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Inflation Reduction Act Benefits: Millions Of Efficient Electrified Buildings

Posted to Energy Innovation: Policy and Technology LLC in the The Energy Collective Group
Hadley Tallackson's picture
Policy Analyst Energy Innovation: Policy and Technology LLC

Hadley is a Policy Analyst at Energy Innovation, focusing on electrification of buildings, transportation, and industry to reach decarbonization. Her work also supports the electricity...

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  • Sep 7, 2022
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The Inflation Reduction Act (IRA) is the most significant climate legislation in United States history. Energy Innovation Policy and Technology LLC® modeling finds the IRA’s $370 billion in climate and clean energy investments could cut U.S. greenhouse gas (GHG) emissions up to 43% below 2005 levels by 2030.

Combined with state action and forthcoming federal regulations, the IRA puts the United States within reach of its Paris Agreement commitment to cut emissions 50% to 52% by 2030. The IRA will strengthen the U.S. economy by creating up to 1.3 million new jobs and avoid nearly 4,500 premature deaths annually by reducing air pollution, both in 2030.

In this series, Energy Innovation® analysts showcase the IRA’s benefits in the power, buildings, and transportation sectors of the U.S. economy. This article details IRA investments in cleaner, more efficient homes and buildings.

Emissions reductions under provisions in the Inflation Reduction Act. Users are free to copy, distribute, transform, and build upon the material under the CC BY License as long as they credit Energy Innovation for the original.

Buildings are one of the largest sources of U.S. GHG emissions. Phasing out fossil fuels in buildings, while increasing energy efficiency and building performance, are must-do actions for a climate-stable future. IRA incentives and programs will accelerate adoption of efficient, all-electric appliances and equipment in homes and buildings and make homes healthier while cutting power bills.

Modeling shows IRA funding for buildings and the grid creates climate benefits and energy savings

Energy Innovation modeling finds the IRA can create a 75 to 85% clean grid by 2030, saving households $80 in energy costs each year. These advancements, alongside energy efficiency and clean appliance incentives, make the case for home electrification stronger than ever before.

IRA provisions lay the groundwork for a decarbonized building stock, from homes to businesses. By targeting both retrofits and new buildings, the provisions unlock the market for U.S. building electrification, and the emissions benefits will only grow in the long-term as equipment turnover favors replacement with electrification. Harmful air pollution and GHG emissions reductions will be compounded by clean electrification of buildings when powered by an increasingly clean grid, thanks to the IRA’s power sector investments. 

Energy efficiency offers clear path to slash energy bills. 

High energy bills are hurting a quarter of all U.S. households, exacerbated by higher fuel prices stemming from Russia’s invasion of Ukraine. Efficiency upgrades are a straightforward tool to reduce utility bills by minimizing wasted energy from inefficient and under-weatherized buildings. Weatherization can also save lives when extreme heat or cold hits.

The IRA provides substantial funding for efficiency upgrades to begin relieving energy burdens and protect vulnerable households. Provisions include $4.3 billion for direct consumer rebates on whole-home upgrades that achieve 20% to 35% household energy savings. Low- and moderate- income (LMI) households (earning at or below 150% of their area’s median income) can take advantage of rebates ranging from $4,000 to $8,000 per household for efficiency upgrades, depending on the level of energy savings. Non-LMI households can receive rebates ranging from $2,000 to $4,000, and funding is available for multifamily upgrades as well. Affordable housing whole-building updates will receive $1 billion for upgrades including water and energy efficiency as well as climate resiliency.

Business owners will also save money on their bills. Commercial buildings can benefit from the expanded energy efficiency credit that offers $0.50 to $5 per square foot, depending on the level of energy savings and whether a building meets wage requirements.

Collectively, the efficiency funding can significantly reduce emissions as buildings currently represent nearly a third of all energy consumed in the U.S. And the IRA’s electrification investments will only expand these emissions and cost savings benefits.

Electrification incentives to cut costs and pollution

Electrification of buildings and homes is the most cost-effective strategy for rapidly cutting building emissions and lowering bills. Rewiring America research shows that 85% of U.S. households would save money if they switched from gas to electric furnaces and water heaters. Electricity is more price-stable than natural gas, a trend that is will continue as the grid becomes increasingly renewable.

However, for many households, the upfront cost of replacing gas appliances is a major barrier. Now thanks to the IRA, new, up-front incentives for electric appliances will make clean, more efficient appliances more affordable for consumers. The rebates also help cover electric wiring upgrades, home insulation, and air sealing.

Heat pump heating and cooling system. Photo Credit: David Dodge. 

The rebates prioritize LMI households most in need of relief from high fuel prices, providing up to $14,000 for electric appliances (such as heat pump water heaters, heat pump HVAC, electric ovens/stoves). Households earning less than 80% of the area’s median income (AMI) can receive the full rebate amount, while households earning 80 to 150% of the AMI can receive up to 50% of the maximum rebate values.

Electrification rebates for low- and middle-income households under the Inflation Reduction Act. Users are free to copy, distribute, transform, and build upon the material under the CC BY License as long as they credit Energy Innovation.

LMI Tribal households can take advantage of these rebates, though the stark reality is that many Tribal households do not have access to electricity. The IRA provides long-delayed federal support with $145 million to connect Tribal communities to the grid and upgrade Tribal homes to zero-emissions energy systems.

For LMI and higher-income households (earning above 150% of their AMI) the IRA provides tax incentives for high-efficiency electric appliances, including a $2,000 tax deduction for installing heat pumps or heat pump water heaters.

All households may be able to layer these incentives on top of rebates already offered by local or state governments or utilities, making it even more affordable to electrify.

But these rebates can benefit more than household budgets, as electrification supports healthier homes and communities by entirely removing indoor health risks. Fossil fuel combustion from stoves emit harmful air pollutants directly into homes, tied to a 42 percent higher risk of asthma symptoms in children. Even when turned off and not burning fuel, natural gas appliances leak carcinogens such as benzene.

In addition to the health benefits of home electrification, the IRA supports healthier schools. $50 million in funding is available for schools in low-income communities to implement air quality upgrades and reduce air pollution and greenhouse gas emissions.

Building it right from the start

All-electric building codes are a powerful tool to build clean and avoid retrofits down the road, or otherwise locking in polluting appliances for decades. Zero-energy and smart building codes can usher in a new era of resilient, efficient, and healthy buildings.

State and local governments will benefit from $1 billion in IRA funding for implementing energy-smart building codes, with $670 million dedicated specifically for zero-energy building codes. Developers building new highly efficient and electric homes can receive tax credits of up to $5,000 per home that meets the U.S. Department of Energy’s Zero Energy Ready Home qualifications.

The IRA leverages federal buildings as a prime opportunity to use construction materials with low-embodied carbon, investing $2.15 billion in funding for procuring such materials, along with $25 million in funding to convert federal buildings to “high-performance green buildings,” saving taxpayers from paying for inefficient energy consumption.

Jobs for the 21st century clean economy

On top of benefits for building clean from the ground up, the IRA creates an electrification glide path by supporting workforce development.

 Contractors are the backbone of building electrification, from raising customer awareness on the efficiency benefits to conducting the installations. The IRA provides contractors with up to $500 for installing electric rebate-qualified appliances, and supports them with a $200 million dedicated training program. These provisions will facilitate a smooth workforce transition by ensuring workers have access to training for new skills to take advantage of newly created jobs.  

New jobs in appliance manufacturing and distribution can also arise from growing demand and new markets for electric appliances. A University of California, Los Angeles study shows in California alone, electrifying all buildings by 2045 would create 100,000 new construction and manufacturing jobs.

Collectively, the IRA will support 1.3 million new jobs in 2030, including over 250,000 jobs for construction workers throughout the economy. The bill’s emphasis on domestic manufacturing will also provide a push for more U.S. jobs to grow the clean energy economy. 

Electric power for a brighter future

The IRA sets the necessary groundwork for clean, electrified buildings and homes to become our new normal, staring with the households that need it most. By targeting incentives throughout the electrification supply chain, the IRA readies our economy to scale climate solutions and supports a growing clean energy workforce and lower-income households in the process.

For the U.S. to meet net-zero GHG emissions by 2050, the U.S. building stock must be energy efficient and all-electric. Amidst this pivotal decade for course-correcting against climate change, IRA investments will advance building decarbonization, shaping a future with a comfortable climate and even more comfortable homes.

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