The Inflation Reduction Act is signed into law
President Joe Biden has signed into law the most significant piece of legislation supporting clean energy and climate change mitigation in US history.
By Jennifer Runyon and John Engel
The Inflation Reduction Act stands to devote $369 billion to clean energy incentives, energy efficiency, green fuels, and more— actions researchers say could bring the US in line with its Paris Agreement goal of reducing greenhouse gas emissions by 40% from 2005 levels.
“With this law, the American people won and the special interests lost,” Biden said at a bill signing ceremony on 16 August.
The Inflation Reduction Act passed the US Senate on 7 August with a 50-50 vote along party lines and with Vice President Kamala Harris breaking the tie in favour of the bill.
What the bill means for electricity providers
The bill provides a historic amount of money for climate change mitigation that is billed as helping electric utilities deliver cleaner energy including money for energy efficiency, electric vehicles (EVs), home and business electrification, plus tax credits for renewable energy developers.
The Associated Press in an article said the bill’s final costs are still being calculated. But the money that would be invested in climate represents the country’s largest investment in climate change mitigation to date with more than $400 billion in spending over a 10-year period.
Money would be raised through taxes and from government drug cost savings, which are also part of the measure.
Electric utilities will likely see the most impact on the demand side of their business in the form of greater adoption of electric vehicles and energy efficiency improvements for homes and businesses. Loans and tax credits for clean energy would help build more clean energy projects and the new transmission needed to deliver their energy to customers.
Electric vehicles
Tax breaks for electric vehicles are a big portion of the bill with $7,500 in tax credits available to those who purchase a new EV and $4,000 toward the purchase of a used EV. Credits would be good until 2032. While a $7500 EV tax credit already exists, cars made by certain manufacturers such as Tesla no longer qualify for the credit because of an existing cap on the number of vehicles sold (200,000) by any manufacturer that are eligible for the credit. The bill would remove those caps.
However, critics of the EV portion of the bill argue that because it stipulates that a hefty portion of an EV must be made in America or include minerals that were sourced from America in order to take the tax credit, the supply chain isn’t there yet and therefor no one will be able to use the tax credit, at least for a while. Indeed, no EV manufacturer today meets all of the bill’s requirements.
Have you read:
Ed’s note: Is the Inflation Reduction Act a Green Deal for the US?
New York begins transmission upgrades as Ohio wraps up smart grid overhaul
The Associated Press also reported that the bill has $4 billion to create a fleet of zero-emission heavy duty vehicles and $3 billion in grants to clean up air pollution at ports. And 40% of overall benefits from those investments would go toward underserved communities, as part of the Biden administration’s Justice40 initiative.
Home electrification and energy efficiency
According to an analysis by Repeat (Rapid Energy Policy Evaluation and Analysis Toolkit), the Act would drive substantial additional investments by households and businesses on the demand side of the energy system, including purchases of more efficient equipment.
Specifically, rebates would be provided for “a high-efficiency electric home” in the amount of $1,750 for a heat pump water heater, $8,000 for a heat pump space heating and cooling and $840 for electric stoves and cooktops.
There are also rebates for an electric load service centre upgrade ($4,000), insulation, air sealing and ventilation ($1,600) and electric wiring upgrades ($2,500).
New gas, oil-fired, or electric furnaces and water heaters are also eligible for rebates as are energy audits ($150).
The maximum incentive any home can receive is $14,000. Rebates can cover up to 50% of the cost of the upgrades for households with annual incomes between 80-150% of the area median income and 100% of the cost of upgrades for households with annual incomes less than 80% of the area median income.
Utilities that are not already could consider offering energy efficiency audits and upgrades to their customers with the understanding that customers who can take these tax credits would ultimately pay less for the upgrades.
Rural electric co-ops
The bill also would appropriate $9.7 billion for rural electric co-ops for the long-term resiliency, reliability, and affordability of their systems. The money can be used for assistance in the form of loans, grants or other financial assistance that goes toward lowering carbon emissions through the purchase of renewable energy, zero-emission systems and carbon capture technologies or making energy efficiency improvements. Loans can cover up to 25% of the project cost.
The Senate-passed bill would provide direct federal payments to co-ops when they deploy new energy technologies, including carbon capture, nuclear, energy storage, renewables and more. The legislation would give co-ops parity with for-profit utilities, which have enjoyed tax credits to develop wind, solar and other renewable energy projects. Historically, not-for-profit co-ops have not had access to those credits because most of them do not pay federal income taxes.
Also of interest:
What should homeowners consider when switching to renewable energy?
Energy Transitions Podcast: Weighing the future of nuclear power in Europe
Transmission
The WATT Coalition said the bill directs DOE to “conduct planning, modelling, and analysis regarding interregional electricity transmission and transmission of electricity that is generated by offshore wind,” and include grid-enhancing technologies (GETs) in that work.
Ted Bloch-Rubin, Chair of the WATT Coalition, stated: “GETs can double capacity for renewable energy on the existing grid – with the support for wind and solar deployment in this bill, we’ll need all the delivery capacity we can get. The WATT Coalition hopes that the House passes the bill, and the President signs it into law very soon.”
Rob Gramlich, Executive Director of the WATT Coalition said he was disappointed that “the transmission tax credit did not make it to the finish line,” he believes that the loan authority could do a lot. “It can bridge gaps before transmission customers show up, and [it] brings down the cost of capital. The $2 billion in budget impact in the bill translates into potentially $200 billion in loans,” he added.
“The WATT Coalition urges governors and public utility commissioners to push utilities to make long-overdue investments in grid optimisation and flexibility. Funding from the Infrastructure Investment and Jobs Act can ensure that local ratepayers see less upfront costs, while upgrades pay for themselves with systemwide benefits. Wind and solar projects are ready to break ground – state leaders can make sure that the grid is ready for them to plug in,” said Gramlich in an emailed statement.
New green fund
Finally, the bill also would establish a $27 billion Greenhouse Gas Reduction Fund which would give states, municipalities, and tribal governments the ability to provide loans, grants or other forms of financial assistance to enable low-income or disadvantaged communities to take advantage of zero-emission technologies like EVs or rooftop solar PV / storage.
In prepared remarks, Sen. Ron Wyden (D-OR) said the plan “is going to reduce the typical American household’s energy costs by $500 per year. It’s going to drive a 40% reduction in carbon emissions overall and a 70% reduction in the power sector. And it’s going to create 600,000 new jobs from Portland, Oregon to Portland, Maine.”
