blair, serves as a platform that trains workers in apprenticeship programs and matches them with employers. Besides helping simplify the logistics of administering a program, the company also helps to diversify the talent pipeline. More than 50 percent of Multiverse’s apprenticeship talent pool are people of color, and 57 percent are women.
Costs are also a barrier to widespread adoption. An Obama administration analysis found it could cost anywhere from $25,000 to $250,000 per apprentice, not including start-up costs. Since the IRA does not provide funding for apprentice programs, the costs will fall almost entirely on employers.
Fortunately, efforts such as the American Apprenticeship Initiative have demonstrated that it is possible for employers to ramp up programs at a cost of about $4,000 per apprentice. State policymakers also can help. South Carolina’s Apprenticeship Carolina has increased the number of apprenticeship programs tenfold over the past two decades by leveraging state tax credits to make the programs more affordable and offering technical assistance to make it easier for employers to establish them.
There is also a risk of a mismatch between the location of approved apprenticeship programs and where the IRA demand will be. Western states are well positioned to launch solar and wind projects but have some of the lowest number of approved apprenticeship programs. Wyoming, for example, has only 88 programs, compared to Virginia’s 2,800. Governors in these states will need to quickly establish programs to better position their state to receive these investments, projects and corresponding jobs.
Some of these hurdles are self-inflicted. The Biden administration chose not to build on an existing program set up by the Trump administration, called the Industry-Recognized Apprenticeship Program, which preserved many of the strengths of the registered apprenticeship model while offering additional flexibility and a faster path to setting up a program. Instead of leveraging this structure to support the new jobs and industries supported by the IRA, the Biden administration announced they will end it because of concerns around quality.
The IRA’s new tax incentives create a massive demand for apprenticeships, which should be celebrated. However, federal and state policymakers must act quickly to set up those apprenticeship programs so there are no delays in building out the new climate projects ushered in by the IRA.
John Bailey is a nonresident senior fellow at the American Enterprise Institute and a former White House domestic policy adviser. He works with government, philanthropy and the private sector on issues including technology, the future of work, and economic mobility. Follow him on Twitter @John_Bailey.