President Joe Biden recently signed the Inflation Reduction Act of 2022, a major climate bill passed by the house and senate that will have significant implications on the clean energy movement. The act strives to promote energy security, reduce consumer energy costs, and slow climate change. It includes electric vehicle (EV) tax credits and subsidies for renewable energy while pushing the U.S. to be an industrial center for clean technology.
However, with change comes some confusion as people acclimate to the rules. Understanding the opportunities and constraints of the bill is critical for renewable energy and EV professionals.
What Is The Climate Change Bill?
The president signed the climate bill that was passed by both chambers of congress on August 16, 2022. It aims to reduce U.S. greenhouse gas emissions by about 40%, below 2005 levels, by 2030 to slow the climate crisis and decarbonize the economy. In the process, the U.S. would ideally become less reliant on China while creating domestic manufacturing jobs and dramatically reducing the use of fossil fuels. Provisions in the bill will phase in over the coming months and years.
In particular, the climate bill seeks to help disadvantaged communities enjoy incentives that will reduce energy costs, making the transition to clean energy more widely available to all Americans. Historically, installing a residential solar panel system or buying a new EV was more accessible to middle and upper-income Americans.
Some of the funding for the bill will go directly to Americans in the form of clean energy tax credits, or refunds for purchasing EVs and home energy-efficiency upgrades, like installing heat pumps. Likewise, there is grant funding for specific goals, like reducing air pollution in ports, methane emissions, and transportation emissions.
What Is Included In This Bill?
Let’s examine some of the specific aspects of the bill and how they impact the transition to a carbon-free economy and the use of clean energy technologies.
Tax Credit Expansions For EVs
The climate bill amends the clean vehicle tax credit and adds additional provisions. The $7,500 EV tax credit will remain in effect through 2032 but no longer considers battery size, so more plug-in hybrids are now eligible for the full $7,500 tax credit. Yet, the climate legislation will soon require the vehicles to be assembled in North America.
The Department of Energy’s Alternative Fuels Data Center has released a list of vehicles that likely qualify for the new requirements. However, the location where vehicles are assembled can vary even within the same model, so it recommends using a VIN decoder to verify the assembly location.
Previously, there was a cap on the number of EVs that were eligible for the tax credit sold by certain automakers like General Motors and Tesla. But the climate bill will eliminate the cap, effective January 1, 2023. This means the Chevy Volt, GMC Hummer, Cadillac Lyric, and Tesla Models 3, S, X, and Y will soon have a $7,500 tax credit. However, there are upcoming restrictions on where major components originate that even Tesla and General Motors may have trouble meeting.
Also, new SUVs and pickups cannot exceed a retail price of $80,000, and $55,000 for other vehicles to qualify for the EV tax credit. This will impact Lucid, Porsche, GMC Hummer, and Tesla sales, among others. In addition, there are limits on personal income when qualifying for the tax credit: $300,000 for joint filers and $150,000 for individuals. Please note, qualification for credits and rebates are not guaranteed; we encourage readers to discuss their situation with a licensed tax professional.
Domestic EV Manufacturing Capacity To Increase
In addition to the EV tax credits, there are incentives intended to jump-start U.S. EV manufacturing. For example, there are $7 billion in grants under the Infrastructure Investment and Jobs Act of 2021 for the EV battery supply chain and a $3 billion expansion of the Advance Vehicle Manufacturing Loan Program.
Battery Tax Credit For Mostly American Or Fair-Trade Ally Batteries
There are also restrictions on the critical components of EV batteries coming from a “foreign entity of concern,” which includes China. Unfortunately, there are worries that even Tesla vehicles could have trouble meeting upcoming restrictions related to EV batteries because most anodes, cathodes, and lithium used for batteries originates in China. These restrictions come in gradually over the coming years starting in 2023.
Used EVs Get Incentive Attention
Used vehicles make up a large portion of automotive sales in the U.S. each year, and currently, pre-owned vehicles are not eligible for the federal EV tax credit. However, used EVs may soon qualify for a tax credit of up to $4,000 or 30% of the vehicle cost, whichever is less.
Unfortunately, the vehicles must be sold through a licensed dealer for $25,000 or less and have been in service for at least 2 years. This incentive will take effect in 2024 and has income requirements of $75,000 or less for single filers and $150,000 for couples filing jointly.
Increasing The Solar Tax Credit To 30%
The residential federal solar tax credit was scheduled to taper down to 22% in 2023. However, the climate bill increases it back to a 30% tax credit through 2032. It will then decrease to 26% in 2033 and 22% in 2034 unless additional legislation is implemented.
The incentives for commercial and industrial solar projects have changed significantly and now depend on the start of construction and adds stipulations for meeting domestic content requirements and for low-income qualified projects. The investment tax credit (ITC) and production tax credit (PTC) are both now transferable, and tax credits are available for standalone battery storage.
Although many clean energy professionals are still getting acclimated to how the climate change bill alters the renewable energy and EV landscape, there are certainly more incentives to help electrify transportation and reduce carbon emissions. The $370 billion bill aims to address climate change and shape energy policy and is the largest investment in climate action in U.S. history.
Understanding how these incentives apply to your customers will help your business thrive. GreenLancer has marketplaces for both solar and EV Charging design and engineering fulfillment so you can easily scale up your projects.