Tax incentives under the law, also known as the climate act, make up three-quarters of its estimated $369-billion investment in clean energy infrastructure and related initiatives—an estimated $270 billion.

The worker regulations are set to “increase apprenticeship in the clean energy economy ... and insure fair wages,” Acting Labor Secretary Julie Su said in a statement.

Looking at the Fine Print

On a clean energy construction project, craft workers must be paid at rates not less than those deemed by the U.S. Labor Dept. as “prevailing” in a geographic location. The new proposal clarifies that prevailing wage applies to work at the project location and at any secondary worksite. It confirms that work qualifying as construction to earn additional credit includes all types of project manual labor except maintenance, administrative, executive or clerical.

The proposed rule clarifies that a prevailing wage combines the basic hourly wage rate and any fringe benefits under the federal Davis Bacon Act paid to workers in a set classification and geographic area. 

A contractor can ask the Labor Dept. for a supplemental determination if it has no general wage provision for a specific type of job or location, the new guidance says.

If a contractor fails to meet the prevailing wage requirement during any construction, it could still gain the higher tax credit by paying workers back wages plus 6% interest, says Treasury, and a penalty of $5,000 per worker. 

The latter may not apply if the contractor quickly corrects an error within 30 days of becoming aware of it, has a qualifying labor agreement in place or or before it applies for the tax credit. The amount paid to the worker and the penalty is rises if the mistake was intentional, the department proposal says. 

Related to types of workers, 12.5% of total labor hours for projects started in 2023 must be performed by apprentices from a registered program, a figure rising to 15% next year. The ratio of journey-level workers to apprentices must be met each day, with at least one apprentice hired on a site that employs four or more workers. Apprentices must be paid the rate required by the participating apprenticeship program. 

A contractor faces a penalty of $50 for each labor hour required for apprenticeship if the requirement is not met. It is increased to $500 per hour if the failure was intentional, the proposal says.

Exemptions and Opposition

The proposal includes a good faith exception if a contractor is denied requested apprentices from a registered program or if a subcontractor refuses to comply with requirements. Small projects of 1 MW or less may not have to meet the apprentice requirements, says Treasury, which will accept written public comments until the end of October. A public hearing has been scheduled for Nov. 21. 

The tax credit mandates are opposed by the Associated Builders and Contractors, because they will “inflate the cost of clean energy projects, reduce competition from small businesses and artificially exacerbate" the skilled labor shortage, said Ben Brubeck, vice president of regulatory, labor and state affairs. 

The requirements appear to “needlessly incentivize use of anti-competitive and inflationary union-favoring project labor agreements,” he said, although noting that developers are not required to mandate use of the pacts to receive enhanced tax credits.

The labor related rules under the law follow others clarified recently by Treasury that are set to expand the reach of clean energy project funding, observers say. 

They include allowing renewable project owners and developers to sell tax credits for cash "to simplify" project financing, says Rachel Chang, climate policy analyst at the think tank American Progress, and to enable income tax-exempt entities—such as nonprofits, state, local, and tribal governments, publicly owned utilities and rural electric cooperatives—to claim a tax credit equivalent for the first time as a direct payment from the Internal Revenue Service.