What Does the Manchin-Schumer Deal Mean for Clean Energy?
On Wednesday, Senate Democrats announced a surprise agreement on a $369 billion climate and tax package. If enacted, the legislation would be the biggest climate change action to-date, putting the U.S. on a path to cut emissions 31% to 44% below 2005 levels in 2030.
The renewable energy industry, long frustrated with the roadblocks to the Build Back Better Act, breathed a sigh of relief with the announcement.
So what exactly would the package entail? How would it affect the everyday consumer if passed?
First, let’s go over the main climate-related challenges that the legislation aims to address:
- Lowering energy costs for Americans
- Increasing American energy security
- Decarbonizing all sectors of the economy
- Ensuring environmental justice
- Increasing the resilience of rural communities
Below, we’ll debrief top takeaways from the 2022 Inflation Reduction Act, and what they mean for the future of energy. To preface, the legislation is subject to change.
Making Clean Energy Affordable
Although clean energy products have finally hit the mainstream, their expense makes them inaccessible to most Americans. Here’s how the bill addresses the affordability of clean energy sources like residential solar, electric vehicles (EVs) and energy efficiency retrofits:
Consumer Tax Credits for Clean Energy
You probably have heard of the federal solar tax credit, or Investment Tax Credit (ITC), which offers a 26% credit against the installation costs of qualified renewable energy equipment like rooftop solar panels and wind turbines. It’s been wildly successful in growing domestic investment in clean energy.
The legislation would likely modify and extend the tax credit until 2025, while providing additional tax credits including energy storage systems, wind turbines and clean hydrogen technology. It would provide bonus credits for certain installations, and include a separate low-income credit.
According to Lisa Frank, the executive director of Environment America’s Washington Office: “These credits would help Americans go solar, buy electric vehicles and retrofit their homes – all at an unprecedented scale. We’ve been building a clean energy future with hammers and nails; this bill could provide us with the power tools to accelerate construction.”
Incentivizing Energy Conservation
The legislation also aims to help conserve electricity — offering $9 billion in consumer home energy rebates to help Americans afford energy-conserving technologies like heat pumps, electric HVAC and efficiency retrofits. It also includes a $1 billion grant program to make affordable housing more energy efficient.
Electric vehicles would also be a big winner if the bill passes. It would provide a $4,000 consumer tax credit for low- to-middle income individuals to buy used clean vehicles, and up to a $7,500 tax credit to buy new clean vehicles.
Investing in Energy Independence
The U.S. has long prided itself on its independence, historically through its rich oil and gas resources. Here are the takeaways of how the legislation aims to wean off of oil and gas without sacrificing the security of the energy sector.
Made in the U.S.A.
The bill would provide tax credits to accelerate domestic manufacturing of solar panels, wind turbines, batteries and critical minerals processing. Estimates put the amount of investment at $30 billion.
Here’s how the bill plans to accelerate U.S. manufacturing, which in turn drives down the domestic prices of clean energy products.
- $10 billion investment tax credit to build clean technology manufacturing facilities, like facilities that make electric vehicles, wind turbines and solar panels
- $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles, ensuring that auto manufacturing jobs stay in the communities that depend on them
- Up to $20 billion in loans to build new clean vehicle manufacturing facilities across the country5
Keeping clean energy manufacturing domestic eliminates a great number of economic and diplomatic risks. Here’s what Justin Baca from the Solar Energy Industries Association (SEIA) had to say about the impact on the bill on domestic manufacturing: “We’ve had a number of disruptions to our supply chain, which we’ve felt particularly acutely in the past nine months or so. We need to derisk our supply chains, and make sure that what we’re getting is something that’s reliable and something we feel good about. The provisions in this bill will help that happen.“
To help convey just how impactful the passage of this legislation would be for domestic U.S. solar manufacturing, the SEIA created the following projections for solar panel production scenarios over the next 10 years.
The legislation also includes funding for transmission development, aiming to upgrade the aging U.S. infrastructure to balance a growing population with efforts to decarbonize the economy.
Here are a few quick glances at the type of investments that could be expected:
- $2 billion in loans to non-federal entities for constructing new electric transmission facilities in designated national interest corridors.
- Additional $1 billion for rural renewable energy electrification loans and expansion to include storage
- $9.6 billion for rural co-ops to invest in electrification loans for new transmission facilities, renewable energy equipment and storage
Including energy storage systems in the bill reflects the importance of batteries in the future of energy security. With increasing instances of extreme weather, energy storage technologies will be paramount in creating a resilient energy infrastructure, one where communities don’t lose access to electricity if the grid fails.
Ensuring Environmental Justice With Clean Energy
The lowest-income families usually face the highest energy costs, yet have the least ability to lower them.
They also live in the closest proximity to the most dangerous externalities that come from generating energy through oil and gas.
Here’s how the bill ensures that the benefits of decarbonization will reach all American communities, not just those of wealth.
Affordable, Clean Transportation
The bill aims to reconnect communities divided by existing infrastructure barriers, mitigate the negative impacts of transportation facilities or construction projects on disadvantaged or underserved communities and support equitable transportation planning and community engagement activities.
It will invest $1 billion in clean heavy-duty vehicles, like school and transit buses and garbage trucks in disadvantaged communities.
As we mentioned, the bill also includes a $4,000 consumer tax credit for low- to-middle income individuals to buy used clean vehicles, and up to a $7,500 tax credit to buy new clean vehicles.
We covered how the bill aims to incentivize energy conservation — but it does so in a way that prioritizes low- to moderate-income communities (LMI). LMI households are often plagued by high energy bills for a few reasons:
- LMI communities are often exposed to the most extreme temperatures
- Most LMI households rent, and landlords have no incentive to upgrade the energy efficiency of their properties
- LMI households are the least likely to afford cost-saving upgrades like efficient windows, electric HVAC or rooftop solar
The legislation invests in home energy efficiency, with a significant portion of funding going to lower-income households and disadvantaged communities (more than $1 billion in grants program to make affordable housing more energy efficient).
Lower-income households are typically plagued by high energy bills and are unable to afford efficiency upgrades like new windows, air conditioners or rooftop solar that help to save money. Most lower-income families rent and landlords have little to no incentive to improve the efficiency of their units.
Putting money into improving the efficiency of low-income households helps to relieve the growing energy burden experienced by low-to-middle income households.
Community solar projects can be placed in low-income areas with the purpose of democratizing clean energy. New measures proposed would aim to help the 4.5 million families that are served by U.S. Department of Housing and Urban Development (HUD) programs transition to shared, community solar power. This could reduce prices of monthly power bills by 10% to 50%.
A large obstacle to these projects has been the unexpected costs associated with interconnection, another way to describe the process of connecting to the public grid. There is an interconnection cost provision within the legislation that would make interconnection costs coverable by the ITC. This could massively decrease the complexities holding back the popularity of community solar, especially in LMI communities.
The bill brings forth additional efforts to address environmental justice that aren’t directly applicable to renewable energy and storage.
It’s important to remember that this legislation is not a done deal.
Before it can be enacted, it must pass through the Senate with 50 votes plus Vice President Harris. There’s also no guarantee that the bill will pass in the House, even with its Democratic majority.
As Abigail Hooper, CEO of SEIA said in a webinar on Friday, “It is happening, but it hasn’t happened yet. A bill has not been signed. We need to finish this fight.”
For more on the climate deal:
Historic Senate Climate Deal Would Reduce Emissions 40% By 2030
Senate Budget Deal Would Be the Biggest Climate Change Action Ever, But Doesn’t Come Without Concessions
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