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Earlier this year, Congress passed the largest climate bill in history – disguised as the Inflation Reduction Act. But while economists say the law might not reduce inflation by much, it could do one important thing for a country trying to move away from fossil fuels: Stimulate millions of homes across America to stock up on free cash switch to cleaner energy sources.
Beginning in the New Year, the bill will offer households thousands of dollars to transition from fossil-fuel-fired heaters, stoves and cars to cleaner versions. On January 1st, middle-income households will have access to over half a dozen tax credits on electric stoves, cars, rooftop solar panels and more. And from mid-2023, lower-income households will be able to get upfront rebates on some of these devices — without having to wait for their tax returns to get the money back. This handy online tool shows you what you qualify for based on your needs ZIP code and income.
But which loans should Americans focus on — and which are best for the climate? Here’s a guide to the key climate-friendly benefits of the Inflation Reduction Act and how to access them.
Heat pumps – the best choice for home decarbonization
Tax credit available on January 1st: 30 percent of the cost, up to $2,000
Ah, heat pumps – one of the most popular technologies of the clean energy transition. “Heat pump” is a somewhat misleading term for these machines, which are more like super-efficient combi air conditioning and heating systems. These devices run on electricity and move heat rather than generate it, and can therefore be three to five times more efficient than traditional gas or electric resistance heaters.
“For many people, a heat pump is going to be their greatest personal impact,” said Sage Briscoe, senior federal policy manager at Rewiring America, a clean energy think tank. (Heat pumps have become so iconic that Rewiring America even has a heat pump mascot.)
Heat pumps can deliver huge cost and carbon savings. According to an analysis using data from the National Renewable Energy Laboratory, by switching to a heat pump, homeowners can save $100 to $1,200 per year on heating bills and avoid 1 to 8 tons of carbon emissions per year. For comparison: Being vegan for a whole year saves about 1 ton of CO2 emissions.
But many consumers encounter hurdles when switching to heat pumps. In some areas it can be difficult to find a contractor who is trained and willing to do the installation; Some homeowners report contractors sharing misinformation about heat pumps, including the fact that they don’t work in cold climates. (Modern heat pumps work in cold climates and can heat a home even when outside temperatures are as low as minus 31 degrees Fahrenheit.) Briscoe recommends homeowners look for qualified contractors who are knowledgeable about heat pumps and do their research ahead of time to find out which models are suitable may be best for your home.
EVs – the number one choice to reduce car emissions
Tax credit available on January 1st: Up to $7,500 depending on the make and model of the car
Income limit: <$150,000 for individual applicants; <$300,000 for joint applicants
If you’re like the millions of Americans who don’t live in a community with adequate public transportation, switching to an electric car is the best way to decarbonize your transportation. But electric cars can be prohibitively expensive for many Americans.
Beginning Jan. 1, a new EV tax credit offers consumers up to $7,500 off EV purchases. In the first few months, Americans will get anywhere from $3,751 to $7,500 off EV purchases, depending on the size of the battery in the car.
There are restrictions under the new law. The vehicles must also be assembled in North America, and cars costing more than $55,000 are not eligible, nor are vans or trucks costing more than $80,000. This week, the Internal Revenue Service provided a list of vehicles expected to meet the criteria as of Jan. 1.
However, starting around March, that $7,500 credit will be split into two parts: Consumers can get a $3,750 credit if the vehicle has a battery that contains at least 40 percent critical minerals from the United States (or any country where the United States is free includes trade agreements with) and an additional $3,750 credit if at least 50 percent of the battery components were assembled and manufactured in North America. Those rules aren’t finalized yet, so the January 1 tax credit is a stopgap measure until the White House irons out the final wording.
What new electric vehicle tax credits mean for you
Joe Britton, the chief executive of EV industry group Zeta, said that means there will likely be a larger group of vehicles eligible for the full tax credit in January and February than later in 2023. That’s why he recommended it to prospective owners of electric vehicles act quickly in 2023.
“I would buy a car in the first quarter,” he said.
Solar on the roof – the best choice for generating clean energy
Tax credit available now: 30 percent of installation costs, no upper limit
For those who want to generate their own clean energy, there are always solar panels on the roof. This tax credit is actually available since the Inflation Reduction Act came into force in August 2022. It offers a tax credit of 30 percent of the cost of installing rooftop solar panels with no cap. According to Rewiring America, the average 6-kilowatt solar system costs about $19,000, which equates to an average solar tax credit of about $5,700. (The Inflation Mitigation Act also includes a 30 percent tax credit for homeowners who need to upgrade their power panel for rooftop solar and a 30 percent tax credit for installing battery storage.)
Solar panels can save homeowners tens of thousands of dollars on utility bills and, when combined with battery storage, provide backup power even in the event of a power outage or other disaster. For someone trying to move their entire home off fossil fuels, solar panels become even more enticing: switch everything to electricity, and then use the sun to make electricity super cheap.
There are other options for people who do not own their own home. Tenants can subscribe to a community solar project to reduce their electricity bills and reap indirect benefits from the tax credits.
Tips, tricks and words of caution
Plenty of other loans are coming out in 2023: for EV chargers (up to $1,000), heat pump water heaters (up to $2,000), and even cash to seal your home’s doors and windows (up to $1,200).
The most important thing to know, Briscoe said, is whether you qualify for the upfront rebates for low- and middle-income Americans — which won’t be available until later in 2023 — or the tax credits, which will be available on Jan. 1 (Try this tool.) If you decide to use the tax credit, it’s better to spread the upgrades out over several years, since there’s an annual limit on how many of the credits you can claim in any given year. And she warned that it won’t always be easy: Finding the right installers and the right information on how to leverage all the government resources available can be difficult.
But ultimately, Briscoe said, it’s not as important how you start decarbonizing your life as just getting started.
“It’s like dieting or any other change in your life,” she said. “You have to take the first step and then another.”
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