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Inflation Reduction Act will likely help lower-income consumers make energy-efficient upgrades

August 22, 2022
MSU's smokestacks on Aug. 18, 2022.
MSU's smokestacks on Aug. 18, 2022. —
Photo by Sheldon Krause | The State News

President Joe Biden signed the Inflation Reduction Act, or IRA, into law on Aug. 16 after passing the US House of Representatives in a 220-207 party-line vote, the bill is set to spend around $369 billion over the next decade to encourage the shift from fossil fuels to more renewable forms of energy. The bill also includes several provisions that will likely help low-income consumers make energy-efficient upgrades.

The tax credits and incentives that the Inflation Reduction Act will provide will likely help low-income consumers avoid the large up-front costs that these upgrades typically require.

“The core of the IRA, at least for homeowners, is in those tax credits,” Justin Kirkpatrick, an economist in MSU’s Department of Economics said. “Essentially, the government is paying for 30% of your solar panels or efficient new windows for your house or new insulation for your house … there are provisions that allow some of these credits to be transacted immediately, transferred to the person selling you that good. So you can take it as essentially a straight discount.”

Kirkpatrick said certain types of consumers will be more receptive to the immediate nature of these credits, especially relative to current incentives which essentially boil down to being able to write a lower check to an energy company each month, a benefit that can take many years to become significant.

“An upfront subsidy returning is nice for people who discount the future more – which tends to be lower-income homeowners,” Kirkpatrick said. “We're not talking about very low income, we're talking about people who own their own homes, that aren't well off by any means.”

Current analyses show consumers are also likely to see a nearly immediate $200/year reduction in household electricity costs — any renewable energy projects that opened after the first of this year are eligible for credits, which Kirkpatrick says will lead to a reduction in rates right off the bat.

“There should be an effective reduction in rates, because a lot of electricity that we would use anyways is now going to be receiving those credits and is thus lower cost and utility,” Kirkpatrick said.

Kirkpatrick also said consumers will see further reductions over time as the grid begins to adopt more renewable energy.

Lower-income consumers will also benefit from a provision in the bill that provides up to $4,000 in tax credits to consumers that purchase used electric vehicles, which could help close the price gap between traditional and electric vehicles.

“You can sell all the clean EVs you want to high-income consumers, they're going to turn around and sell their potentially large SUVs into the used market, and those used cars are going to remain on the road,” Kirkpatrick said. “In fact, we have pretty good evidence that low-income households tend to drive more and their commutes are longer.”

Allowing consumers to receive tax credits for purchasing used electric vehicles will help avoid a situation in which higher-income consumers are selling gasoline vehicles to consumers that drive more.

“The used EV credits are going to be really important for getting clean, zero-emissions vehicles throughout the entire supply of vehicles,” Kirkpatrick said.

People living in low-income communities will also benefit in other ways — the disproportionate effect of air pollution on low-income communities in the United States is well documented, and prioritizing renewables over fossil fuels reduces air pollution significantly.

The IRA will also help lower prescription drug costs — the bill caps insulin costs at $35/month for those on Medicare.

“The price gouging that's been going on with prescription drugs, especially insulin, has been really horrible,” State Rep. Julie Brixie said. “This is taking a really big bite out of that problem for the folks who really need the help the most.”

The legislation will likely provide jobs to many Michiganders as well, Brixie said.

“Last year, we had over 100,000 Michiganders working in clean energy jobs,” she said. “This Inflation Reduction Act is going to really expand this growing sector of our economy by providing the tax credits that are going to create more solar, wind, storage and other clean energy jobs.”

Brixie also spoke how these jobs will help Michigan continue a legacy of manufacturing.

“​​For us to continue to evolve and follow technology and insert ourselves into that manufacturing, and try to gain top positions in different manufacturing sectors, is a really good use of our people resources, our human resources,” Brixie said.

Agreeing that up-front rebates will encourage lower-income consumers or older consumers living on a fixed budget to make energy-efficient upgrades, Brixie referenced figures from The White House that estimate 160,0000 additional Michigan households will install solar panels as a result of these tax credits. 

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Annick Anctil, an Associate Professor in MSU’s Department of Civil and Environmental Engineering, studies the life cycles and environmental impacts of renewable energy sources, especially solar panels. For Anctil, the tax credits provided in the IRA are impactful, but surprising, and she expects rebates to decrease as solar power becomes more and more mainstream.

“That's a major change,” Anctil said. “I think the fact that now a lot of the money is going towards lower income, I think it's going to have a huge impact on how much everybody will be able to afford not only solar, but also, for example, electric vehicles.”

The IRA limits its tax credits on EV’s to more affordable vehicles, which in turn will encourage manufacturers to produce electric vehicles that are more affordable to consumers, according to Anctil.

The price of solar has already decreased by 89% over the past decade and the IRA’s tax credits will further lower this price.  

Unfortunately, solar panels are not easily recyclable at the end of their lives. 

“If you're designing for longevity, then you're not designing for recyclability,” Anctil said. “If you make your panels so resistant and unbreakable, then it's really hard at the end of life to recycle it.”

Additionally, Michigan has no regulation for the final resting place of a solar panel at the end of its life. In theory, a homeowner would be stuck with their panels.

However, there is a national effort to recycle more solar panels, Anctil said. The Solar Energy Industries Association, or SEIA, is working to identify recyclers that will collect solar panel modules. 

“I know of other efforts, specifically here about, how do we establish this kind of a collection network for end of life modules,” Anctil said. “Right now, there's no legislation or easy way for people to know what to do with their unapplied modules.”

Anctil spoke on how she believes people are concerned about the amount of waste that solar panels may produce, and that more creative solutions are necessary.

“I think it's a good thing when the general public put pressure a little bit on manufacturers and industry to be a bit more creative and think of those issues,” Anctil said. “So we can design solar panels that can be more easily recycled, and also minimize the amount of new materials that will be needed for that technology.”


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