Biden administration officials advertise their clean energy tax credits and rebates that kick in this year as major savings for Americans struggling with inflation, but they fail to mention it will cost a whole lot of green to qualify.
Democrats’ tax-and-climate-spending law — dubbed the Inflation Reduction Act — set aside $370 billion over the next decade to help Americans go green and fight climate change. However, many households would need to spend hundreds, if not thousands of dollars to receive a fraction of it back in tax savings.
Energy cost reductions will largely benefit those with the means to make expensive home improvements or buy electric vehicles, even as the administration and Democratic lawmakers touted the legislation as a cost-reducing measure for high energy bills.
“Make saving on your energy bills a resolution for 2023, with the help of President Biden’s tax credits for energy-efficient upgrades,” Energy Secretary Jennifer Granholm wrote on Twitter.
“Starting right now, you can get tax credits to install more energy-efficient appliances for your house. Electric ovens, solar panels, heat pumps: you name it,” the president proclaimed on Jan. 1 on Twitter. “Save money while fighting climate change.”
The money is meant to reduce climate-warming emissions by helping Americans ditch gas-powered cars, electrify appliances and weatherize homes. There are incentives for everything from installing rooftop solar panels and electric stoves, to new windows and electric heat pumps.
But those are expensive projects, and households would have to spend multitudes to get tax breaks. In addition to being a homeowner or being able to afford an electric vehicle, the benefits only apply to those who file taxes, which nearly half of Americans are not required to do.
“These programs disproportionately benefit the wealthy who can afford to shell out thousands of dollars at the front end to purchase expensive new appliances and retrofit their homes, but fail to actually save people money or reduce emissions,” said a spokesperson for Rep.-elect Cathy McMorris Rodgers of Washington, the Republican who is set to chair the House Energy and Commerce Committee.
Green-energy advocates, however, argue that it indirectly benefits renters because of incentives for apartment and commercial buildings to make energy efficiency upgrades.
Critics call it a government payout for the wealthy.
“Obviously, this is not necessarily your bread and butter, blue-collar worker who is going to be taking advantage of a lot of these credits,” said Preston Brashers, a senior tax policy analyst at the conservative Heritage Foundation. “For the bottom half or bottom third of Americans, those credits are completely unavailable. And for many others, a lot of people are living paycheck to paycheck. The idea of putting in a lot more money for weatherization or solar panels on your home … is a little bit out of reach for a lot of folks.”
The average 6kW rooftop solar installation runs about $19,000, according to the electrification advocacy group Rewiring America. With 30% of the costs covered via a tax credit, that means the average savings would be $4,700, bringing down the final price tag to $14,300.
A 30% tax credit can also be obtained on upgrades like energy-efficient heat pumps for heating, cooling and hot water, windows, doors, electric panel upgrades and central air conditioners. But all of those projects will cost from several hundred to several thousand dollars.
Questions remain about how clean energy rebates, which are meant to benefit low- and middle-income Americans but are not yet available, will work.
The White House did not respond to a request for comment.
Some of the hypothetical scenarios used by the White House to tout how lower- and middle-income individuals could benefit are dubious and unrealistic.
One example is a fictitious elementary school teacher named Suzy who makes $40,000 per year and is in the market for a new electric vehicle, the average price of which was $65,000 as of November, according to Kelley Blue Book. The cheapest new models start at just under $30,000. The White House said that Suzy could receive up to a $7,500 credit.
However, with strict supply chain requirements that auto manufacturers source and assemble the parts for electric vehicles in North America, the vast majority of new electric vehicles won’t qualify for the credits unless the auto industry makes a major shift. Used electric vehicles under $25,000 qualify for a credit of either $4,000 or 30% of the sale price, whichever is less.
“Working families aren’t salivating for a tax break on $80,000 electric SUVs or expensive, high-tech windows that they do not want and cannot afford,” Sen. John Barrasso of Wyoming, the ranking Republican on the Senate Energy Committee, told The Washington Times. “They’re focused on being able to fill up their gas tanks and grocery carts in the same week. Americans need real relief now.”
Another White House example is a fictitious bank teller and a construction worker who are married with a combined income of $60,000. They want new energy-efficient appliances in their newly purchased home. They’re eligible for rebates that cover up to 100% of the costs, the White House said.
Clean energy rebates are meant to help low- and middle-income Americans by slashing the up-front costs rather than waiting for a tax credit. However, most of them likely won’t be available until later this year. It’s also unclear exactly who will qualify.
States must establish their own programs for the rebates, including rules about who will qualify based on median incomes. Those earning less than 80% of their area’s median income could see most — or potentially all — of their costs covered while those making 80% to 150% could have a portion covered.
But the lower the income, the less likely it is that would-be beneficiaries own homes and can receive rebates.