5 Major Benefits of the Inflation Reduction Act’s Climate Investments
The Inflation Reduction Act—announced by Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) on July 27, 2022—offers the best opportunity yet to address the climate crisis. The legislation makes a historic investment of $369 billion in climate action over the next decade through clean energy deployment, domestic manufacturing, and pollution reduction. Yet these investments add up to more than just the biggest expenditure to tackle climate change in U.S. history; the bill invests in the people and communities that will build and benefit from the clean energy economy, lowering costs, creating millions of new good jobs, and cutting pollution along the way.
Here are five ways the Inflation Reduction Act’s climate investments would bring benefits to households and communities across the United States:
1. Households could receive $28,500 in up-front incentives to buy electric vehicles and household appliances
Using the tax incentives and rebates in the Inflation Reduction Act, a low- or moderate-income household could choose from a variety of incentives that add up to $28,500 to switch to efficient electric home appliances, install rooftop solar, and buy new electric vehicles.
The Inflation Reduction Act makes the transition to an all-electric home more affordable than ever by offering the following incentives, which would be available beginning this year if enacted:
- Purchasing electric vehicles: The Inflation Reduction Act offers up to $7,500 toward the purchase of a new electric vehicle or up to $4,000 toward the purchase of a used electric vehicle. Eligibility is capped so that these credits are not available to the wealthiest families—those earning more than $300,000 per year for new vehicles or $150,000 per year for used vehicles.
- Installing rooftop solar: The Inflation Reduction Act provides for 30 percent off the cost of rooftop solar, which amounts to average savings of $7,000, according to estimates from the Sierra Club. The bill also offers 30 percent off the cost of home batteries for the first time.
- Switching to electric appliances: The Inflation Reduction Act offers homes up to $14,000 in rebates to switch over to electric appliances—covering up to 50 percent of the costs for moderate-income households and 100 percent of the costs for low-income households. The total program is capped at $4.5 billion. This includes up to:
- $8,000 for a heat pump, which serves as an air conditioner in the summer and heater in the winter
- $1,750 for a high-efficiency, all-electric heat pump water heater
- $840 for an electric induction cooktop
- $840 for a high-efficiency all-electric heat pump clothes dryer
- Up to $9,100 for enabling improvements to the electric panel, wiring, and home insulation
- Improving energy efficiency: An alternative rebate option offers to cover more than 50 percent of the cost of whole-home energy efficiency retrofit or more than 80 percent in the case of homes occupied by low- or moderate-income households. Households that do not participate in either rebate program can still claim a variety of home energy tax credits, which are improved and extended for 10 years by the bill.
- Making major investments in affordable housing and multifamily rental units: The Inflation Reduction Act’s investment incentives aren’t just for individual homeowners; in fact, the bill provides rebates of up to $400,000 for whole-building energy efficiency retrofits in large multifamily apartment buildings as well as grants and loans worth $1 billion in total for improving efficiency and installing zero-emission equipment in affordable housing units.
2. Families could save up to $1,800 in annual costs for gasoline and utility bills as a result of electrification
Any family that chooses to take advantage of the many programs within the Inflation Reduction Act to switch to electricity could save up to $1,800 per year in energy costs, according to Rewiring America. Since energy prices will go down across the board, even families who do not electrify will benefit. Nationwide, the average family is projected to spend $1,025 less on energy in 2030 than it does today, according to the Rhodium Group.
The Inflation Reduction Act’s investments in electrification would reduce household energy costs for the following reasons:
- Electric appliances are three to five times more efficient than their fossil-fuel counterparts.
- More than 100 million American households stand to save money every month on their energy bills from electrifying just their furnaces and water heaters.
- Consumer Reports estimates that electric vehicle drivers save between $1,800 and $2,600 annually, which is similar to the Rewiring America estimate but takes into account the reduced maintenance costs as well as the energy cost savings of electric vehicles.
- Even families that don’t switch out their vehicles and energy systems will see major cost savings. By 2030, Rhodium projects that electricity rates and fuel prices will decline. Across those who take the electrification credits and those who do not but still benefit from lower energy prices, Rhodium expects the average household will spend $1,025 less on energy costs than it does today. That includes $63 in estimated savings on electricity bills, $105 on other home energy bills, and $857 on gasoline.
3. 1.5 million new good jobs would be created in 2030
The investments in the Inflation Reduction Act—including the clean energy tax credits and clean energy manufacturing incentives—could create up to 1.5 million new U.S. jobs in 2030 in construction, manufacturing, and service, according to Energy Innovation. The bill’s investments also expand equitable access to, and training for, these manufacturing jobs.
Paired with the CHIPS and Science Act, the Infrastructure Investment and Jobs Act (IIJA), and President Joe Biden’s work to expand “Buy America,” the Inflation Reduction Act would provide the means for the United States to take control of its own clean energy future—fostering a homegrown, robust clean energy manufacturing sector. Expanding domestic clean energy capacity means that energy prices will be less vulnerable to global supply shocks in the future:
- Establishing wage and apprenticeship requirements: Many wind, solar, manufacturing, and carbon management projects that take advantage of the tax credits in the Inflation Reduction Act can get full benefit of those credits only if they pay workers a prevailing wage and include individuals who have completed a registered apprenticeship program, which can help diversify the workforce and grow the pool of skilled workers. Moreover, many provisions include an additional 10 percent bonus if projects use materials manufactured in the United States.
- Revitalizing American manufacturing: The bill’s investments would revitalize U.S. manufacturing, including through new tax credits for the production of solar panels and battery cells; $10 billion for reinvestment in manufacturing communities; $5.8 billion for federal procurement of zero- and low-emission manufactured products; $3 billion to expand and establish electric vehicle manufacturing facilities; $2 billion to help current automakers transition to electric vehicles or hybrids; and $6 billion to support technologies that will help heavy manufacturing facilities slash their emissions.
4. Up to 3,900 lives would be saved annually by 2030 as a result of cleaner air
According to Energy Innovation, pollution reductions from the Inflation Reduction Act’s clean energy investments would save an estimated 3,900 lives annually by 2030, avoiding unnecessary premature deaths resulting from bad air quality. Importantly, the modeler finds that pollution-related deaths would decline by a greater percentage in communities of color, where the burdens of pollution have too long been concentrated.
The Inflation Reduction Act would cut harmful air pollution, which is disproportionately concentrated in communities of color:
- The Inflation Reduction Act’s pollution reductions would prevent up to 100,000 asthma attacks annually by 2030.
- In analyzing the tax credits included in the Inflation Reduction Act, the Rhodium Group found that the credits, together with state and federal regulatory action, would cut harmful air pollutants such as sulfur dioxide emissions 86 to 89 percent below 2020 levels by 2030 and nitrous oxide emissions 59 to 63 percent below 2020 levels by 2030.
- These strong results were found on the basis of only some of the larger climate-related investments and in spite of the deal’s inclusion of forced oil and gas lease sales; additional significant air pollution reductions are to be expected from dedicated programs, including healthy ports, the Environmental and Climate Justice Block Grants, the Neighborhood Access and Equity Grant Program, and other programs.
5. Climate pollution would be reduced to 40 percent below peak levels
Three independent modelers confirm that the major climate investments in the Inflation Reduction Act are likely to cut U.S. greenhouse gas emissions to 40 percent below peak 2005 levels by 2030.
When coupled with continued ambitious action by President Biden and the states, this bill would put within reach the United States’ commitment under the Paris Agreement: slashing climate pollution to half of peak levels by 2030.
Preliminary results from three independent modelers confirm that the combined effects of the Inflation Reduction Act’s investments will amount to major emissions reductions:
- The Rhodium Group finds that with the Inflation Reduction Act, emissions in 2030 would reach 31 to 44 percent below 2005 levels—far better than their business-as-usual projection of just 24 to 35 percent. That means this one bill would close 27 to 60 percent of the gap between business as usual and the climate goal.
- Similarly, Energy Innovation finds that with the Inflation Reduction Act, emissions in 2030 would reach 37 to 41 percent below 2005 levels—far better than their business-as-usual projection of just 24 percent. That means this one bill would close 50 to 66 percent of the gap between business as usual and the climate goal.
- To further affirm the emissions reduction benefits, the REPEAT Project finds that with the Inflation Reduction Act, emissions in 2030 would reach roughly 41 percent below 2005 levels—far better than their business-as-usual projection of just 26 percent. That means this one bill would close 63 percent of the gap between business as usual and the climate goal.
It is important to note that in order to strike this historic climate deal, Senate negotiators acceded to some difficult tradeoffs—particularly, provisions that may continue the production of dirty fossil fuels. While the net effect of such provisions is included in these modeling results, any continuation of oil drilling on our public lands and waters keeps communities that are on the front lines of fossil fuel pollution in harm’s way.
The climate and justice investments in the Inflation Reduction Act will supercharge efforts to reduce pollution in overburdened communities, but the hard work of pushing back against Big Oil’s influence on policymaking and fighting for a safe future for all communities has not ended.
Read more on how the Inflation Reduction Act would benefit Americans
11 Ways the Inflation Reduction Act Will Help Americans
The Inflation Reduction Act’s $369 billion in investments for climate, justice, and clean energy make it the most significant climate bill in history. It will help lay the foundation for the clean economy of the future—lowering energy costs for families, cleaning up legacy pollution, creating millions of good jobs, and bringing within reach our goal of slashing climate pollution to half of peak levels by 2030.
The Inflation Reduction Act’s $369 billion in investments for climate, justice, and clean energy make it the most significant climate bill in history.
The authors would like to thank Shannon Baker-Branstetter, Elise Gout, Auburn Bell, Rachel Chang, Cathleen Kelly, and Mike Williams. The authors gratefully acknowledge the hard work of Rewiring America, the Rhodium Group, Energy Innovation, and the REPEAT Project, whose careful analyses are summarized in this article.
The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.