Inflation Reduction Act: A Big Step to Lower Energy Cost and Combat Climate Change 

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The recently passed Inflation Reduction Act, signed by President Joe Biden, makes notable actions to fight against inflation. This legislation is the most significant clean energy investment in American history, with far-reaching implications for renewable energy. Inflation occurs when there is a mismatch between supply and demand. IRA could help many utilities and energy companies reduce the skyrocketing healthcare costs, tackle the climate crisis, and significantly cut the deficit. So, what exactly is the inflation reduction act, and how does it work?  Let’s dive into details.

In this post we are discussing: 

  • What is in the Inflation Reduction Act? 
  • How will the Inflation Reduction Act affect energy prices? 
  • Commercial buildings energy-efficiency tax deduction expanded by IRA 

The Inflation Reduction Act, signed into law on Aug.16, includes an allowance of USD 369 billion in new energy to promote clean energy and climate justice. The act invests a transformational $369 billion to reduce the technology costs and barriers associated with developing and deploying renewable energy, reduce climate-related spending, and lower carbon emissions by 40% by 2030.

Inflation-Reduction-Act 2022

How will the Inflation Reduction Act impact energy prices? 

High inflation in the U.S. is a big concern for the clean energy sector, but the passage of the Inflation Reduction Act could cope with the situation to an extent. 

Here are some of the ways the Inflation Reduction Act would contribute to climate-smart investments and grow our green economy: 

Clean energy: The bill offers approximately $200 billion incentives to accelerate solar and wind power energy efficiency on the grid.  

Commercial building energy upgrades: Tax deductions of up to $5 per square foot are available to commercial building owners for energy efficiency improvements that result in lower energy bills for new and renovated buildings, such as improvements to a building’s envelope, HVAC systems, lighting, and controls. 

Commercial energy systems: Businesses can also receive tax credits covering up to 30% of the costs of installing solar power and battery storage, which reduce energy costs and protect against fluctuating energy prices. 

Growing Wisconsin’s green economy: The IRA will bring an estimated $4 billion in investment between now and 2030, which will help our manufacturing industry, which employs an average of 472,000 people and accounts for more than 18.8% of total output in Wisconsin in 2021. 

Environmental justice 

$3 billion for block grants to reduce air pollution, mitigate climate and health risks, increase climate adaptation, and facilitate community engagement in public processes. 

Commercial buildings energy-efficiency tax deduction expanded by the IRA 

Thousands of commercial building owners have utilized the 179D tax deduction since its inception in 2005. The new provisions for building energy efficiency included in IRA 2022 is the expansion of the 179D tax deduction. All major building categories, including warehouse, industrial, retail, office, hospitality, and restaurant chains, utilize the tax deduction. 

Here are the key updates to 179D under the IRA: 

  • Section 179D is a deduction that allows building owners to claim up to $1.80 per square foot for energy-efficient buildings or to install systems to that effect. IRA expanded the ten-year incentive to a sliding scale of $2.50- $5.00 per square foot.  
  • If the prevailing wage and apprenticeship requirements are not met, the 179D deduction is $0.50 per sq. ft. for a 25% reduction. Further reductions increase the deduction by $0.02 per sq. ft., up to $1.00 per sq. Ft. 
  • The IRA removes the existing rules for partial certifications (currently $0.60 per sq. ft. for each lighting, HVAC, and building envelope). 
  • The IRA expands tax credits for energy-efficient building retrofit projects that are part of a qualified retrofit plan. 

Looking forward 

There is no telling how challenging or how long the process will take. The Inflation Reduction Act is a massive win for building communities already devoted to energy-saving initiatives. The law offers lower energy costs and healthier communities. IRA will also provide excellent support in the fight against climate change – now and for generations to come.  

If you are an Architect, designer, or contractor working on a new or renovation project, contact us to know how Lumos Controls help you make energy efficiency upgrades for your lighting.   

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