The Climate Founder’s Guide to the Inflation Reduction Act • Zoo House News

David Rusenko Contributor

David Rusenko is a full-time climate tech investor. He was previously the founder and CEO of Weebly, which was sold to Square in 2018.

Leeor Mushin is a Principal at Floodgate Fund, where he focuses on application SaaS, climate and healthcare. He is also co-founder of the GSB 20|20 Fund and a digital marketing company.

When President Joe Biden signed the Inflation Reduction Act (IRA) into law on August 16, 2022, we began to look at its implications, particularly in terms of implications for the future of climate and the innovations that could shape that future.

As the most important piece of climate legislation in the history of the United States, the IRA represents a fundamental regulatory shift that can help create a different future. The purpose of this post is to share our understanding of the regulatory implications of this monumental bill, particularly in relation to the issues that some of the world’s brightest founders are looking to tackle.

electrification of buildings

The IRA contains several major programs aimed at accelerating the electrification of buildings – the replacement of fossil fuel-powered machines with electric equivalents. This has the benefit of eliminating combustion emissions, improving comfort and improving indoor air quality, which can have dramatic health benefits.

There are three main schemes that provide incentives for building electrification. The first (Sec. 50122) provides a total of $4.5 billion in equipment replacement funding and is means-tested: providing up to 100% of the project cost to those who have less than 80% and 50% of the Area middle-income (AMI) earn project costs for those earning less than 150% AMI, with annual limits. Eligible appliances include heat pumps, heat pump water heaters, electric or induction range cookers, electric or heat pump clothes dryers, upgraded breaker boxes, electrical wiring upgrades, home energy testing, and insulation and sealing.

Photo credit: REPEAT project

The second program (Sec. 50121) is a performance-based residential energy retrofit program providing up to $4,000 per household or $8,000 per household for low- to middle-income households. Projects cannot claim this program and Sec. 50122.

To assess the long-term regulatory impact, it is worth looking to the EU, which continues to play a leading role in evolving global climate policy.

Both programs can be combined with the third program (Sec. 13302), which extends the Investment Tax Credit (ITC) to a 30% tax credit for eligible projects including residential solar, solar water heating, fuel cells, small wind and battery storage, and geothermal heat pumps.

The IRA also includes significant and perpetual funding for projects that will largely reduce greenhouse gases and accelerate the deployment of renewable energy, many of which are likely to apply to building electrification projects such as: B. the Greenhouse Gas Reduction Fund (Sec. 60103) and $40 billion in loan guarantee authority for the Department of Energy (Sec. 50141).

interesting problems

Funding the IRA for Buildings will likely accelerate the replacement of fossil-fuel machines in buildings and accelerate the adoption of all-electric alternatives. Today, the market share of these alternatives is relatively small, and there is a lack of acceptance and expertise among contractors. Early examples of increasing consumer demand for these products are Maine and New York.

While we won’t see a shift across the country overnight, these stimuli will create a burgeoning market for home electrification, much like previous legislation created a market for residential solar power. The issues we have identified include:

Fragmented contractor market. There is a shortage of trained professionals (electricians, HVAC technicians, etc.). Projects are usually very customer-specific and time-consuming in terms of design and preparation of offers. Difficult for businesses and consumers to navigate the changing funding/incentive landscape. The ROI of these projects will be very different and vary from house to house. Most home appliances are replaced in the event of an emergency if there is a failure and most homes are not wired for 220V so a pre-wiring issue needs to be addressed. Navigating the retrofit process is time-consuming and confusing for consumers, and requires the work of multiple contractors who do not plan individually for holistic project needs (eg, panel upgrade).

Carbon Capture/Methane Reduction

The latest science tells us that we need to cut emissions by about 45% below 2010 levels by 2030 and reach net-zero by 2050 to keep warming at 1.5°-2°C. It is not realistic to expect this to replace all of our fossil fuel powered machinery and processes in this time frame.