The Most Important Climate Legislation So Far Turns Two Years Old
Thumbnail Photo: Kamala Harris celebrating first anniversary of the Inflation Reduction Act (IRA) at a green energy company in Seattle.
The Inflation Reduction Act (IRA) is so important, and we have so much to lose if Donald Trump wins the election, that I am going to simply quote extensively two excellent sources: Covering Climate Now, and Heatmap.
From Covering Climate Now’s weekly newsletter “Climate on the Ballot” of August 19, 2024:
Two years ago this month, President Joe Biden signed into law the Inflation Reduction Act (IRA), the largest investment in clean energy and climate action in US history. Not one Republican member of Congress voted for the bill, and since then, House Republicans have tried to repeal it 42 times. Former president Donald Trump has also said that, if elected, he plans to repeal it. But a few Republicans have broken ranks: In early August, 18 House members sent a letter to Speaker Mike Johnson asking him to preserve industry tax credits if the party is successful in November.
In poll after poll, Americans have said that they know little to nothing about the IRA, with the most recent poll, out in April 2024, finding that 4 in 10 people say that they don’t know enough about the law’s provisions to have an opinion on them. At the same time, a July 2023 Data for Progress poll found that large numbers of Americans support provisions in the IRA when asked specifically about them, including tax credits for businesses that produce clean electricity, electric vehicles, and new clean energy technologies (69%); rebates up to $14,000 per household to improve home energy efficiency (71%); and ramping up production of American-made clean energy technologies (73%). And perhaps most significantly, support for these key IRA provisions has grown over time among all likely voters, especially Republican voters.
That support has materialized into consumer action. Twice as many Americans as projected by the US government (more than 3 million households) claimed IRA tax credits in 2023, totaling $8 billion for purchases of “solar panels, heat pumps and other climate-friendly projects,” reports The Washington Post.
Whether Americans know it or not, the IRA has also helped create more than 334,000 new green jobs and spurred $372 billion in new climate investments across the US, according to the advocacy organization Climate Power. Roughly two-thirds of IRA investments in clean energy projects have gone to red states, including a $1.1 billion solar plant in the “reddest district” in America.
Despite that, “politicians tend to think climate action is much less popular than it really is,” notes a recent Grist article. “It’s not just politicians who hold a distorted view: People systematically underestimate public support for climate policies.” Journalists have an opportunity here to tell an undertold story, about climate action and jobs.
From Robinson Meyer and Emily Pontecorvo at Heatmap News (you can sign up for their email newsletters):
More than 3 million American households used the Inflation Reduction Act’s subsidies for homeowners last year, collectively saving more than $8 billion on things like solar panels, batteries, heat pumps, insulation, and other clean energy technologies and efficiency upgrades.
That’s according to new data released Wednesday by the Treasury Department, which provided the most significant insight yet into how Americans are actually using the IRA. Polling had so far suggested that Americans were curious — if confused — about the law’s benefits, but until today, there was no official data available to back up those impressions.
The data sheds light on usage of two tax credits in particular, one of which encourages Americans to make energy efficient changes to their home, e.g. installing a heat pump or a more efficient water heater, the other of which goes toward installing rooftop solar or another form of zero-carbon energy generation.
Of the more than 137 million tax returns the government had processed by late May, some 3.4 million of them — or approximately 2.5% — took advantage of at least one of these two subsidies. That’s about 30% more people than used similar, though less generous tax credits in 2021.
“The Biden Harris administration’s top economic priority is making life more affordable for Americans,” Wally Adeyemo, the deputy secretary of the Treasury, said during a briefing call this week. “The Inflation Reduction Act is doing exactly that.”
Not all of the data flatters the Biden administration’s goals, however. The tax credits — especially those that reward energy-efficient home upgrades — are used in large part by richer households who have the money and wherewithal to pay for costly upgrades to their homes in the first place. Here are four takeaways from this first crucial look into how the law is going.
1. Americans are using the tax credits more than projected — but that’s mostly because of the popularity of rooftop solar.
More than 1.2 million Americans used the residential clean energy tax credit, which covers some of the cost of installing clean electricity-generating technology. A comfortable majority of those claiming the credit — some 750,000 — purchased rooftop solar panels.
When the IRA was first proposed in 2022, the Joint Committee on Taxation projected the government would spend $2 billion on the residential clean energy credit in 2023. In fact, it has spent more than triple that — a total of $6.3 billion and counting. The Biden administration expects more claims to appear as tax returns keep rolling in through November.
2. Uptake is more about geography and economics than politics.
The top three states claiming the efficiency tax credit were Maine, New Hampshire, and Vermont. These states have some of the strongest state energy efficiency policies in the country, according to the American Council for an Energy Efficient Economy’s state scorecard, giving homeowners the chance to stack multiple subsidies to help them pay for upgrades. Northeast states also have some of the most expensive electricity in the country, and many homes there still use fuel oil heating systems, the priciest option for home heating.
But another set of states dominated the clean energy tax credits, which cover solar panels. The top three states to use that subsidy were Nevada, Florida, and Arizona — some of the sunniest places in the country, which have long led on rooftop solar adoption.
Ironically, West Virginia — home of Senator Joe Manchin, one of the IRA’s architects — was dead last of states that used at least one of the credits.
3. The federal government helped pay for nearly 600,000 new natural gas-burning heating systems.
The Inflation Reduction Act revived an earlier, expired tax credit that helped Americans pay for energy efficient home upgrades and appliances. But while the new program increased the amount households could get back for installing electric heat pumps from $500 to $2,000, it also kept in place subsidies for “qualified” natural gas heaters. The government helped pay for taxpayers to install nearly 600,000 new natural gas-burning space heating and water heating systems in 2023. Those appliances have a useful life of at least 15 to 20 years.
The level of uptake is not necessarily surprising — the upfront cost of a natural gas boiler or furnace is much lower than that of a heat pump system. In many states, natural gas heating systems will also result in lower energy bills than a heat pump will.
Heat pump water heaters are more competitive on cost than space heaters, so there the mismatch may be more of a marketing issue. With the federal tax credit, the upfront cost can be nearly on par with natural gas water heaters, and they actually beat their natural gas-powered brethren when it comes to energy bill savings.
4. Wealthier Americans were more likely to take advantage of the IRA.
On a call with reporters on Tuesday, Adeyemo pointed out that nearly half the families who claimed one or both of the residential clean energy credits had incomes lower than $100,000 in 2023.
That’s true. But roughly 75% of filers had incomes lower than $100,000 in 2023. When you look at how many people claimed each tax credit as a percentage of the total number of filers in that bracket, it’s clear that both tax credits are more frequently adopted by higher income Americans.
There’s also an interesting split between the two credits. Wealthier households were especially enthusiastic about efficiency upgrades — roughly one in 25 of those bringing in more than $100,000 claimed the energy efficiency tax credit.
Adeyemo also pointed out that, since people invest in their home’s heating system rather rarely, the administration expects uptake to increase over time.
“Our expectation is that as more American families become more familiar with these tax credits, and they look for ways to save money, they’ll continue to see this as a means to do so,” he said. “Given what we’ve heard from some of the companies selling these products, our expectation is that this will continue.”