Every year, on the first Wednesday of October, we celebrate the low-profile powerhouse of the advanced energy sector: energy efficiency. The annual Energy Efficiency Day (#EEDay2022 on social media) serves as a reminder that efficiency upgrades – however big or small – work year-round to lower bills, improve grid efficiency, enhance the resilience of our communities, reduce reliance on fossil fuel energy, and create local jobs. Energy efficiency touches everyone in their homes, at their jobs, and in their schools, and will become ever more important as we upgrade our transportation and buildings to high-performing, clean technologies like electric cars and heat pumps. Efficiency is also key for keeping us cool during extreme heat and warm during severe cold without straining the grid or our pocketbooks. Now, there’s more reason than ever to cash in on the value of energy efficiency, thanks to landmark legislation passed by Congress.
The past year has brought renewed public commitments at the global, federal, state, and local levels alike to residential and commercial energy efficiency and building electrification. Together, the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) represent the largest investment in energy efficiency and building electrification in U.S. history. The two bills make use of direct consumer incentives, tax credits, and public investment to achieve vast energy savings across the economy via clean and healthy building technologies. Here’s how:
Tax Credits: IRA does so by providing a 10-year extension and expansion of tax credits for energy efficiency and renewable energy improvements. Energy efficiency credits will no longer have a lifetime cap; instead, homeowners will be able to claim $1,200 per year for a variety of improvements, like installing efficient windows and doors or an induction stovetop, and up to $2,000 for the purchase of a heat pump. Residential renewable energy improvements including solar panels – and for the first time, stand alone battery storage – will be eligible for a 30% tax credit.
Consumer Rebates: IRA also invests nearly $9 billion in state-administered rebate programs to support low- and middle-income consumers with whole-home retrofits and electrification upgrades such as purchases of induction stoves, electric panel upgrades, and heat pumps. These upfront rebates are generous: heat pumps can qualify for up to $8,000; heat pump water heaters, $1,750; and heat pump clothes driers and induction stoves for $840. Panels and wiring upgrades to support these technologies can qualify for rebates up to $4,000 and $2,500, respectively.
Insulation and sealing, the key to maximizing efficiency upgrades for heating and cooling, qualifies for up to $1,600. Those programs will be available to consumers making under 150% of the median income of the state, which makes them more broadly accessible than one might think. As state energy offices set up these programs over the next several years, industry and community engagement will be crucial to ensure that their design really works for both the market and those who need these programs the most.
Help for Low-income Homeowners and Renters: Support for both low and middle-income homeowners, as well as owners and occupiers of rental properties and multifamily homes is essential to lowering emissions from the building sector. IIJA provides $3.5 billion for the Weatherization Assistance Program, which supports low-income homeowners with efficiency upgrades in their homes. And for rental housing, IRA includes over $800 million for the U.S. Department of Housing and Urban Development to support energy efficient and clean technology upgrades in affordable housing. Qualifying upgrades include energy and water efficiency, zero-emission electricity generation, energy storage, climate resilience, and building electrification.
Energy Audits: IIJA also funds two programs that will complement the IRA rebates by assisting building owners in assessing where their energy losses are occurring. Specifically, IIJA creates a $250 million revolving loan program for states to conduct energy audits. As this program develops, communities should consider providing recommendations that highlight their biggest investment needs. Further, IIJA also provides $550 million for the Energy Efficiency and Conservation Block Grant Program (EECBG), which can be used to fund residential and commercial building energy audits.
State Energy Offices: IIJA and IRA also provide a historically large infusion of funding for energy efficiency programming through state energy offices. IIJA makes $500 million available for the State Energy Program and between IIJA and IRA, $1.225 billion is available to states to adopt the most up-to-date building codes, while the funding for EECBG can also be used for efficiency planning. States should consider investing in additional administrative capacity to ensure these programs are properly and swiftly implemented.
Public Buildings: Both pieces of legislation also invest in energy efficiency for the public building stock. In addition to the aforementioned funding for EECBG, which can be used for efficiency upgrades in public buildings, IRA provides $250 million to convert federal buildings to high-performance green buildings, while IIJA makes $500 million available to schools to make energy efficient upgrades and install advanced energy technologies like solar panels and energy storage. $50 million is also made available through IIJA to assist nonprofits with their own energy efficiency improvements – saving energy costs and freeing up more dollars for their mission-oriented work.
Job Training: All of this efficiency and electrification will require an expanded high-skilled workforce for installation and maintenance. For that, IIJA provides $50 million across a variety of programs to train the next generation of workers and establishes a 21st Century Energy Workforce Group to make recommendations for additional investments, while IRA provides an additional $200 million for training home energy efficiency contractors.
The federal investment comes at the perfect time, as many states, cities, and municipalities set ambitious goals to upgrade their built environments for the sake of energy savings, climate commitments, public health, and local workforce development. In fact, many local and utility programs offer additional incentives for efficient appliances like heat pumps that can be paired for even further consumer cost reductions. The City of Denver is offering up to $9,000 for cold climate air source heat pumps and ground source heat pumps, $5,400 for cold climate mini-split heat pumps, $3,200 for smart heat pump water heaters, and $2,000 for electric service upgrades, while the Sacramento Municipal Utility District offers up to $3,000 in rebates on energy-efficient heat pumps plus $2,500 in panel upgrades when both are installed to convert from natural gas to electric.
It also adds new momentum and manufacturing support for transformational efficiency technologies to begin to scale and penetrate the market. Over the last 10 years, the U.S. heat pump market has more than doubled to reach nearly 4 million installations in 2021, though this still represents only a fraction of all new HVAC equipment. But the tide is starting to turn. Just two weeks ago, the California Air Resources Board announced that the state will phase out the sale of new gas heating appliances by 2030. With California home to over 39 million Americans representing nearly 12% of the U.S. population, this decision provides a massive market signal – and regulatory certainty – to the heating and cooling industry to up its game.
Globally, the Ukrainian crisis is forcing European nations to double down on energy efficiency and quickly convert traditional HVAC systems over to heat pumps to reduce their dependence on Russian gas as soon and by as much as possible. Just within the last several months, Austria revised its renewable heating law to end the sale of all new gas boilers beginning in 2023, and the Netherlands required heat pumps or hybrid heat pump systems for all new homes and replacement projects beginning in 2026. Germany has a goal of installing 500,000 new heat pump units per year, beginning in 2024.
All told, this Energy Efficiency Day is unique, with more resources available than ever to reduce consumption and switch to cleaner sources. Come next October, let’s hope we can look back at the year and celebrate how hard work and commitment to energy not used made our homes, our communities, and our world better places.