It’s called the Inflation Reduction Act of 2022 (IRA), but a more apt name may have been the Greenhouse Gas Emission Reduction Act, due to its noteworthy support of renewable energy. This includes financial incentives for solar power production and storage, and electric vehicles, for increased energy efficiency in the home and other efforts to reduce the effects of climate change.
About half of the $737 billion initiative is aimed at achieving the President’s goal of reducing greenhouse gas emissions to 50% below 2005 levels by 2030. This is a heavy lift, possible only with a deep national commitment to renewable energy sources. An analysis by Princeton University estimated the law would push the U.S. to 84% of Biden’s goal – much closer but not nearly there.
Promoting Solar Energy Use and Storage
Among the most important initiatives in the new law are those designed to promote the use and storage of solar power. A tax credit that was set to decline and then expire has been fully extended another 10 years, and it can now be applied to stand-alone battery storage systems. The law also increases rebates for the purchase of electric vehicles and allocates funds to build out the power station grid that fuels electric vehicles.
The knock-on effects of these incentives may be even greater: they will spur free market competition and innovation in the field of electric vehicles, solar power and battery storage, helping improve the efficiency and effectiveness of these technologies and increase their return on investment. That in turn will spur more use, perpetuating the virtuous cycle.
How the Solar Rebate Can Benefit You
The Federal Income Tax Credit (ITC) had been 30% for the many years. A business or homeowner who invested $20,000 in a solar system got $6,000 back from the federal government as an income tax credit. That incentive had already stepped down to 26% in 2020 and scheduled to drop to 22% in 2023 before diminishing further in 2024.
The new law extends the ITC at 30% through 2032 before stepping down as originally planned. In addition, battery systems – whether tied to solar or not – can qualify for the rebate. If you have an existing solar system and retrofit a battery to it, you will qualify for the rebate. That will make the U.S. greener, more resilient and more energy independent.
The new law also makes the rebate available to non-profit entities – including municipalities, hospitals and schools – even though they don’t pay taxes. Additional incentives to purchase equipment made in the USA and to invest in solar benefiting low-income communities ensures the positive impact is felt far and wide.
A Green Wave of Renewable Power
Talk of tariffs on imported solar panels and uncertainty about the tax credit had many investments in solar projects. The new law should help usher in another green wave, with benefits to the individuals and businesses that invest, their communities, and the planet. There are additional tax incentives available for locating solar projects in low-income areas and for using Made-in-America equipment, such as solar modules. This should accelerate the growth of the United States’ solar manufacturing sector, which currently has minimal production capacity compared with Asia.
Financial incentives in the law to purchase electric vehicles will drive down their price. The rebates for batteries could drive innovation in that space and further improve their capacity and efficiency, making electric vehicles a plausible alternative for more Americans.
Other kinds of clean energy production, like wind and hydro, also get a boost from the new law. Taken together, these initiatives will save the average U.S. household $170-$220 in energy costs annually, estimates the non-partisan research institution Resources for the Future. Working within our free-market system, these government supports will help make the planet – and your wallet – greener. The IRA is a very positive step.
