How much money can you save under the new climate law?

Ari Matusiak is the CEO of Rewiring America, a nonprofit dedicated to electrifying where we live, work, learn and play. This piece is adapted from a conversation that first aired on the Political Climate podcast; the conversation has been edited and condensed for brevity.

Maria Virginia Olano: What does the Inflation Reduction Act mean for consumers and homeowners who are looking to make their homes more electric and more climate-friendly? 

Ari Matusiak: There are around 121 million households in America. They are all different shapes and sizes, and all have different kinds of configurations. As a baseline, most homes in America are operating on a fossil-fuel system. Those fossil-fuel-powered homes cause [a significant chunk] of our energy-related emissions. But those households are also effectively paying a tax on fossil fuel simply to live their lives because fossil fuel machines are more inefficient and cost more to operate than efficient electric machines.

So where we need to go from a climate perspective is to electrify what amounts to a billion machines across the 121 million households that people rely on to get to and from work, heat the air and water in their homes, cook their food and dry their clothes. And as we transition those machines from fossil fuel to efficient electricity, we will be changing the format of the American household to an electric format. That will lock in savings year-over-year for people and generate the largest transfer of wealth away from energy producers and back to American families in the history of the United States. The Inflation Reduction Act is really a catalyst for making that happen.

Julia Pyper: The tax credits in the Inflation Reduction Act are a pretty universally accessible piece of the bill. Could you walk us through these 25C credits and what they mean for electrification?

Matusiak: The law expands the Energy-Efficient Home Improvement credit, known as 25C, which relates to home efficiency upgrades and core appliances. That includes tax credits for things like weatherization, and really importantly, a tax credit for upgrading breaker boxes and wiring — as we put more load into our homes, we will likely have to deal with [upgrading] the breaker boxes that we have in our homes, the circuit panels. So the tax credit recognizes the infrastructure that needs to be included. The most robust tax credit available in the policy is for heat pumps — 30% of the price for purchase and installation, up to $2,000.

The Residential Clean Energy Credit, or 25D, expands the rooftop-solar tax credit, and it includes residential storage systems for the first time. Then there are also tax credits available for EVs, which take the caps off of what had been the traditional EV tax credit. For the first time, it also includes a tax credit for used EVs, which is incredibly important to facilitate that market.

Pyper: Another big part of home electrification in the bill comes in the form of rebates. There are two core rebate programs, the High-Efficiency Electric Home Rebate Act and the Homeowner and Occupant Monetary Encouragement and Stability Act, called HOMES. Walk us through those elements.

Matusiak: The rebate that is the most immediately accessible and easiest to navigate is the High-Efficiency Electric Home Rebate Act (HEERA). It is a point-of-sale rebate for people earning up to 150% of the median income in their area. That rebate applies to heat pumps, heat pump water heaters, electric stoves, heat pump clothes dryers, circuit panels, insulation and air sealing, and ventilation and wiring. Each of those items has a rebate amount associated with them but with a cap to the household of a total of $14,000. If you are making up to 80% of the median income where you live, that $14,000 can cover 100% of the project costs, including labor. If you are making between 80% and 150% of the area median income, it can cover 50% of the project costs for what you are doing.

The HOMES rebate is more of a modeled-savings-style rebate of somewhere between $2,000 and $8,000 depending on your income and on the amount of energy savings you can demonstrate are achieved by a project. So if you can show that you’re going to reduce your energy footprint in a household by 35% or more and you are low- or moderate-income, then you can access $8,000 of rebates to help support the machines that you would be purchasing as part of that.

Pyper: When you put all these pieces together, how much do you think it would affect the cost per home for efficiency and electrification projects? What kind of impact will this have on people’s pocketbooks?

Matusiak: The modeling that we’ve done suggests that the average household in America would save around $1,800 a year, if residents electrified everything in their homes, and in some cases, it’s actually much more. That’s a significant amount of money when you think about the fact that 49% of Americans don’t have $400 available to them to cover an emergency expenditure. When you put households on a path toward electrification, savings also stack year-over-year, and those savings are then locked in for a long time because these machines last for 15 to 25 years.

The cost of fuel oil in the United States is up 106% over last year, which means that this winter, homes might face heating bills that are double what they were last year. But if you electrify those homes and get the oil boilers out, energy bills will be much more stable. And getting households off of the volatility and uncertainty that comes with fossil fuel energy prices is also critically important for inflation, hence the name of the bill. Fossil fuels drive inflation because those markets are so volatile.

Pyper: When the rubber really hits the road on these projects, contractors are the ones who are having these conversations with their clients and laying out the options and benefits of an electric system versus a gas one, for example. So how do you and the Rewiring America team think about contractor education and making sure that they know not only how the products work but also how these new policies work, given that they’re designed to help catalyze the market? 

Matusiak: There are about 1 million home-improvement contractors in the United States. They are mostly small businesses. So in order for it to make sense for them to pay to train their teams on things like heat pumps, the market needs to be ready, and those types of jobs need to represent a significant part of their yearly work. There needs to be sufficient demand for it to justify contractors investing in these new technologies.

Another aspect of this is to think more strategically about the moments in time where someone is electrifying and take each electrification moment and try to translate it into an opportunity for the three more that come after. So, for example, if someone gets a Ford F-150 Lightning, they basically have just purchased a giant battery. So they might want to get a Level 2 charger, which Ford will sell to them, and upgrade their breaker box in order to accommodate the charging of that machine in their home. And what’s great about that is once they do all those things, the car battery can now hook up to their home and provide backup power for up to three days.

In my view, what should also happen at the same time is that 240-volt outlets should be installed where the furnace, the water heater and the cooktop are because as soon as that wiring is done and those plugs are put in, that home has been reformatted into an electric-ready home. And now when that water heater goes out, it is not an absurd conversation with a contractor to say, ​“Oh, you should totally get a heat pump [water heater], and we can install it right away with no extra wiring work.”

Olano: And how are you thinking about the need for consumer engagement and education? 

Matusiak: There are tens of billions of dollars of benefits that are now available or will be soon available to American households. Those financial incentives enable a conversation to happen about these machines because they can save you money. That in itself can drive consumer awareness, and we need to take advantage of that.

I would be willing to bet that if you ask most Americans what brand of water heater they have, they don’t know the answer. You think about these appliances when they stop working or have to be fixed. So then it becomes about the value proposition and the convenience of getting the thing that is being sold to you. And if the result is, ​“Hey, here’s a machine that’s going to save you more money than the last one you had, and I can get it in for you today. And by the way, there’s a federal rebate and a tax credit available for you,” that’s a great conversation to have with a consumer.

Listen to the full episode of Political Climate here.

Political Climate is a biweekly podcast about the most pressing energy and climate issues of our time, hosted by Julia Pyper, Brandon Hurlbut and Shane Skelton. You can listen and subscribe on Apple Podcasts, Spotify, Stitcher or wherever you get podcasts. Follow the show on Twitter at @Poli_Climate. Political Climate is presented by the USC Schwarzenegger Institute and Canary Media.