Inflation Reduction Act Highlights

Here are areas of the Inflation Reduction Act that are of particular importance to the sustainability industry. 

There’s a lot to examine within the Inflation Reduction Act (IRA), and it would take more space than I have here. (For a state-by-state snapshot of its benefits, you can search for your state here.) But rest assured that it has serious implications for the sustainability industry. Let’s look at some of the highlights, as well as its possible flaws.

Electric Vehicles (EVs) Incentives

There are some hefty incentives for EV purchasers. The IRA creates tax credits of up to $7,500 for new, and $4,000 for used, electric vehicle purchases. This comes at a time when the production of EVs is starting to ramp up at nearly all car manufacturers. 

A tax refund of up to $7,500 for electric vehicle purchase is included in the Inflation Reduction Act and could accelerate EV adoptions.

Of course, they have good reason to, after the European Parliament voted to ban combustion engine car and van sales starting in 2035. While that vote came recently, it had been in the works for some time. And you might be wondering, how much of the global car market does the European Union (EU) represent? 

According to theglobaleconomy.com, in 2021 the combined new car sales in Germany (2.6 million) and France (1.65 million) exceeded the United States (3.35 million). Once you add in Italy (1.45 million) and Spain (859,000), the total almost doubles U.S. car sales. 

Point being, the EU’s decision is going to influence car manufacturers. The IRA will help Americans take advantage of the increased production.

It’s not a tax credit for luxury vehicles, though. The law only applies to vehicles with a manufacturer suggested retail price (MSRP) below $55,000 for cars and below $80,000 for trucks and SUVs.

There could be a drawback to the EV tax credit, however. According to Brian Deese, director of the National Economic Council, the tax credit is “eligible for batteries and vehicles that are produced in the United States or in North America, or countries that we have free trade agreements with.” 

Furthermore, final assembly needs to occur in North America. This makes sense, because one would think the U.S. government would want to encourage domestic production with use of its funds. The larger incentive is secure supply chains. (By now, I would hope we’ve learned the importance of those.) However, with a lot of current battery technology being manufactured in countries that don’t fit the prior description, there might not be much immediate price relief for car buyers.

Energy Efficiency Retrofits

This is why organizations like the Building Performance Association (BPA) are ecstatic. There is almost $9 billion in this financial package for rebate programs, and it will be facilitated through the state energy offices. $4.3 billion will go to the HOMES Rebate program, which provides consumers rebates for comprehensive home energy retrofits. 

Meanwhile, $4.5 billion will go to the High-Efficiency Electric Home Rebate Program, which is meant to incentivize the efficient electrification of low- and moderate-income households, including single family and multifamily properties.

There is also $200 million in State-Based Home Energy Efficiency Contractor Training Grants (an average of $4 million per state) to help train and educate home performance contractors with the installation of home energy efficiency and electrification improvements. We’ve talked in the past about the need for more (and younger) tradespeople. 

With the inclusion of training funds and the enormous amounts of rebates, now is as good a time as any for young people to enter, or someone looking to switch to, a career in the home retrofit industry.

One word of caution: In section 50121 of the bill, it specifically (and justifiably) disallows using each of the rebate programs for the same upgrade: “A rebate provided by a State energy office under a HOMES rebate program may not be combined with any other Federal grant or rebate, including a rebate provided under a high-efficiency electric home rebate program (as defined in section 50122(d)), for the same single upgrade.”

Incentives for Energy-Efficient Codes

The last time we saw financial incentives for energy code adoption was the American Recovery and Reinvestment Act (ARRA) funding over a decade ago. It was pretty effective in getting states to update, or even adopt, a building code. (Yeah, I’m looking at you, Alabama.) 

While not using quite the same approach, the IRA is making $330 million available to help states and local governments “adopt a building energy code (or codes) for residential buildings that meets or exceeds the 2021 International Energy Conservation Code (IECC), or achieves equivalent or greater energy savings; a building energy code (or codes) for commercial buildings that meet or exceeds the ANSI/ASHRAE/IES Standard 90.1-2019, or achieves equivalent or greater energy savings, or any combination thereof.”

The incentive increases to $670 million for states and local governments that choose “to adopt a building energy code (or codes) for residential and commercial buildings that meet or exceed the zero energy provisions in the 2021 International Energy Conservation Code or an equivalent stretch code.” The funding is available for the next 7 years.

No matter the chosen path, the legislation calls for the adopting jurisdiction “to implement a plan…to achieve full compliance with any building energy code adopted…in new and renovated residential or commercial buildings, as applicable, which plan shall include active training and enforcement programs and measurement of the rate of compliance each year.”

The Inflation Reduction Act includes $200 million in State-Based Home Energy Efficiency Contractor Training Grants to help teach contractors about sustainable household improvements.

Miscellaneous Items of Note

Two other quick notes about the IRA: Depending on how you feel about carbon capture and storage, the IRA also contains incentives for that technology. In fact, those incentives nearly doubled. Companies will also get a 7-year extension on the commencement of carbon capture equipment construction. The IRA also lowers the total amount of CO2 that a project has to capture annually to qualify for the tax credits.

Finally, the environmental community was greatly disappointed by the Supreme Court’s June 2022 ruling that restricted the authority of the EPA to regulate greenhouse gasses. Well, consider that rectified. The New York Times reports that the IRA: “amends the Clean Air Act, the country’s bedrock air-quality legislation, to define the carbon dioxide produced by the burning of fossil fuels as an ‘air pollutant.’

That language, according to legal experts and the Democrats who worked it into the legislation, explicitly gives the E.P.A. the authority to regulate greenhouse gasses and to use its power to push the adoption of wind, solar and other renewable energy sources.”

The environmental provisions in the IRA aren’t nearly as ambitious as some of the rhetoric used by President Biden during the 2020 presidential campaign. Given the dynamics of the current Congress, that was never very realistic anyway. The end product is still the United States’ largest-ever investment in climate mitigation. History will ultimately judge whether it was too little and/or too late.