The Inflation Reduction Act Will Barely Move the Needle on Climate Goals

Supporters of the Inflation Reduction Act (IRA) are at no loss for words to describe their excitement at its passage. One prominent New York Times columnist even suggested the Democrats may have just saved civilization itself. 

Hyperbole aside, New Yorkers may be interested in how the IRA benefits their own state’s climate goals, as defined by the state selected officials in the CLCPA. The overall answer is that it will help a little but won’t be transformative. Let’s start at the macro level and work our way down to the details. 

The big picture is that the IRA contains an estimated $369 billion for energy and climate programs. If New York received its share on a per-capita basis, it would get around $22 billion, or $1,100 per person. That’s hardly a game changer for a state climate policy that could cost up to $500 billion. But let’s look at the details. 

Renewable Energy Spending 

Some of that money is simply replacement funds, rather than truly new spending. For example, the act contains $10 billion in investment tax credits for clean tech manufacturing, including wind turbines, solar panels, and electric vehicles. Again, it’s impossible to know how much of that will flow to New York, but certainly investors in wind turbine production in the state will get in line to get their share. 

But because of the state’s offshore wind power mandates and state aid for creating a wind turbine production facility at the Port of Albany, money was going to be spent on clean tech in New York with or without federal support. While the firms involved may appreciate the federal subsidies, those subsidies don’t change the trajectory of what was going to happen anyway. 

The act also extends existing renewable energy tax credits that were set to expire this year. This includes tax credits for investment in wind and solar facilities that start construction before Jan 1, 2025. It also extends the production tax credit for renewable energy. That’s good for continued renewables investment in New York, but these credits have previously been set to expire and then been renewed. So, there’s no surprise there – if anything in this bill was most likely to pass through Congress, it was these continued subsidies. The big change here is that projects will have to pay so-called prevailing wages to get the full 30 percent investment tax credit (instead of just a base 6 percent credit) or the full $0.015 per kilowatt hour production tax credit (instead of just $0.003). 

Of course, it’s not clear why these subsidies are needed. We’re repeatedly told that solar power is now the cheapest form of power and that onshore wind is price competitive with natural gas. Yet we’re also told that solar and wind won’t get built without these subsidies. If renewables supporters are right, and these energy sources are price competitive, then the subsidies are a giveaway to the renewables industry. They won’t really advance renewable power development in New York beyond what was expected to occur anyway. If the subsidies do make a difference in the amount of renewables built in the Empire State, it’s evidence that those energy sources are not so cost competitive after all. 

Home Electrification and Efficiency 

The IRA dedicates $9 billion to helping consumers buy electric appliances and make their homes more energy efficient. On a per capita basis, that works out to about half a billion dollars for New York. These measures are a mix of gifts to the relatively well-to-do and subsidies that will actually help people of moderate means. 

The act offers 10 years of consumer tax credits for heat pumps, rooftop solar, and electric HVAC and water heaters. But there’s a maximum of $8,000 for heat pumps. Heat pump costs vary wildly, depending on the size of the house and whether one installs air-source or ground-source pumps (with the latter being more efficient, but also more expensive). For those installing less efficient air-source heat pumps, this could cover a large portion of the cost, but the expense of ground-source heat pumps means they will still be available only to the relatively well off. 

Up to $1,600 in rebates are available for insulating and air sealing homes to make them more energy efficient. If all that’s done is to add blown-in insulation and air sealing around duct work, this is a significant level of assistance. But a full weatherization of an old house, including energy efficient windows, removing and replacing siding, etc., can easily cost $20,000, and the law provides for a maximum rebate of 50 percent of the project cost or $4,000, whichever is less. So this will help some people who were on the cusp of being able to afford major retrofitting, but not low- and moderate-income homeowners. 

The tax credits for solar panel installation are similarly only beneficial to the well-to-do. The average cost of installing solar panels is $20,000. With a 30 percent tax credit, the average homeowner will still be on the hook for $14,000. Even if the solar panels pay for themselves over time, that’s too steep an upfront price for the most people without another source of assistance.

More helpful are the rebates for electric home appliances, which put them in the range of affordability for people of more modest means. Consumers can claim rebates of up to $840 for electric ovens or electric heat pump clothes dryers, which is roughly two-thirds of the cost, meaning that after rebate they could get these appliances for around $400. 

Slightly less generous is the 50 percent rebate for heat pump hot water heaters. As these cost up to $1,750, that still leaves a considerable after-rebate price tag. Yet for a family that needs to replace their hot water heater, that might put the more efficient appliance within the range of affordability. 

In addition, homeowners can claim up to $4,000 for electric service upgrades and up to $2,500 for wiring to service the additional electrical draw from new electric appliances. That could cover most of or perhaps even all the cost in some cases.

Zero-emission Vehicles 

A generous subsidy could help New York move towards its goal of increasing the number of zero-emission vehicles on the road. Congress, however, opted to get too clever by half, trying both to limit the extent to which the ZEV subsidy has been a giveaway to the wealthy and to play around with both domestic economic policy and foreign policy. It’s a bit of a mess and the contradictory efforts may limit its effectiveness. 

In detail, the IRA continues the $7,500 tax credit for purchase of a new zero-emission vehicle and adds a $4,000 tax credit for used ZEVs. But it imposes a maximum purchase price for new vehicles of $55,000 for passenger cars and $80,000 for pickups and SUVs. The used vehicle maximum price is $25,000.  

That limits the number of cars available for the subsidy. It also imposes income restrictions of $100,000 for a single filer and $300,000 for a joint filer. While collectively these two provisions seek to shift the subsidy away from the very well-to-do and down to those of more moderate means – which is laudable – the overall effect may be to limit the number of potential buyers who can afford to take advantage of the subsidies. 

Even more constraining are the new law’s critical materials and battery component requirements to qualify for the purchase subsidy, which combine domestic industrial policy and foreign policy. They are an attempt to shift the supply chain of critical materials away from China and toward friendlier countries. First, the $7,500 tax credit is split into two halves. Half applies to cars whose battery components are manufactured or assembled in the U.S. That begins at a 50 percent requirement, increasing to 100 percent after 2028. The other half applies to cars whose critical battery materials are extracted or processed in North America or other countries with which the U.S. has free trade agreements. This requirement starts at 40 percent and increases annually up to 80 percent after 2026. To get the full subsidy, the car must meet both requirements.  

It is doubtful whether critical materials supply chains can be reoriented that quickly. The Biden administration isn’t helping by making it difficult to open mines in the U.S. This means manufacturers may not be able to make cars that qualify for the tax credits, limiting the credits’ positive impact on sales. 


To recap, the IRA will have little effect on the development of the offshore wind industry in the state, although the firms that will build the wind turbines will eagerly accept the subsidies. Investment and production tax credits may, at the margin, continue to promote the development of onshore wind and solar, although allegedly those are cheap enough to compete on their own.  

The act will help some New Yorkers buy electric appliances and will help some make their homes more energy efficient, but not nearly enough to make a major dent in the state’s goals. As has been the norm with green subsidies, most of the benefit will go to the well-off rather than low- and moderate-income folks who are most likely to be stuck in energy poverty.  

The complexity and conflicting purposes of the zero-emission vehicle rebate will limit how many people can get the rebate, and so may not be a spur to sales of ZEVs. 

The overall effect on New York’s movement towards its climate policy goals is positive but only marginal. In no way is this act revolutionary or a game changer for the Empire State.

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