On August 16, 2022, President Biden signed the Inflation Reduction Act into law. The smart building sector stands to benefit from the bill, which will allocate nearly $370 billion in federal funding to nationwide efforts to combat climate change.
Sometimes things are darkest before the dawn. After a series of legislative and judicial setbacks to the federal government’s efforts to combat climate change, along with extreme weather events worldwide, on July 27, seemingly out of the blue, Sens. Chuck Schumer and Joe Manchin announced the framework of a deal that would become the country’s largest-ever investment in sustainability and climate resilience.
The Inflation Reduction Act (IRA) will allocate more than $369 billion to climate change and efficiency initiatives over the next decade, which experts expect to reduce the country’s carbon emissions by 40% by 2030 through multiple avenues, including the establishment of a national climate bank and expanded tax credits for clean energy and electric vehicles.
At the time of publication, the legislation is en route to President Biden for his expected signature after passing the U.S. Senate and House of Representatives. While not as sweeping as those in the administration’s 2021 Build Back Better bill, the IRA’s climate measures generally have been met with everything from acceptance to enthusiasm by environmental activists and advocates.
Hadley Tallackson had been holding out hope for passage of a climate bill, even one with a reduced investment. Still, the electrification policy analyst at the San Francisco–based nonpartisan think tank Energy Innovation: Policy and Technology was “stunned” when the news broke of deal by the senators, and then excited when she realized many proposed programs for building electrification and efficiency remained intact. “My colleagues rapidly worked to model the potential impact of the bill on reducing greenhouse gas emissions, showing emissions reductions of 37% to 41% by 2030 from 2005 levels,” she says. “That puts the U.S. climate targets in reach.”
“It’s a very big deal,” says Daniel Bresette, executive director of the Environmental and Energy Study Institute, a Washington-based nonpartisan nonprofit that informs policymakers on climate change topics. “Primarily, emissions reductions will come from the bill’s tax provisions, but there are a ton of good things in this bill. … This is all a big piece of an overall puzzle of how we address climate change.”
The wide-ranging bill tackles climate change in many respects, including energy generation and transmission, manufacturing, transportation, agriculture, and environmental justice. Significant investment and efforts are directed specifically toward the efficiency and use of buildings, which account for 39% of the country’s primary energy use and 76% of electricity use, according to the U.S. Department of Energy.
The IRA will affect smart building construction and operation in four main areas: energy efficiency, codes and standards, energy financing, and federal investments by the General Services Administration (GSA).
The IRA provides many incentives and investments to improve and manage energy use by buildings, to which smart building technology will be key. Though many of its provisions relate to residential buildings, such as tax credits for homeowners to switch to renewable energy, the bill allocates $362 million for a commercial energy efficiency tax deduction.
“Using smart building technology to manage electric loads is an effective and affordable way to reduce emissions and save money,” Tallackson says. “The funding in the IRA will lay a strong foundation for building electrification markets, and smart building technology is the connection that will allow for integrating these new, efficient technologies into homes, commercial buildings, and the grid” through capabilities such as energy load management.
Bresette agrees that the bill supports smart building efforts. “Buildings are becoming more important, especially as we get into the future of the grid and the future of transportation,” he says, adding that the increasing overlap of these sectors shows promise in reducing emissions. “In large part, this integration is a perfect application for a lot of these smart technologies.”
Through direct rebates and tax deduction incentives, Tallackson says, “the bill’s overall encouragement of electrification can rev the market for smart building technologies that help customers manage their electric bill.”
Read how solutions providers and organizations in the smart building sector have reacted to the Inflation Reduction Act.
Codes and Standards
The drive to improve the code structure began in November 2021 with the passage of the Infrastructure Investment and Jobs Act. That bipartisan law allocated $1.2 trillion for infrastructure programs and provided the DOE with $225 million over five years to fund competitive grants for “sustained cost-effective implementation of updated energy codes.” Supported by the International Code Council, the program aims to drive improvement in the implementation of energy codes, as well as water conservation and community resilience efforts.
The IRA provides an additional $1 billion over 10 years for efficient building code adoption grants. Raising the bar for performance expectations will likely drive innovation and investment in more sophisticated and advanced building management and automation systems.
To distribute up to $27 billion to clean energy technologies, the IRA sets up a Greenhouse Gas Reduction Fund (GGRF). “This Clean Energy and Sustainability Accelerator, or green bank, is going to make a huge difference,” Bresette predicts. “It’s going to deploy resources in communities that haven’t previously had enough resources deployed in them. It’s going to unleash innovation and leverage private capital.”