Publications

- October 1, 2022: Vol. 9, Number 9

Real estate retrofit: Inflation Reduction Act could transform U.S. buildings sector

by David Smedick, Rachel Golden and Alisa Petersen

The U.S. buildings sector has long been one of the most challenging when it comes to climate action, but a recent infusion of funds through the Inflation Reduction Act (IRA) could have a transformative impact on improving our built environment.

The IRA invests over $50 billion into clean energy technologies and improvements that can lower energy bills; make homes, workplaces and schools healthier and safer; significantly reduce climate pollution; and prioritize delivery of those benefits and new technologies to low-income and environmental justice communities. Successful implementation of the act will mean Americans have greater access to efficient electric appliances, weatherized homes, rooftop solar, residential geothermal, low-carbon building materials, and more.

This investment, coupled with the Infrastructure Investment and Jobs Act, could reduce buildings sector climate pollution by anywhere from 33 million to 100 million metric tons, getting the nation to between 10 percent and 30 percent of the 2030 goal to cut emissions in half. The nation is on the precipice of a massive transformation and must seize this opportunity to fully climate-align our buildings industry.

The IRA uses a suite of financial incentives to encourage individuals and businesses to invest in clean, efficient alternatives for their homes and businesses, rather than mandating these changes. As a result, the exact impact of the investment will be seen over time. Regardless, early analysis shows the IRA’s building retrofit programs could drastically change the landscape of the sector.

These estimates are significant on their own, but they are just the beginning; several aspects of the law enable the federal government and states to go even further. For instance, the building retrofit tax credits are uncapped and extend for a decade, potentially enabling even more energy-efficiency and electrification retrofits than currently envisioned.

Rolling out new energy efficiency and electrification retrofit programs and braiding together the funds from those new initiatives where it is allowed are central pillars of the building decarbonization recipe. The IRA is delivering new and increased funds for federal, state and local programs that will lower the upfront cost and result in the installation of:

  • Efficient electric heat pumps that can both heat and cool homes, which the Department of Energy estimates will save families $500 to $1,000 per year
  • New insulation, windows, doors and sealing ductwork, to ensure a home’s heating and cooling systems don’t have to work in overdrive to keep families comfortable
  • Upgraded electrical panels and wiring for homes that have older electrical service

It’s critical to remember that buildings are long-lived investments — they remain standing for decades, if not a century, and investments in upgrading and modernizing major systems in homes, schools and commercial buildings typically only occur every 12 to 20 years. The influx of funding from the IRA will facilitate major and direly needed improvements that will last decades.

 

David Smedick, Rachel Golden and Alisa Petersen are staff members at RMI, a clean energy think tank. Read the report from which this article was excerpted on the RMI website here.

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