Inflation Reduction Act Environmental Fraud

Inflation Reduction Act environmental fraud occurs when contractors or businesses misrepresent their compliance with IRA programs to unlawfully obtain grants, tax credits, or other financial benefits. The IRA incentivizes businesses to become more environmentally responsible. By doing so, it unfortunately also creates incentives for unscrupulous businesses to engage in “greenwashing” – pretending to be better for the environment than they are. The law provides incentives for renewable energy installations, electric vehicle manufacturing, carbon capture technologies, and other sustainable initiatives. Unfortunately, some actors attempt to manipulate these programs by falsifying information about project eligibility, inflating costs, or evading required environmental standards.

Fraudulent activities under the IRA often include falsifying emissions data, misrepresenting the origin or compliance of materials, and claiming tax credits for incomplete or ineligible projects. For example, contractors may overstate the environmental benefits of their projects of the amount by which they’ve reduced emissions to appear eligible for funding or incentives. The IRA includes provisions for increased credits/deductions if businesses meet requirements to prevailing wage and apprenticeship requirements; some businesses may falsely claim compliance with these requirements. All of these schemes divert funds away from legitimate projects and can lead to substandard work, delaying progress on critical climate goals.

Fraud under the Inflation Reduction Act has significant consequences for taxpayers, businesses, and the environment. When government funds are misused, it undermines public trust in climate programs and hinders the country’s ability to tackle climate change effectively. Taxpayer dollars intended for innovative and impactful projects are instead funneled into fraudulent schemes, diminishing the program’s overall impact. This can result in delayed progress on emissions reductions or even exacerbate environmental damage.

Additionally, trade and labor violations associated with IRA programs harm American workers and businesses. For example, the IRA provides funding designed to support domestic manufacturing and job creation. Fraudulent companies that misrepresent their use of American-made materials or their adherence to labor standards gain an unfair advantage over honest competitors, undermining fair competition and economic growth.

The U.S. government has made clear that it is committed to safeguarding the integrity of the Inflation Reduction Act programs and holding bad actors accountable. Federal agencies, including the Offices of the Inspectors General for the Environmental Protection Agency (EPA) and Department of Energy (DOE), Securities and Exchange Commission (SEC), and Internal Revenue Service (IRS), have already begun intensifying oversight and enforcement efforts to identify and prosecute fraud under the IRA.

Since the IRA is relatively new, enforcement cases related to it have not yet become public. However, government enforcement of other environmental fraud, such as fraud involving carbon credits, and fraud on government contracts, such as procurement fraud, show what to expect from IRA fraud enforcement.

Whistleblowers play a critical role in exposing fraud under the Inflation Reduction Act. With insider knowledge of fraudulent practices, whistleblowers help federal agencies identify schemes that might otherwise go undetected. Many cases of IRA fraud constitute violations of the False Claims Act (FCA), which allows the government to recover three times the damages caused by fraud, plus additional penalties. Whistleblowers who report fraud under the FCA may be eligible for financial rewards ranging from 15% to 30% of the government’s recovery. In addition to the False Claims Act, whistleblowers can report IRA-related fraud through other programs. Fraudulent claims involving tax credits, for example, can often be addressed through the IRS Whistleblower Program, which provides rewards for reporting tax fraud. Similarly, misrepresentations involving environmental, social, and governance (ESG) disclosures may fall under the jurisdiction of the SEC Whistleblower Program, particularly if companies mislead investors about their compliance with IRA programs.