Reducing Carbon Emissions with the Inflation Reduction Act

We are living in critical times where we are facing an accelerating environmental crisis. As carbon emissions continue to rise, we are experiencing global warming firsthand with increasing environmental disasters all over the world. The time for change is now and it is meaningful to see government officials acting with a sense of urgency.

The Largest Federal Climate Investment in U.S. History

The United States has taken an enormous step towards mitigating this issue by signing the largest federal climate investment to date. With a total budget of $750 billion, we are seeing over $360 billion dollars directed toward climate initiatives.

On August 16th, 2022, President Joe Biden signed the ‘Inflation Reduction Act’ into law. This is one of the most significant health care, tax and climate bills in the history of the United States, becoming the 169th public law of the 117th Congress (Wang, August 16, 2022; Tankersley, August 16, 2022; P.L. 117-169).

How Does the Inflation Reduction Act Reduce Carbon Emissions?

This Inflation Reduction Act aims to help slash the United States’ Carbon footprint by 40% by 2030, as compared to the pre-IRA estimate of only a 26% reduction. Residents of the US will be given credits to live sustainability. For example, one can receive up to $7500 to buy electric vehicles to replace their gas vehicles or $8000 to replace fossil fuel heating and cooling systems with heat pumps.

The Bill will also provide $20 billion for climate-smart agriculture and $7.6 billion for forest and green conservation efforts. Efforts will be made toward cutting carbon emissions through new builds using low-carbon building materials.

These changes also extend the commercial tax credit for solar panels. If you are a building owner that opts to install solar panels on your building, according to IRA, you could get up to 30% of the installation costs back.

How Will It Benefit Low-Income Communities?

While the Inflation Reduction Act works towards decarbonization, the initiative is also meant to help low-moderate income families live and pay for their basic necessities.

• The IRA has also proposed lowering prescription drug costs, health care costs, and energy costs. This act encourages the ultra-wealthy and corporations to pay their fair share of taxes but ensures taxes of those making under $400,000 a year will not be affected, as stated by the Whitehouse briefing Statements.

• As stated by the IRA, $9 billion will be used to help low and moderate-income (LMI) single-family or multifamily housing implement energy efficiency retrofits and electrification. It will save the average U.S. household up to $220 annually on electricity bills, and promote affordable housing greatly.
  

• This government act is an effective strategy that can help make drastic positive changes to the US economy. It aims to create almost 1.4 million jobs for Americans and avoid more than 3600 deaths by 2030 by bringing down healthcare costs.

How Will It Benefit Multifamily Housing Owners?

If you are a multifamily building owner, the Inflation Reduction Act can benefit you and your tenants in many ways.

Extension and Expansion of 45L Energy-Efficient Home and Multifamily Tax Credit

• The maximum tax credit increases to $5,000 per dwelling unit for both single-family and multifamily developments starting in 2023, as stated here.

• Criteria for what is considered “energy efficient” will align with the Energy Star and zero-energy ready home programs from the Department of Energy.

• Now applicable to all multifamily developments regardless of height, buildings that are 4 stories or taller will be eligible for both 179D tax deductions and 45L tax credits.

Increase and Expansion of 179D Energy-Efficient Commercial Building Tax Deduction

The IRA will provide $1 billion for retrofit projects that advance building electrification and improve energy and water efficiency in affordable housing.

The investor can deduct a large portion of the cost of the retrofit in the first year.

• To reward the construction of energy-efficient commercial and multifamily buildings, the rebate maximum will be increased from $1.88 per square foot in 2022 to $5 per square foot, on buildings 4 stories or taller. Energy-efficient retrofits of older buildings will also be eligible.

• REITs will now have the ability to utilize 179D tax deductions for computing earning and profit purposes. 

• These credits are available for multifamily buildings if more than 50% of residents are considered low- or moderate-income households.

• Whole building retrofitting - Operators of affordable multifamily housing can qualify for $4,000 per unit and $400,000 per building in rebates if models can show concrete energy savings.

What does this mean for the heat pump industry?

This available funding is going to supercharge the adoption of heat pump technology in the US market. Manufacturers are already seeing record sales growth around the world recently, in markets like Europe. Downstream, this may result in tighter supplies and longer lead times unless manufacturers can significantly increase production capacity to keep up with increasing demand. Landlords should look to plan accordingly and expedite their decarbonization initiatives, getting projects off the ground sooner rather than later.

If you are a multifamily building owner and want to take advantage of these credits and rebates, get in touch with one of our Heat Pump Experts today.

References

1. Wang, Amy B. “Biden Signs Sweeping Bill to Tackle Climate Change, Lower Health-Care Costs.” The Washington Post, WP Company, 17 Aug. 2022, https://www.washingtonpost.com/politics/2022/08/16/biden-inflation-reduction-act-signing/. 

2. Tankersley, Jim. “Biden Signs Climate, Health Bill into Law as Other Economic Goals Remain.” The New York Times, The New York Times, 16 Aug. 2022, https://www.nytimes.com/2022/08/16/us/politics/biden-climate-health-bill.html. 

3. “H.R.5376 - 117th Congress (2021-2022): Inflation Reduction Act of 2022 ...” Congress.gov, Rep. Yarmuth, John A. [D-KY-3] , https://www.congress.gov/bill/117th-congress/house-bill/5376. 

4. “Fact Sheet: The Inflation Reduction Act Supports Workers and Families.” The White House, The United States Government, 19 Aug. 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/19/fact-sheet-the-inflation-reduction-act-supports-workers-and-families/. 

5. “Fact Sheet: The Inflation Reduction Act Supports Workers and Families.” The White House, The United States Government, 19 Aug. 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/19/fact-sheet-the-inflation-reduction-act-supports-workers-and-families/. 

6. CPA, Beth Nelson, et al. “Inflation Reduction Act: What Every Real Estate Investor Should Know.” Evergreen Small Business, 15 Aug. 2022, https://evergreensmallbusiness.com/inflation-reduction-act-what-every-real-estate-investor-should-know/.