INFLATION REDUCTION ACT BENEFITS THE CLIMATE & PEOPLE
The Inflation Reduction Act (IRA) was signed into law August 2022, 34 years after Professor James Hansen alerted the U.S. Congress to the danger of anthropogenic climate change. Passage in 2022 was critical, since the IPCC warned in April that “unless there are immediate and deep emissions reductions across all sectors, 1.5°C is beyond reach.” And global temperature increase above 1.5°C means the extensive impacts we have already observed will become catastrophic. Indeed, the record $369 billion IRA investment in climate action does involve all economic sectors.
Since the IRA is a massive 730-page text, only highlights applicable to citizens and businesses will be provided. Full detail should be sought before making purchases.
Electric vehicles (EVs), light-duty, new. Since transportation is the largest source of greenhouse gas (GHG) emissions in the US, the law provides $7,500 incentives for EVs through 2032. This is a summary of the complex qualification details. For eligibility, the maximum annual adjusted gross income for individuals is $150,000, for head of households $225,000, and for joint households $300,000. Price limits (MSRP) for qualifying new electric sedans are $55,000 and for SUVs/vans/pickup trucks $80,000. Final assembly of EVs must be performed in North America, and the Department of Energy website lists qualifying vehicles. Those listed at this time, and which also qualify by price, are the Bolt EV, Bolt EUV, Ford F-150, Mustang Mach E, Nissan Leaf, Rivian R1T, Rivian R1S, Tesla Model 3, and Tesla Model Y. However, after Jan. 1, for full $7,500 tax credit, EVs must contain specified percentages of US-sourced critical minerals and battery components, and the percentages will increase over time. Thus, the list of vehicles which will be eligible for full or partial tax credit is expected to evolve over the decade.
To improve EV affordability, in 2024 the tax credit amount may be deducted from the purchase price at the time of sale, if desired.
Electric vehicles, light-duty, used. For the first time, a tax credit for used EVs is included. The credit is 30% of the vehicle price, up to $4,000, with a price maximum of $25,000. The vehicle must weigh less than 14,000 lbs., be at least two years old, and a purchaser income maximum is specified.
EV chargers. For home chargers, the tax credit is 30% of hardware and installation costs, up to $1,000. Looking to the future, bidirectional chargers are included. For commercial chargers, the credit is up to 30% (with labor and construction requirements) with $100,000 maximum per charger, and the location must be in defined low income or non-urban sites.
Solar photovoltaic (PV) and energy storage systems. PV systems, residential and business, installed in the U.S. in 2022 through 2032 are eligible for a tax credit equal to 30% of the cost of parts, permitting, installation, and sales tax. Storage devices (typically batteries) of any size are also eligible as long as they are charged by the PV system. In a financed system, the applicable cost of the system excludes interest and origination fees. If the claimed tax credit is greater than the total tax liability the year claimed, the residual credit may be applied the following year.
Buildings. Residential and commercial buildings produce approximately 30% of U.S. GHG emissions. Thus, the IRA provides $4.3 billion in incentives for building upgrades. These GHG emissions can be dramatically reduced by “electrifying everything” (eliminate gas equipment), using all renewable clean energy, and reducing waste (improved insulation, weatherization, LED lighting). The IRA provides rebates, tax credits, and low-cost loans to help eliminate building emissions. For low and middle income (LMI) households, the following are the maximum rebates for conversion to electric equipment: heat pump water heater $1,750; heat pump HVAC $8,000; electric cooktop, oven, and heat pump clothes dryer $840; electric load or service panel upgrade $4,000; insulation and air sealing $1,600; electric wiring upgrade $2,500; maximum per home $14,000. Since these rebates will be available for 10 years, the conversions may be performed immediately, or when old fossil fuel equipment is retired. (I recently made the conversion of a propane gas cooktop to an electric cooktop, and found it easily doable with products and installers in Waco—and am delighted with the results). The comprehensive bill also contains incentives for wealthier households, multifamily buildings, commercial buildings, builders, cities, and green building supplies. The City of Waco, for example, could obtain funds to assist in developing green building codes, which would eliminate gas hookups, and include solar-ready and EV-ready wiring.
Conclusion. The Inflation Reduction Act is a major success in fighting climate breakdown, projected to cut U.S. GHG emissions 40% (relative to 2005) by 2030, nearing our goal of 50% reduction. In addition, improved outdoor and indoor air quality are expected to save 4,500 lives and prevent 100,000 asthma attacks annually. 1.3 million new jobs will be created, and the consensus of economists is that inflation will be reduced. But citizens, businesses, schools, churches, organizations, and cities must take advantage of the bill’s opportunities, in order to preserve a livable climate and create a cleaner, more prosperous future.