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September 9, 2022
The Inflation Reduction Act (IRA) (P.L.117-18) includes massive investments to make our homes and vehicles more energy efficient and less reliant on fossil fuels. The expanded focus on beneficial electrification and whole-house efficiency retrofits will cut household energy bills, improve indoor and local air quality, and drive local economic development. This article focuses on modified tax credits and new programs that target end-use energy consumption. The new law also invests billions of dollars in clean energy generation and transmission, which will maximize the climate and economic benefits of these end-use measures.
Highlighted measures from the IRA that promote energy efficiency and beneficial electrification are broken out by sector below. For new programs, important details will not be known until the implementing agencies release and finalize individual rulemakings.
Energy Efficient Home Improvement Credit
The existing tax credits for home efficiency upgrades have been extended through 2032 and significantly upgraded. Heat pumps and heat pump water heaters are now eligible for a 30 percent tax credit capped at $2,000, up from the previous $300 cap. Building envelope and other efficiency improvements are cumulatively capped at $1,200. But these credits can now be used year after year, which is a boon for households doing piecemeal home energy upgrades.
Home Electrification Rebate Program
The IRA establishes the High-Efficiency Electric Home Rebate Program to provide $4.5 billion to state energy offices and tribes to establish rebate programs for residential electrification projects. Participating homes can receive up to $14,000 in rebates, with individual measure caps of:
The program does have income-based limitations. Households with annual income below 80 percent of an area’s median income can receive rebates up to 100 percent of the total electrification project cost. Households that earn 80 to 150 percent of an area’s median income can receive rebates up to half of the total project cost. Additionally, whole building projects for multifamily buildings are eligible as long as half the residents meet similar income qualifications.
HOMES Rebate Program
The Home Owner Managing Energy Savings (HOMES) Rebate Program, created by the IRA, provides $4.3 billion to state energy offices to establish rebate programs for residential efficiency retrofit projects. The program will focus on whole-house efficiency retrofits, with rebates determined by total projected or measured energy savings for the house. Rebates are not based on installing individual end-use applications like in the program above.
Affordable Housing Improvements
The U.S. Department of Housing and Urban Development (HUD) is provided with $1 billion to improve affordable housing, primarily through grants, loans, and loan modifications for “projects that improve energy or water efficiency, enhance indoor air quality or sustainability, implement the use of zero-emission electricity generation, low-emission building materials or processes, energy storage, or building electrification strategies, or address climate resilience, of an eligible property.”
Tribal Electrification Program
This newly-created program will provide $145.5 million to tribal organizations to provide electricity to unelectrified tribal homes through zero-emissions energy systems, as well as for the associated home repairs and retrofitting that are needed to install the systems. Tribal homes that already have electricity are also eligible for renewable energy installations.
Electric Vehicle Tax Credits
The existing $7,500 tax credit for new electric vehicles (EVs) has been expanded and modified. One key change includes narrowing the incentive to only apply for vehicles assembled in North America to promote domestic manufacturing jobs. The reworked tax credit removes the lifetime cap of 200,000 EVs per manufacturer, meaning that EVs from Tesla, GM, and Toyota will once again be eligible for tax credits. For the first time, purchases of a used electric vehicle will be eligible for a $4,000 tax credit. These changes will take effect in 2023 and will be available through 2032.
Alternative Fuel Refueling Property Credit
The Alternative Fuel Refueling Property Credit is renewed through 2032. The credit covers 30 percent of the costs of "qualified alternative fuel vehicle refueling property"—including electric vehicle charging equipment—up to $1,000. The credit was also amended to specifically cover bidirectional charging equipment that allows electric vehicles to send energy back into the grid.
Grants to Reduce Air Pollution at Ports
This new program will provide $3 billion in competitive grants over five years to port authorities and state and local governments with jurisdiction over a port to purchase or install zero-emission equipment or technology for use at one or more ports.
Grants for Clean Heavy-Duty Vehicles
The IRA provides $1 billion for grants and rebates to state and local governments (plus nonprofit school transportation associations) to expand the use of electric and other zero-emission heavy-duty vehicles (Class 6 or 7). This includes the incremental costs of replacing existing heavy-duty vehicles, installing necessary charging infrastructure, and workforce training.
Greenhouse Gas Air Pollution Planning and Implementation Grants
The IRA establishes a new fund to provide $5 billion in grants to states, air pollution control agencies, municipalities, and tribes to develop and implement plans for the reduction of greenhouse gas air pollution. These plans must include programs, policies, measures, or projects that will use the awarded funds to reduce overall emissions. For most if not all recipients, these plans will include efforts to increase the efficiency and electrification of the building and transportation sectors.
Author: John-Michael Cross
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