Rising energy prices—fueled at least in part by Russia’s invasion of Ukraine—have made life uncomfortable for many Americans. Though prices for crude oil, gasoline, diesel fuel, and heating oil are forecast to drop a bit in 2023, the costs of of natural gas and electricity are expected to rise slightly next year. And all these costs are significantly higher than what Americans were paying in 2020 and 2021.
One bright spot on the horizon is the steady fall in gasoline prices from the June 2022 high of $5 a gallon to $3.90 as Aug. 22, 2022. However, that is still 74 cents more than a year ago. As Russia shows no signs of reconsidering its war, and Ukraine holds firm and refuses to yield, the situation is unlikely to improve in the immediate future.
This means that Americans will be paying significantly more to use their cars, heat or cool their houses, cook their meals, talk on the phone, watch TV or play video games, and use their fuel-powered lawn mower or snowblower. This provides one more compelling reason to reduce our reliance on traditional energy resources and “go green.” The good news is that making this jump is now more accessible than ever, thanks to the Inflation Reduction Act, which at $370 billion is the largest investment in climate action in U.S. history.
- A core goal of the Inflation Reduction Act is to incentivize people to “go green” by making the transition more affordable.
- The government is helping with the up-front costs of making homes and vehicles more efficient via a variety of tax credits and rebates.
- Lower-income households are eligible for more help, though some of the incentives are targeted at everyone.
- The government believes its legislation can reduce carbon emissions by roughly 40% by 2030 while cutting energy bills by $500 to $1,000 per year.
The Inflation Reduction Act Makes Going Green Cheaper
A core goal of the landmark Inflation Reduction Act, signed into law in August 2022, is to incentivize people to “go green” by making the transition more affordable.
Look beyond the headline provisions, such as the 15% minimum corporate tax, and you’ll find various tax credits and rebates designed to improve the environment and American bank balances, at least in the long run. The government wants to help the population with the up-front costs of making their homes and vehicles more energy efficient and believes that such measures can reduce carbon emissions by roughly 40% by 2030 while cutting energy bills by $500 to $1,000 per year.
Let’s take a look at the various incentives that the Biden administration introduced via the Inflation Reduction Act.
Tax Credits for Electric Vehicles at $4,000 and $7,500
The Inflation Reduction Act brought some big changes to the electric vehicle (EV) tax credit, a federal incentive to encourage people to purchase EVs. Residents who meet the income requirements and buy an electric, plug-in hybrid, or hydrogen fuel cell vehicle are eligible to receive up to $7,500 from the government to help fund the expenditure—provided that it costs under a certain amount and is assembled in North America with a battery that is built with minerals mined or recycled on the continent.
Another interesting development is the possibility of discounting the total credit amount from the auto’s purchase price at the point of sale. The credit now extends to “clean” pre-owned autos, giving buyers the opportunity to save 30% of the sale price up to a maximum of $4,000 on used vehicles made anywhere in the world that are two or more years old, cost $25,000 or less, weigh less than 14,000 pounds, and are purchased from a dealer.
Hefty up-front costs are the main reason that many people don’t drive around in an electric car or truck. However, once you overcome them, the savings start pouring in, and the investment should pay itself off in no time. A 2020 study from Consumer Reports claimed that EVs can save the owner anywhere from $6,000 to $10,000 throughout the life of the EV car compared with gasoline-powered cars, and that was before prices at gas pumps rose to record highs.
Save Up to $2,000 a Year on Home Efficiency Improvements
Up until the end of 2021, there was a green-oriented household tax credit known as the Nonbusiness Energy Property Credit. The good news is that a new credit, called the Energy Efficient Home Improvement Credit, will soon take its place—and it is much, much better.
Starting in 2023, homeowners can tap into a 30% tax credit to cover some of the costs of eligible home improvements, such as installing efficient exterior windows, skylights, exterior doors, boilers, and so on. The maximum payout depends on the item, tops out at $2,000, and resets every year until the bill expires in 2032.
If you’re familiar with the Nonbusiness Energy Property Credit, you’ll recognize immediately that its coming successor is significantly more generous. Under current rules, you can get a 10% credit up to a maximum of $500, which is a lifetime rather than annual limit.
The new Energy Efficient Home Improvement Credit arrives in 2023 with an annual cap of $1,200, which applies to almost every type of qualifying improvement. However, there are alternative yearly dollar limits that apply to the following items:
- Home energy audits—$150
- Exterior door—$250, with a $500 total for all exterior doors
- Exterior windows and skylights; central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; and natural gas, propane, or oil furnaces or hot water boilers—$600
- Electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers—$2,000
If you don’t have a tax liability, then you may not be able to take advantage of—and get refunded for—the quoted tax-credit percentage of your purchase.
Tax Credit of 30% for Solar Panels and Other Renewable Energy Equipment
Another credit that the Inflation Reduction Act extended to 2034 and revamped is the Residential Energy Efficient Property Credit. Now called the Residential Clean Energy Credit, it continues to offer help toward the installation cost of solar, wind, geothermal, and biomass renewable energy but on more generous terms.
Previously, the credit was worth 26% of the outlay and scheduled to drop to 23% in 2023 before expiring in 2024. Now, under the Inflation Reduction Act, it will jump to 30% and stay there until 2032 before dropping to 26% in 2033, then 22% in its final year. The other good news is that, as of 2023, the new incentive also applies to battery storage technology with a capacity of at least three kilowatt-hours.
Home Energy and Appliance Rebates
The Inflation Reduction Act also established two rebate programs that are predominantly designed to help low- and middle-income families.
High-Efficiency Electric Home Rebate Program
One of them, the High-Efficiency Electric Home Rebate Program, provides rebates to households earning less than 150% of their local area’s median income who purchase energy-efficient electric appliances. Those who qualify can get rebates on the following items:
- Heat pump for space heating or cooling—$8,000
- Heat pump water heater—$1,750
- Electric stove or an electric heat pump clothes dryer—$840
Rebates are also available for other upgrades that don’t involve appliances, up to the following amounts:
- Electric load service center upgrade—$4,000
- Electric wiring upgrade—$2,500
- Insulation, air sealing, and ventilation upgrade—$1,600
Households with income below 80% of the median where they reside can claim a rebate for the full cost of their upgrades, up to a maximum of $14,000. Those that fall in the range of 80% to 150% of their area median income qualify for rebates covering half the costs, again up to $14,000.
The HOMES Rebate Program
The other rebate program, called HOMES, rewards homeowners who reduce their energy consumption by retrofitting their homes. Payout amounts depend on household income and the degree to which energy consumption is cut.
A 20% energy reduction throughout the home would trigger a maximum rebate of $2,000 or half the cost of the retrofit project, whichever is less. That threshold then rises to $4,000 for those able to cut energy consumption by more than 35%. For lower-income families—households earning 80% less than their local area’s median income—the rebate limits double.
What does ‘going green’ mean?
“Going green” generally means behaving in a way that protects the environment. That can include recycling, using your car less, and better insulating your home so that it consumes less energy.
Why is going green important?
Going green can be important for both your personal finances and the well-being of the planet. For example, some people are able to heat and power their homes with the sun or wind. This saves them a fortune on bills while reducing air pollution.
How does going green help the environment?
The U.S. government estimates that its Inflation Reduction Act can reduce carbon emissions by roughly 40% by 2030. That’s quite an ambitious target that would drastically help, among other things, boost the quality of the air we breathe, the water we drink, and the food we eat.
The Bottom Line
The Inflation Reduction Act could help to save many households a great deal of money. It is the biggest climate spending package in U.S. history, and it would be foolish not to take advantage in some way if you have the financial means to do so. Those who qualify could get thousands of dollars handed to them to reap the benefits of cheaper electricity, heating, and car fuel. They would also help to improve air quality, reduce global warming, and leave the planet in better shape for future generations.