Sep 2, 20224 min read

Inflation Reduction Act

Happy September to all those reading ClimateRoots this morning; may this month bless you with less sweat! In lieu of our traditional featured writer section for this month, we are going to be giving a rundown of the Inflation Reduction Act, signed into law by President Joe Biden on August 16th. I am sure that many of you heard or read something about this bill as it made its way through congress to the oval office, but my goal here is to break it down into digestible pieces of information to make it easier to comprehend why it is such a big deal. If you are curious what the Inflation Reduction Act means for the climate, individuals and industry, keep on reading on!

The Inflation Reduction Act was first proposed by Senators Chuck Schumer and Joe Manchin at the end of July (Freedman). After undergoing some minor revisions in congress that mostly focused on how to pay for the bill, it became clear that the bill was going to fall on Biden’s desk and receive his signature (Sinema Will Move Forward with Senate Democrats’ Climate, Health and Tax Bill : NPR). Regardless of how we got here, the bottom line is that the Inflation Reduction Act includes $369 Billion in funding for clean energy and climate. Estimates have shown that these inclusions could reduce the US carbon footprint by 40% in 2030 compared to 2005 levels (Mahajan et al.). This is a staggering number and has the potential to put the US within reach (albeit not on track) of its Paris Accord pledge. It is expected that by 2030 the act will create at least 1.5 million jobs and reduce household electric bills by hundreds of dollars a year, all while preventing thousands of premature deaths, asthma attacks and lost workdays (Democrats’ Climate Deal Puts U.S. Emissions Goals In Reach, 3 Separate Studies Show | HuffPost Latest News). Additionally, wording in the act gives the EPA direct ability to regulate greenhouse gas emissions, overturning a previous Supreme Court ruling(Democrats Designed the Climate Law to Be a Game Changer. Here’s How. - The New York Times). An analysis by the White House is estimating that by spending the $369 billion, the US could avoid as much as $1.9 trillion in climate impacts by 2050 (Reidmiller et al.). I’d say that’s a pretty good return on investment! This is by far the largest domestic effort to curb the impacts of Climate Change, and could induce a dramatic international response.

Just with all good things, the Inflation Reduction Act is not without its drawbacks. President Biden’s original Build Back Better plan was shot down in congress when it did not receive the necessary support. In the wake of this failure, this new act was proposed with inclusions that appealed to those who did not support the initial bill. Included in the Inflation Reduction Act is the promised completion of the Mountain Valley Pipeline, which would carry gas from West Virginia to Virginia and has been hotly contested(Fossil Fuel Side Deal for U.S. Climate Bill Slammed by Green Groups | Reuters). Environmental justice advocates have also spoken up about the lack of funding and the compromises made by the act. These concessions to appeal to the more conservative members of the democratic party have the potential to put communities of color and low income families at risk (“Spare a Thought for the Folks Who Got the Short End of the Stick on the Climate Deal”).

We can all agree that the Inflation Reduction Act definitely does some good; the numbers speak for themselves. However, so far all I have done is thow numbers at you! There are few means through which those numbers are achieved in the act, and tax breaks for individuals (such as yourself!) that encourage electrification of homes and automobiles are among them. While there are similar subsidies for businesses, I am only going to highlight those that can be claimed by individuals.

Energy Efficient Home Improvement Credit

This tax credit is an extension of an older energy credit, and stipulates that homeowners will receive a 30% tax credit with a per item limit of $600 for all qualified energy efficiency improvements. These improvements include sealing materials/systems, home energy audits, electrical upgrades or heat pumps (TurboTax).

Residential Clean Energy Credit

Currently, any residential solar, geothermal or wind installation is eligible for this tax credit at 26% before it expires in 2024. The Inflation Reduction Act has extended this to 2034, while increasing the rate to 30% of the system cost. Also included now are stand alone battery systems over 3 kWh in size (“The Inflation Reduction Act”).

Clean Vehicle Credit

The Clean Vehicle Credit for purchasing electric vehicles is now extended through 2032, which grants $7,500 in tax credits for new EV’s. The provisions also allows for $4,000 or 30% (whichever is less) to be claimed on the purchase of used EV’s, as long as the purchase price is less than $25,000 and the vehicle is two years or older (“The Inflation Reduction Act”).

Now that you know a bit more about the Inflation Reduction Act, let us know what you think! Send us your comments or questions at climateroots@gmail.com or on socials @climate.roots on instagram.

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