The Biden administration finalized rules governing subsidies in its signature climate bill Tuesday that figure to be a major victory for labor unions.

The Internal Revenue Service (IRS) and the Treasury Department finalized prevailing wage and apprenticeship requirements for certain incentives contained in the Inflation Reduction Act (IRA), a massive climate bill that President Joe Biden signed into law in August 2022. While the administration characterizes the rules as a win for blue-collar workers, they will more likely give a significant advantage to labor unions — typically stalwart supporters of the Democratic Party — and drive up costs of IRA-backed projects that are already increasing, according to infrastructure policy experts and industry stakeholders.

“If the Biden administration’s goal is to undermine taxpayer investments in the construction of critical clean energy infrastructure funded by the Inflation Reduction Act, this final rule is a wild success,” Ben Brubeck, the vice president of regulatory, labor and state affairs for the Associated Builders and Contractors (ABC), said of the policies announced Tuesday. “This bold weaponization of the IRS and end-run around Congress in an attempt to steer clean energy construction contracts to unionized labor and contractors — key election-year donors — by incentivizing private developers to require inflationary and exclusionary project labor agreements should be extremely concerning for taxpayers and clean energy advocates.”

 

Specifically, the new rules require private developers of certain IRA-funded projects to abide by project labor agreements (PLAs), as well as pay the prevailing wage and offer apprenticeships to access lucrative IRA tax credits, according to the IRS. Developers could choose to not follow the standards, but doing so would disqualify them from reaping bigger subsidies on the table.

A PLA is effectively a collective bargaining agreement for the construction industry, according to the Department of Labor, while the prevailing wage is “the average wage paid to similarly employed workers in a specific occupation in the area of intended employment,” according to the Labor Department’s Employment and Training Administration.

“Meeting strong labor standards and building partnerships with unions will now be the norm for clean energy projects,” John Podesta, one of the top climate officials in the Biden administration, said of the new rules. “Today’s final rules give clarity and certainty to developers and the workers they employ that clean energy jobs will be good jobs.”

Meanwhile, the Biden administration is also imposing requirements for  IRA-backed green energy projects that employ at least four laborers to also hire one or more registered apprentices to work on job sites in order to get the biggest tax break, according to the IRS. Additionally, those apprentices must put in at least 15% of the total work hours for covered projects that start construction this year and beyond in order to get the maximum subsidy.

“These rules definitely subsidize unionized workers, who are a tiny fraction of the American workforce, which is made up of about 164 million jobs,” Diana Furchtgott-Roth, director of the Heritage Foundation’s Center for Energy, Climate, and Environment, told the Daily Caller News Foundation. “So, a subset of workers get to benefit from additional subsidies, but many others will continue to face more difficulties.”

Critics of the rules point out that most American construction workers are not unionized — ABC estimates that only about 10% were in 2023 — and that these rules will heavily shift the playing field in favor of the small minority of organized laborers, delaying construction and dissuading competitive bids. The rules are also being put in place at a time when the U.S. faces a construction laborer shortage of about 500,000 workers, according to a recent analysis conducted by ABC.

While ABC and several other trade associations involved in construction have been sharply critical of the policies, pro-organized labor groups and labor unions —  including some that are primed to be major supporters of Biden’s reelection bid — have taken the opposite tack.

“One of the greatest promises of the Inflation Reduction Act is that it will create and maintain good-paying, union jobs in the clean economy, while building inclusive pathways into the highest quality training for lifelong careers in construction,” Jason Walsh, president of the BlueGreen Alliance, which has already endorsed Biden’s 2024 campaign, said in a statement. “With this rule we are seeing how that promise will come to fruition.

Neither the IRS nor the Treasury Department responded immediately to requests for comment.