Last year, the Inflation Reduction Act of 2022 (IRA) was enacted into law in the US with the goal of reducing inflation, investing in domestic energy production and manufacturing and reducing carbon emissions by roughly 40% by 2030.
The dollar amount for energy security and climate change investment was estimated at $369 billion.
Since the bill passed, investments in clean energy technology across the states has increased, including the buildout of battery and elective vehicle (EV) manufacturing. The bill includes investments in the form of financial incentives like tax breaks for households and businesses. Consumers could qualify for up to $10,000 or more in tax breaks and rebates.
In addition to its investments, the climate law offers a 30% tax credit towards installing solar panels or other equipment to harness renewable energy like wind, geothermal and biomass fuel.
Across the US nearly 80 major clean energy manufacturing facilities have been announced, which is equal to the previous seven years combined, the American Clean Power Association said.
A significant response to climate change
According to the US National Oceanic and Atmospheric Administration (NOAA), June of 2023 was the hottest on record. The first half of 2023 was also the third hottest January through June on record, behind 2016 and 2020.
The IRA is the US most significant response to climate change that is designed to promote clean energy buildout at a scale large enough to curb US greenhouse gas emissions. A key target of the law is cleaner transportation which is driving a higher demand for batteries for EVs.
Further the law encourages making more batteries that feed electricity to the grid when the wind is light or at night when solar panels aren’t absorbing sunlight. The IRA also helps technologies that are expensive, but promising like low-cost electrolyzers—which splits hydrogen from water and is still in its infancy.
Incentives for households
The incentives in the IRA for consumers are also significant and helps make rooftop solar panels, EVs and energy-efficient appliances more affordable. There are new tax breaks for consumers, as well, and others that are enhancements or extensions of existing tax credits. In all, consumers could qualify for up to $10,000 or more in tax breaks and rebates.
The legislation benefits consumers more than through tax incentives as consumers who make efficiency-focused home upgrades can reap other direct benefits like lower electricity and heating bills. In an estimate by Resources for the Future, the average household could save about $170 to $220 a year in electricity costs—a total of $209 billion to $278 billion over the next decade.
The bill extends and alters an existing tax credit worth up to $7,500 for individuals who buy new “clean” vehicles like electric cars, plug-in hybrids and hydrogen fuel cell vehicles. The IRA also creates a tax credit for used versions of clean vehicles where buyers could get $4,000 or 30% of the sale price.
Two rebate programs have also been established by the legislation with each administered by state energy offices. States would have to apply for their share of the grants that are worth a combined total $8.8 billion.
The Home Efficiency Rebate program would pay homeowners that make cuts in their home energy use via efficiency retrofits like insulation and HVAC installations. Homeowners would be eligible for 50% of cost of those projects.
The Home Electrification and Appliance Rebates program will award grants to State energy offices and tribal entities to develop and implement a high-efficiency electric home rebate program.
IRA impact on businesses
Companies will need to make the right move and prioritize sustainable initiatives to survive and thrive moving forward, Global Head of Sustainability for HCLTech Santhosh Jayaram says.
“Employees, customers and investors now expect tangible and measured sustainable and green claims, while there are economic perks attached migrating to the green side,” says Jayaram. HCLTech has helped some of the foremost enterprises meet business and sustainability goals and have successfully delivered planet-friendly technology solutions for virtualization, containerization, software-defined technology for private DC modernization and public cloud waste elimination through HCLTech’s DRYiCE FinOps.
Many companies across North America, and in Europe, have championed the IRA bill and are making plans to capitalize on the benefits provided by the legislation.
Volkswagen-owned Audi may build a factory in the US to take advantage of subsidies offered by the IRA. Volkswagen also said the company’s US plant in Chattanooga, Tenn. Wants to build 90,000 EVs in 2023, with the new ID4 model expected to qualify this year for the full $7,500 IRA tax credit.
Mercedes-Benz Group is also poised to invest billions of euros to build 10,000 fast-charging points in North America in 2023 and wants 2,500 charging points at 400 locations across most US states and Canada by 2027.