HOUSTON – The new Inflation Reduction Act, signed by President Biden, includes nearly $370 billion earmarked for climate and energy programs, which include significant incentives designed to directly benefit consumers.
It’s tens of billions of dollars for incentives to encourage investment from something that already works in the eyes of the consumer to something different. The variety of subsidies for homeowners, low-income Americans and farmers that are intended to aggressively cut greenhouse gasses.
The incentives that could likely reach the most people is the expansion of tax credits available to buyers of electric vehicles. A $7,500 tax credit will be able to be deducted directly from the purchase price starting in 2024, rather than claimed during tax season. Strings attached to this deal include a requirement that the vehicle be assembled in North America, income restrictions for buyers, and caps on the value of the vehicles.
Homeowners who’ve been hounded by sales pitches to invest in solar panels may have some more time to listen. Rather than tax credits that were getting smaller, the new law immediately bumped the credit to 30% of the purchase, where it will stay over the next decade. A caution to be aware of is how long it may take for that investment to pay off.
For each year for the next decade, homeowners can also claim a tax credit for 30% of the cost of qualified projects that make their home less drafty or improve the energy efficiency of the devices within. They include windows, doors, and air-conditioners. Energy efficient appliances can also be discounted on a sliding scale, depending on household income, with a maximum rebate of $14,000 for each household.
Supporters of the investment acknowledge that the early impact of these programs will be limited, and that the resources required to build solar, wind and battery infrastructure is significant. The payoff they say will be a growing reliance on renewable energy.
“Building and developing these projects takes several years, and having assurity that once those projects are actually built and constructed, that the actual tax guidance and tax credit will be there,” says Michael Lee of Houston’s Octopus Energy.
One of the significant challenges of the incentive program is convincing consumers that there’s a real benefit and that they may need to make a significant investment to qualify for the credits. While lawmakers and the President stipulated what the law is supposed to do, it’ll be up to government bureaucracy, like the IRS, EPA, the Department of Energy and others, to clarify how it happens.