As policymakers begin thinking about implementation of the home energy upgrade incentives in the Inflation Reduction Act, it’s key for them to make sure they are designed correctly.
Last year, Congress passed and the President signed a historic law that has the potential to lower costs for consumers, reduce pollution and create millions of new, good paying jobs.
However, to achieve success with the home energy upgrade incentives under the Inflation Reduction Act, there is a long road ahead for implementation.
As policymakers begin thinking about implementation, it’s key for them to not forget about the energy efficiency provisions in the law and make sure they are designed correctly.
Energy efficiency may not be particularly sexy, but it’s been the main source of emissions reductions in the U.S. since 1973. And scientists and economists have known for a long time, the cheapest unit of energy is the one you don’t use.
Energy efficiency is also one of the places with the most bipartisan support among voters according to recent non-partisan public opinion research.Source: USA Today
The reason is simple: No one supports energy waste.
Here’s why getting energy efficiency right is so important: In recent polling conducted by YouGov and commissioned by Sealed, tax credits and incentives for households to weatherize their homes was the most popular way to address climate change—beating out cap and trade, a carbon tax, and other policies.
In particular, Independents and Republicans both preferred this strategy the most and least frequently objected to it.
Sixty-two percent of Republicans and 49% of Independents choose weatherization as one of their top two approaches to climate change, the most by far of any option.
First, energy efficiency is the main way that voters will feel the Inflation Reduction Act in their wallets.
The HOMES portion of the legislation includes rebates for home weatherization and electrification and will allow Americans to feel the benefits of the law directly in their personal finances.
Households could see $4,000 or more in Inflation Reduction Act incentives while living in a more comfortable home.
Second, energy efficiency is the best way to create jobs while moving towards a cleaner economy.
Energy efficiency jobs will be the best jobs in the clean energy sector:
- They are well-paid
- Don’t often require a college or advanced degree, and
- Can’t be outsourced.
At Sealed, we’ve found a simple image or video of insulation being installed in an attic to be the most persuasive messaging.
Third, building more clean energy supply is difficult and controversial.
Already, fights are breaking out about permitting reform and it will still take years for new transmission to come on line.
I enthusiastically support the new “supply-side” focus on building new renewable energy infrastructure, but it’s important we don’t forget the other side of the equation: demand.
Over the past half century, efficiency was the leading driver of reductions in carbon emissions and it will be in the future. More efficiency ensures we’re energy independent and resilient – and reducing peak demand allows for more renewables to be added to the grid.
So energy efficiency is important—but it’s easy to screw up.
Here are some pitfalls I’ve seen from my years in the industry and how to avoid them.
Incentives need to be tied to measured success, not estimates.
In the past, energy efficiency incentives have been based on “deemed” or “modeled” savings. Now that we have the tools to understand how much energy is actually being reduced, including during peak demand, we should target incentives to the actual reductions in energy use, not a projection. This will make sure the money is spent where it’s needed most and increase how much money customers feel in their pockets.
In polling conducted by YouGov, voters preferred that IRA incentives be spent based on measured results by a 70% to 30% margin, even if it takes longer to get the tax credits out the door.
In addition, voters believed by a 59% to 41% margin that voters prefer incentives be paid by measured results of eventual energy savings, rather than a model up front.
We need to avoid the sugar crash that leads to program funding being quickly depleted.
Incentives must be sized correctly to drive consumer uptake but not too large to deplete all the funding before the program expires.
Utilizing measured savings can help prevent these sugar crashes by giving program administrators the tools to ramp incentives up and won while ensuring that taxpayers only pay for actual reductions.
Incentives must have real world impacts, not government program administration costs.
In the past, energy efficiency programs have had far too much overhead: One study of 600+ utilities and third-party program managers found that roughly 40% of total energy efficiency program costs were spent on just administrative and marketing costs.
Thankfully, with the IRA administrative caps of 20%, these costs will need to come down.
The IRA is a transformational law. But the hard part starts now.
The Department of Energy, State Energy Offices, and numerous business and non-profit stakeholders have a herculean task implementing this law.
One easy way to set the law on the right path is to prioritize energy efficiency and do it well. That means paying for measured results that voters feel in their wallets.
Voters don’t save on their energy bills based on models, but rather actual energy reductions. For the IRA to be successful, policymakers should ensure that incentives do the same.