With upward of $300 billion in spending focused on cutting emissions and promoting clean energy production, the agreement reached Wednesday between Senate Majority Leader Charles E. Schumer (D-N.Y.) and Sen. Joe Manchin III (D-W.Va.) could become the nation’s most significant climate bill to date — containing many provisions that, if enacted, would have direct effects on the lives of millions of Americans.
Dubbed the Inflation Reduction Act of 2022, the deal includes a slew of incentives, such as tax credits for electric vehicles, or EVs, and sustainable home improvement efforts, that aim to change the way households consume and use energy, and could help individuals wanting to make greener choices.
The legislation has the potential to be “transformative,” said Leah Stokes, an associate professor of environmental politics at the University of California at Santa Barbara.
“The bill will make it more affordable for everyday Americans to afford clean technology,” Stokes said. Its incentives, she added, could help address some of the upfront costs associated with investing in more sustainable innovations, such as EVs or energy-efficient heat pumps. In turn, Stokes and other experts emphasized, many Americans could expect to see significant reductions in their overall energy costs.
If households invest in climate-friendly and energy-efficient technologies, with financial support from the bill, it could help the average household save $1,800 on its annual energy bill, according to an analysis by Rewiring America, a nonprofit dedicated to electrification. Another analysis from RMI, a clean-energy think tank, found that the tax incentives for clean energy sources, which would ramp up the use of wind and solar over the next decade, could save American households as much as $5 billion within two years.
Here’s a breakdown of several key incentives that could have practical and direct benefits for you. Keep in mind, though, that there are limitations and eligibility requirements that, depending on individual circumstances, may determine how much you can take advantage of some subsidies.
Electric vehicle tax credits
Many buyers of both new and used electric vehicles would receive a tax credit.
The real “game changer,” Stokes said, is that bill would also do away with a previous limit that kept manufacturers of popular EVs from being able to offer tax credits once they sold a certain number of vehicles.
For new electric vehicles, a $7,500 tax credit could be applied at the point of sale. Those who purchase used EVs could be eligible for up to a $4,000 credit.
The new credit for previously owned EVs could be significant in helping the country shift away from vehicles powered by fossil fuels, said Joe Britton, executive director of the Zero Emission Transportation Association.
“That will be one of the really kind of unseen catalysts,” Britton said, noting that about 70 percent of Americans are not in the market for a brand-new car.
“Because once you get behind the wheel of an EV, you’re 95 percent likely to never go back,” Britton added, “and so exposing Americans of all income levels to electrification will have a really positive impact on our ability to transition.”
While there has been discussion that paying people to get non-EVs off the road might be a better approach, the bill’s provisions would likely be “much simpler,” said Steven Nadel, executive director of the American Council for an Energy-Efficient Economy. “The programs to retire vehicles get complicated.”
Although tens of millions of Americans could benefit from these tax credits, there are eligibility requirements.
For new EVs, the tax credit would apply to incomes less than $300,000 “in the case of a joint return or a surviving spouse,” $225,000 for those filing as a head of the household and $150,000 for single filers. For used EVs, incomes for the same categories cannot exceed $150,000, $112,500 and $75,000, respectively.
There are also limits to how much the vehicle can cost.
“If you wanted to buy an electric Lamborghini, sorry, it won’t be eligible,” Nadel said.
To be eligible for a credit, new EVs that are vans, SUVs or pickup trucks can’t exceed $80,000 while other types of vehicles can’t cost more than $55,000. Used EVs could be eligible if they cost no more than $25,000.
The credit is also dependent on manufacturers making eligible vehicles, Britton said. But, he noted, the bill includes funding that would help achieve those targets.
Clean energy and efficiency incentives
The bill contains numerous incentives, including rebate programs and tax credits, meant to encourage home improvements that would increase energy efficiency and utilize more clean-energy technologies.
For example, the HOMES rebate program would reward eligible households for energy savings, Nadel said. People would typically receive $2,000 if they make changes that save them 20 percent or more on overall energy costs and $4,000 if they save 35 percent or more. Those amounts could increase for low-or-moderate-income households, which the bill defines as individuals or families with total incomes less than 80 percent of the median income of the area in which they live. Households in underserved communities would also be eligible for incentives.
Additionally, the bill would encourage home electrification projects and efficiency upgrades. Eligible people who install heat pumps for space heating or cooling; heat pump water heaters; electric pump clothes dryers; or electric stoves, cooktops, ranges or ovens, among other technologies, could benefit from rebates and tax credits.
What’s more, other home improvements, such as upgrading insulation, air sealing or ventilation to also help boost energy efficiency, could become subsidized.
The legislation would also support residential and community solar.
The previous credit for residential solar projects was set to expire at the end of 2023, but if it passes, the bill would institute a 30 percent credit for households that install solar panels through 2032 before a subsequent two-year phase-down period.
“That’s a significant number,” Erin Duncan, vice president of congressional affairs at the Solar Energy Industries Association said of the 30 percent credit. Duncan said provisions in the bill “will allow the industry as a whole to have greater predictability about what they can offer consumers and also allow consumers to make choices based on when it’s right for them.”
Other elements of the agreement would help make it easier for community solar projects — or projects that multiple community members can invest in and benefit from — to move forward, she added. “Community solar could be incredibly important for democratizing who can participate in this energy choice.”
Funds for affordable housing improvements
The deal would also provide funding, including a $1 billion grant program, for owners or sponsors of eligible affordable housing to make the properties more energy and water efficient.
Some eligible projects would include addressing climate resiliency as well as improving indoor air quality or sustainability, implementing the use of low-emissions technologies, including zero-emission electricity generation, energy storage or building electrification.
If affordable housing properties are able to make renovations with help from the bill’s funding, Nadel said it would mean “tenants in those apartments will have much more modern, comfortable, energy-efficient apartments” and lower energy bills.
Overall, experts have largely praised the climate deal, calling on lawmakers to act swiftly to pass the legislation so people can begin taking advantage of these incentives.
“For consumers, this is a sea change in the most positive of ways that will make our communities more resilient and help us keep our costs manageable,” Duncan said. “We’re also going to create tons of jobs for our neighbors, or maybe for ourselves, so I think it’s really exciting.