The Democrats’ new tax and clean energy bill is a big deal for climate and energy conservation. With nearly $370 billion for energy programs and tax incentives, it represents the largest climate investment in US history.
In addition to the U.S. emissions reductions it will bring, there’s a lot in the bill that could change both the way Americans power their homes and the types of vehicles they drive.
The bill contains a slew of tax incentives aimed at nudging consumers, developers, small businesses and others toward clean energy and more efficient energy use – helping to lower the cost of purchasing electric vehicles , heat pumps, water heaters, rooftop solar panels and more.
These measures would be more comprehensive than existing weatherization programs, and several would be available to all households, not just low-income ones,” said Mark Wolfe, executive director of the National Energy Assistance Directors Association.
Rewiring America, a clean electricity nonprofit, recently estimated that an American household would save $1,800 a year if they installed electric heat pumps to heat their water, heat and cool their air, replace a gasoline car by an electric vehicle and install solar energy.
Tax credits work in another way to reduce costs: by incentivizing cheaper clean electricity powered by renewables.
“There are people who are really on the front lines of the inflation crisis and the cost of fossil fuels because of Putin’s invasion of Ukraine, and this bill will allow those people to achieve ‘significant energy savings,’ Leah Stokes, senior policy adviser at Evergreen and associate professor of political science at the University of California, Santa Barbara, told reporters recently.
Here are the main parts of the bill that help consumers save money.
Savings on the purchase of an electric vehicle: The bill extends the current tax credit of $7,500 for a new vehicle, as well as a tax credit of $4,000 on a used electric vehicle. It also removes the current cap that reduces automakers’ tax credits after they sell 200,000 electric vehicles, and it’s written so buyers can get an immediate rebate at the dealership, instead of waiting weeks or months for their tax credit to arrive. .
Nevertheless, there is an important caveat: automakers and consumers are unlikely to be able to take advantage of this tax credit for the next few years. At the insistence of Democratic Senator Joe Manchin, the tax credit was written to force automakers to shift their electric vehicle supply chains away from China to the United States and countries where states States have free trade agreements. The vehicles must be built in North America, and the batteries for electric vehicles also must not come from countries like China.
As a result, U.S. automakers are unlikely to be able to offer the credit in the next few years as they try to expand their domestic supply chains, said Democratic Senator Debbie Stabenow of Michigan.
The tax credit is also limited to trucks, vans and SUVs under $80,000 and other vehicles under $55,000, and has an income threshold for consumers.
Assistance with the installation of more efficient air conditioning and heating equipment: The bill would provide Americans with tax credits to cover 30% of the cost of installing air conditioners, water heaters, furnaces and other highly efficient cooling and heating equipment.
Households could receive up to $600 for each piece of equipment, up to $1,200 in total per year. There would also be a special credit of up to $2,000 for electric heat pumps. And the credits could be used to upgrade breaker boxes, if needed, to handle additional electrical load.
This measure replaces a similar tax credit that expired at the end of last year and had a lifetime cap of $500.
Assistance for low- and middle-income Americans with the purchase of electrical appliances: The legislation plans to offer low- and middle-income households rebates of up to $14,000 for the purchase of electrical appliances.
The rebates could cover between half and all of the typical $14,000 cost to install an electric heat pump, as well as much of the cost of electric water heaters, ranges, ovens and clothes dryers, as well as upgrading the circuit breakers and electrical wiring in the house. The act provides $4.5 billion over 10 years for this provision.
To ease fears that low-income households will have to pay for items up front, discounts could be given at the point of sale or contractors could claim them, for example. That would depend on how the state energy offices, which would administer the rebates, set up their programs.
Rebates for home renovations: Households could receive rebates of up to $4,000 for installing energy-saving measures in their homes, under the bill. Low- and middle-income Americans could receive up to $8,000. The amount of the rebate would depend on the estimated savings that would be realized. The bill would provide total funding of $4.3 billion over 10 years.
Tax credits to reduce energy leakage: Americans could receive tax credits to cover 30% of the costs of home improvements that reduce energy leakage, such as updating windows, doors, insulation and other protective measures against bad weather, under the bill. They could obtain a credit of up to $600 per improvement and a total of $1,200 per year. Plus, they could receive a $150 credit to have a home energy audit done. The credit would be expanded so that families could use it multiple times to make improvements over time.
Increase efficiency in HUD housing: The bill would provide $1 billion in grants and loans to affordable housing units administered by the Department of Housing and Urban Development to increase energy or water efficiency, improve indoor air quality, provide clean energy or electrification upgrades or address climate resilience needs. Improvements could include insulation, HVAC upgrades, flood protection, storm resistance, water saving changes, and installation of solar or other renewable energy systems .
Property developer tax credits for building energy-efficient homes: Builders could receive tax credits of $2,500 for single-family or manufactured homes and $500 for units in multi-family buildings for building Energy Star-certified homes. Developers could get $2,500 for each multi-family unit if current wage requirements are met.
The credits would double if the homes or units were also certified under the Department of Energy’s Zero Energy Ready Homes program.
A credit of up to $2,000 for building energy-efficient homes expired late last year.
Installation of solar panels on houses: The tax credits in the bill will cover 30% of the cost of purchasing a rooftop solar system and home battery storage. The average cost of a rooftop solar system is around $20,000, according to the Solar Energy Industries Association. But that upfront cost will translate into savings on the energy bill each year and add value to a home.
For those who live in apartments or cannot install solar power on their roof, there are other ways to get solar power and lower your energy bills, including renting a rooftop solar system or joining a community solar farm to get electricity. Tax credits in the bill are also increasing for solar projects in low-income communities.
Small Business Incentives: Small businesses can get tax deductions of up to $1 per square foot of their business to make the space more energy efficient. They can get tax credits covering up to 30% of the cost of replacing car and truck fleets with clean vehicles, as well as incentives for powering their businesses with solar energy.