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  • Writer's pictureJosh Veblen

Ten Key Components of the Inflation Reduction Act

Updated: Jan 7

The Inflation Reduction Act (IRA) which passed on July 27, 2022, is expected to reduce greenhouse gas emissions in the U.S. by about 40% by 2030.

How will it accomplish that? Why is that a good thing? And how can that benefit you?

The bill contains several tax incentives to entice states, municipalities organizations, businesses, and consumers to use energy more efficiently and reduce emissions. For example:

1. Developers will receive tax credits for building energy-efficient homes

  • Developers who construct Energy Star-certified housing can receive tax credits of $2,500 for single-family or manufactured homes and $500 for each unit in multi-family buildings.

  • That credit is doubled if the home is certified under the Department of Energy's zero-energy ready home program.

  • Builders also receive a credit of $2,500 for each multifamily unit if prevailing wage requirements are met

2. American manufacturers will benefit by producing clean energy materials

The IRA allocates more than $60 billion to boost clean energy manufacturing within the U.S.

This includes:

  • $30 million in production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing.

  • $10 billion in investment tax credit to build clean technology manufacturing facilities, that produce electric vehicles, wind turbines, and solar panels. 

  • $500 million for the production of heat pumps and critical minerals processing. 

  • $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles.

3. Small businesses receive tax benefits to become more sustainable

Small businesses can get tax deductions of up to $1 per square foot of their business to make their space more energy efficient.

  • They can also receive tax credits to cover up to 30% of the cost to replace fleets of cars and trucks with clean vehicles, as well as incentives to power their businesses with solar.

4. Consumers can save up to 30% of the cost of installing solar + battery storage

The bill includes several tax credits and financial incentives aimed at making clean energy options more accessible for consumers.

  • The bill includes a 30% tax credit for installing solar systems before December 31, 2032. (The credit is reduced to 26% in 2033 and 22% in 2034.)

  • It establishes a two-year 20% additional tax credit for 3.6GW of solar benefiting select low-income residents,

  • This tax credit is available to non-profit organizations

  • And, finally, the bill also covers the costs to interconnect a solar system to the grid—which will greatly help the development of community solar projects

“Americans will have more opportunity for distributed generation like community solar that will cut energy bills for American families, businesses, and the most vulnerable among us.”

Jeff Cramer, CEO of Coalition for Community Solar Access

5. Disadvantaged communities will benefit from increased investment and better air quality

Since disadvantaged communities are disproportionately affected by climate change, the Inflation Reduction Act provides $60 billion to help disadvantaged areas. Specifically, this includes:

  • $3 billion for community-led projects in areas most impacted by pollution and climate change.

  • $315.5 million for air monitoring. (This includes funding for schools and those living near polluting industries.)

  • $281 million for state agencies to transition to zero-emissions buses.

  • $27 billion for the creation of a national “green bank” to help drive investments in clean energy in disadvantaged communities.

  • The reinstatement of the Superfund Tax so polluting industries cover the cost of cleaning up the pollution they create.

  • $1 billion in grants and loans to affordable housing units administered by the Department of Housing and Urban Development to increase energy or water efficiency, improve indoor air quality, and make clean energy/electrification upgrades.

    • The improvements could include insulation, HVAC upgrades, flood-proofing, storm resistance, water-saving changes, and the installation of solar or other renewable energy systems.

6. Homeowners will benefit from $4.5 billion in rebates and additional tax benefits

The Inflation Reduction Act offers households up to $14,000 in rebates to switch over to electric appliances—covering up to 50% of the costs for moderate-income households and 100% of the costs for low-income households. This includes up to:

  • $8,000 for a heat pump

  • $1,750 for a high-efficiency, all-electric heat pump water heater

  • $840 for an electric stove

  • $840 for a high-efficiency all-electric heat pump clothes dryer

  • $9,100 to improve home insulation, breaker boxes, and wiring

An alternative rebate option covers more than 50% of the cost of whole-home energy efficiency retrofits or more than 80% for homes occupied by low- or moderate-income households.

Homeowners who do not participate in either rebate program can still claim a variety of home energy tax credits over the next 10 years.

  • New tax credits will cover 30% of the costs of home improvements that reduce energy leakages, such as energy-efficient windows, doors, insulation, and other weatherization measures.

  • This includes a credit of up to $600 per improvement (for a total of $1,200 per year).

  • A $150 credit is available for home energy audits.

7. Homeowners will benefit from lower electricity and heating bills

According to the U.S. Energy Information Administration, more than 1 in 4 households struggled to pay their energy bills in 2020. Low-income, Black and Latino households generally spend a disproportionally high percentage of their income on energy bills.

In addition to the incentives listed above, consumers who make their homes more energy efficient will also benefit from lower electricity and heating bills. Rewiring America estimates that the rebates and lower energy costs could save households $1,800 a year.

8. Municipalities, schools, businesses, and consumers can transition to zero-emission electric vehicles (EVs)

The transportation sector is the largest contributor to U.S. greenhouse gas emissions—responsible for 27% of all GHG emissions in 2020. This bill will help transition the sector away from fossil fuels by investing billions in zero-emissions transportation:

  • $1 billion is allocated to transition school and transit buses, garbage trucks, and other heavy-duty vehicles to electric vehicles.

  • The Postal Service will receive $3 billion to electrify its fleet of more than 217,000 vehicles.

  • Ports will receive $3 billion to clean up air pollution by installing zero emissions equipment and technology.

  • Consumers will receive a tax credit of $7,500 towards the purchase of a new electric vehicle or up to $4,000 for a used electric vehicle. Some restrictions apply:

    • The tax credit is limited to trucks, vans, and SUVs under $80,000, and other vehicles under $55,000

    • The tax credits is not available for families earning more than $300,000 per year for new vehicles or $150,000 per year for used vehicles.

    • Automakers will be required to move their EV supply chains away from China and to the US and countries where the US has free trade agreements. Also, EVs and EV batteries must be built in North America.

9. Farmers and ranchers will benefit from more sustainable food-production practices

Climate change is already negatively impacting food production. At the same time, some food production practices are impacting climate change. The IRA helps farmers and ranchers transition to more sustainable practices.

  • $20 billion is allocated to help farmers and ranchers shift to sustainable practices like crop rotation and cover crops.

  • $300 million is allocated for research into the climate impact of current and future agricultural practices.

10. And, finally, by reducing the use of fossil fuels the IRA will improve our health

By switching from coal and gas to wind and solar power—and from internal combustion engines to electric cars and trucks—the IRA will dramatically reduce dangerous air pollutants.

  • When combined with state and federal regulatory action, the legislation is expected to cut harmful air pollutants such as sulfur dioxide emissions by 86%- 89% and nitrous oxide emissions by 59% - 63% below 2020 levels by 2030.

  • The bill would also force oil and gas companies to pay fees as high as $1,500 a ton to address excess leaks of methane, a powerful greenhouse gas.

Improvements in air quality resulting from the Act are expected to save approximately 3,900 lives annually by 2030 according to Energy Innovation.

  • Since harmful air pollution disproportionately affects communities of color, pollution-related deaths would decline by a greater percentage in those communities.

  • Reduced air pollution is also expected to prevent up to 100,000 asthma attacks annually by 2030.

  • It will help reduce heart attacks, lower emergency room visits and reduce hospital admissions.

In conclusion

The U.S. had not taken the significant action required to reduce its emissions prior to the Inflation Reduction Act. In fact, U.S. greenhouse emissions increased by 6.2% in 2021. This new legislation represents the single-largest investment in climate action in the U.S. and is expected to reduce the nation's greenhouse emissions by 40% by 2030.

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