The Inflation Reduction Act (IRA) is the most significant federal government action on climate change in history. It includes some very substantial investments in our nation’s buildings. So, what does that mean for those of us who live, work, and play in those buildings?
Looking to upgrade the energy efficiency of your home, or switch to clean, efficient electric equipment and reduce your energy costs? You’re in luck. The IRA offers two distinct, but related, rebate programs that will make efficiency and electrification more accessible to all. Many programs specifically target low or moderate income homeowners, who often struggle with the costs of upgrading their homes, yet bear the highest energy burden.
The rebate programs will be administered at the state level, so the legislation does not specify all the exact details of how programs will work, but here’s what we know:
- The HOMES Rebate Program provides rebates for whole-house energy savings, with the rebate amount increasing as energy savings increase. This program is structured so that homeowners can receive rebates based on either the modeled energy savings of their project using computer software or from measured energy savings. Rebates are as follows, all covering up to 50 percent of the project cost:
- For projects that model the energy savings, homes can receive a $2,000 rebate for energy savings of 20-34 percent, and a $4,000 rebate for savings of at least 35 percent.
- For projects that measure the energy savings, there is a slightly lower energy savings threshold of 15 percent. The rebate rate is calculated per kilowatt hour or kilowatt-hour equivalent saved, based on a state-specific energy use formula.
- Multifamily buildings are eligible for the same per-dwelling unit rebates, with maximum caps of how much funding can be used for a single building.
- Low- and moderate-income households are eligible for double the rebate amount ($4,000 and $8,000, respectively), covering up to 80 percent of project costs.
- The High-Efficiency Electric Home Rebate Program incentivizes projects to electrify the homes of those earning low or moderate incomes, up to 150 percent of area median income (AMI). These are rebates that will be distributed at the state level, and states are responsible for verifying incomes and making the rebates available at the point of sale. No household may receive more than $14,000 in rebates under this program, and while these rebates can be combined with the HOMES Rebate Program, homeowners may not receive two rebates for the same upgrade. Households earning 80 to 150 percent of AMI are eligible for rebates of 50 percent of the cost of project, and households earning under 80 percent of AMI are eligible for rebates for the full cost of the project, up to the following rebate caps:
- $1,750 for a heat pump water heater
- $8,000 for a heat pump for space heating and cooling
- $840 for electric stoves, cooktops, ranges, ovens, and electric heat pump clothes dryers
- $4,000 for an electric load service center upgrade
- $1,600 for insulation, air sealing, and ventilation
- $2,500 for electric wiring
While rebates offset the purchase price of efficiency products, tax credits take a different approach, by returning the funds when a homeowner files their federal taxes. The homeowner efficiency tax credits cover 30 percent of the cost of certain energy upgrades, up to a total of $1,200 each year. If a homeowner installs a heat pump or heat pump water heater, that limit increases to $2,000. Previous iterations of this tax credit were per lifetime, whereas this credit is per year – meaning a homeowner could upgrade their windows one year, install a heat pump the next year, and install insulation the next year, and claim the tax credit each year. Eligible upgrades to promote decarbonized buildings include the following equipment, with specific energy efficiency requirements for each:
- Heat pumps for home heating and cooling, including air-source and geothermal
- Heat pump water heaters
- Central air conditioners
- Biomass stoves and boilers
- Home energy audits
- Air sealing and insulation
There is a tax credit for new homes, which is provided directly to the builder for constructing homes that meet the most recent ENERGY STAR specifications. This credit should make these high-efficient homes more readily available for consumers to purchase.
Owners of affordable housing will have access to $1 billion to upgrade their buildings. The funding can be used for projects that save energy and/or water, promote building electrification, energy storage, improve building health through indoor air quality upgrades, and address climate resilience.
Other programs of note
Another program that will provide consumers with the opportunity to lower their energy cost and reduce their carbon footprint is a new $27 billion Greenhouse Gas Reduction Fund at EPA. The GHG Reduction Fund will accelerate the adoption of low- and no-emission technologies by investing in non-profit financiers, including state and local green banks and revolving loan funds. This will make financing of these projects easier to access. It may take some time to fill in the details about the program, but once established the impacts and benefits to consumers should be available for some time.
The EPA also received $3 billion for an expanded block grant program focused on investing in environmental and climate justice. These funds can be used for a variety of pollution reduction activities chosen by local governments, such as improving indoor air quality by reducing pollution from home heating. While the activities will vary, consumers in disadvantaged communities – the most likely to be breathing polluted indoor and outdoor air - stand to benefit from this program.
Tribal governments will receive $220 million for climate justice and adaptation projects, as well as $145 million for residential retrofits and zero-emissions distributed energy systems. Much of this funding will flow through the Bureau of Indian Affairs at the Interior Department, although the $20 billion Tribal Energy Loan Guarantee Program is managed by the Department of Energy (DOE).
IRA’s rebates and credits have the potential to enable a large-scale transformation of U.S. homes into efficient, clean, and affordable-to-run dwellings of the future, but they can’t do it alone: state programs that complement these federal incentives to spur consumer awareness and interest and train a local workforce to install these appliances are vital to drive large-scale adoption. Without strong local action, these rebates and tax credits may remain unused or underused. Congress has acted, it is now the turn of federal and state agencies to ensure IRA lives up to its transformative potential.
This funding makes it a no-brainer: there’s never been a better time to upgrade the efficiency of your home, and now is the time to start planning those projects. Your comfort level – and your wallet – will thank you.