The global impact of the Inflation Reduction Act on the travel industry

The Inflation Reduction Act is one of the most significant pieces of climate legislation in US history. It makes available funding across several industries to deal with pollution and substandard infrastructure and to address the impact of climate change. The Act will introduce hundreds of federal programs and, in doing so, present opportunities for commercial organizations across many sectors, including the travel industry. So how will the Inflation Reduction Act affect the travel industry, and how can companies in the sector ride the wave? 

What the Act says 

For the travel and transportation sectors, the Inflation Reduction Act aims to improve clean transit to help communities that live near transportation corridors. It'll do this by providing funds for clean technology and emission reduction at sea and airports while also providing money to encourage access to affordable transportation. The government will give grants to create new travel infrastructure and support more equitable transportation planning. 

Industry response to the Act 

The World Travel and Tourism Council (WTTC) has broadly welcomed the Act. Its president, Julie Simpson, says it is a "catalyst for meaningful climate action and emissions reduction" and that it will "help accelerate our members' climate commitments with provisions like sustainable aviation fuel credit, energy-efficient buildings deduction and zero emission port equipment and technology investments." The WTTC has already introduced its own "net zero roadmap," encouraging travel and tourism businesses to set baselines and emissions targets, monitor and report progress and collaborate within and across industries. 

Global impact 

In Europe, the EU Green Deal Industrial Plan could mirror the scale of the Inflation Reduction Act in many areas. This legislation may also speed up access to finance for those companies who seek to become more sustainable. The UK is also introducing a "green industrial revolution plan" with R&D investments to help develop zero-emission aircraft and improve airport and seaport infrastructure. The UK will also support the production of sustainable aviation fuels through a separate grant system while establishing the "jet zero council" to help adopt modern technologies across the aviation travel sector. 

What should travel companies do to catch this wave? 

There are several ways that travel companies can benefit from the Inflation Reduction Act, through tax credits, deductions, and loan guarantee programs. 

Sustainable aviation fuel 

One key element of the Act introduces tax credits for the sale and use of sustainable aviation fuel. Airlines will now receive credits of between $1.25 and $1.75 per gallon for sustainable fuel purchases, so long as these purchases lead to an emissions reduction of at least 50%. Therefore, the benefit will depend on how much this fuel improves life-cycle greenhouse gas emissions compared to traditional kerosene jet fuel. 

These credits should be a significant opportunity for companies that produce sustainable aviation fuel, which currently accounts for only 0.1% of global jet fuel production. It's also a chance for airlines to reduce fuel bills while improving their environmental performance. 

Clean technology grants and funding 

Elsewhere, companies in the ports sector can apply for funding to help them introduce clean technologies and move towards zero-emission targets through updated equipment. Travel organisations can also save energy costs by moving further towards "green" buildings. For example, they can introduce more efficient equipment, lighting controllers, furnaces, boilers, air-conditioners, and insulation, among other improvements. When they do so, they can claim a tax deduction, adjusted annually for inflation, of between $.30 and $1.80 per square foot. 

Loan guarantee programs 

The Act will also include a loan guarantee program. Here, companies can introduce state-of-the-art technologies like solar PV, hydroelectric, wind, biomass, ocean thermal, daylighting, or fuel cells (that use renewable fuels). However, recipients will have to repay the loan over no more than 30 years, or 90% of the projected useful life for the financed physical asset. 

How HLB can help 

There have been many travel and hospitality industry challenges over the past few years, and as the sector gets back on its feet, it may well be able to take advantage of incentives through the IRA. But still, it can be challenging to know how to claim these incentives or tax deductions or apply for loan guarantees. 

HLB can help. We have a team of world-class advisers and often work with clients throughout the hospitality and travel sectors. We have an unparalleled knowledge of the industry and tailor all our advice to each specific business. We've also written an insight that focuses on the current state of global tourism and factors shaping the industry in 2022 and beyond. 

Reach out for more information 

Contact an HLB representative today to discuss the impact of the Inflation Reduction Act on your travel industry business.