Two Years Later: What's the Impact of the Inflation Reduction Act?

The Inflation Reduction Act marked its second anniversary last week. Much of the attention focused on the size and number of new, mega-scale renewable energy projects it supported. That's only the beginning, as millions of households, small businesses and other stakeholders begin to explore new tax credit opportunities for investing in small-scale renewable energy and energy-efficiency projects. 

The impact of the Inflation Reduction Act, two years later

A recent analysis from the U.S. Treasury Department gives insight into how individual households are leveraging the tax credits available under the Inflation Reduction Act. “New data from the Internal Revenue Service show that more than 3.4 million American families have already claimed more than $8 billion in residential clean energy and home energy-efficiency credits against their 2023 federal income taxes,” the Treasury Department reported earlier this month. 

The bulk of the total consisted of $6 billion in tax credits claimed by 1.2 million families for renewable energy projects including solar panels, solar water heaters and batteries for home energy storage. Another 2.3 million families claimed the remaining $2 billion for home energy-efficiency improvements like heat pumps and insulation, for an average of $880 per family. 

The Treasury Department projects the final figures for the 2023 tax season will be even higher, as late and extended returns are still being processed.

Residential investments in clean energy and energy efficiency translate into significant savings on utility bills, helping to insulate households from volatile energy costs, the analysis noted. That price protection can play an important role in mitigating recessions linked to energy price shocks, which can have a positive ripple effect on small businesses and other local stakeholders. 

In addition, household savings on utility bills can free up more money to circulate in the local economy. A recent survey commissioned by the online marketplace Faire takes note of strong consumer sentiment in favor of supporting local shops and businesses as an important quality-of-life element in their communities.

Above all, the analysis emphasizes that small-scale energy investments under the Inflation Reduction Act will add up to a significant impact on greenhouse gas emissions in the U.S., and on the economy as well. If every household switched to heat pumps, for example, total U.S. carbon dioxide emissions would fall by up to 9 percent annually, leading to follow-on economic benefits between $84 billion and $150 billion each year, according to the U.S. EPA .

A helping hand for accessing information about tax credits 

Individuals and small businesses typically don't have the same tax attorneys and accountants as large-scale energy developers, but resources are available to help smaller energy buyers find out about new opportunities presented by the Inflation Reduction Act.

Among them is the new Climate Hub launched by the office of Sen. Edward J. Markey (D-Mass.) last week. Designed to ensure information about grants and tax credits reaches small businesses and other small energy consumers, the Climate Hub covers provisions of the Inflation Reduction Act as well as the 2021 Infrastructure Investment and Jobs Act (also known as the bipartisan infrastructure law).

"Together, these two laws have created the largest and most significant climate and clean energy investments in history, putting the United States on a path to address the climate crisis, repair historic harms to disadvantaged communities, create good-paying union jobs in the clean energy economy, and work towards a Green New Deal future,” Markey said in a statement.

The Climate Hub collects all of the relevant information about available tax credits in one place, including how-to instructions, webinars and resource guides developed by Markey's office as well as the White House, federal agencies, and non-governmental organizations.

Anyone can use the Climate Hub website, but Markey draws particular attention to energy consumers who don’t have the knowledge and resources available to large-scale investors. That includes cities, towns, Indigenous Tribes and communities impacted by environmental injustice, along with schools, labor organizations and individuals.

One particularly valuable message from the Climate Hub is a reminder that the provisions of these two laws are not yet fully implemented. Tax credits available through the Inflation Reduction Act, for example, will continue in effect until 2032 or until the U.S. achieves a 25 percent reduction in carbon emissions from electricity generation.

Business owners, managers and other stakeholders can stay updated on new developments by checking into the Climate Hub website regularly, getting in touch with their representatives in the House or Senate, or exploring opportunities to enroll in the Green Power Partners program of the U.S. Environmental Protection Agency.

Beyond energy tax credits

In addition to the impact on carbon emissions, the Inflation Reduction Act has also fostered an important link between climate action and benefits to small businesses, including rural businesses.

Celebrating the two-year anniversary of the law last week, Department of Agriculture Secretary Tom Vilsack took note of lower energy costs, job creation, and protection from wildfire and extreme heat risks across rural U.S. communities. “The Inflation Reduction Act makes a once-in-a-generation investment that supports rural communities and their infrastructure needs, while adapting to the climate crisis and creating better health outcomes,” he said in a statement.

As the saying goes, money talks. Although the Inflation Reduction Act passed into law along strictly partisan political lines, the economic benefits have been distributed across the U.S. regardless of party affiliation, and projections indicate that U.S. communities and businesses will continue to benefit for many years to come.