The Elimination of Home-Energy Tax Credits Could Harm the Economy
In a recent move that could have significant economic consequences, House Republicans have voted to eliminate two federal tax credits designed to help American households save on their energy bills.
The Residential Clean Energy Credit, which gives households a federal tax break worth 30% of the price of installing solar panels, batteries, geothermal heat pumps, and other energy-producing and -saving systems, is one of the credits at risk. According to Rewiring America, this credit can help households save more than $2,240 per year on their energy bills, reducing them by over 70%.
Another credit under threat is the Energy Efficient Home Improvement Credit. This credit, which cuts 30% of the cost of new insulation, doors, windows, water heaters, and heat pump heater/ACs from households' federal tax bills, with an annual maximum of $3,200, can help single-family households save an average of $990 annually on energy costs by installing heat pumps, heat-pump water heaters, and making weatherization upgrades.
Rewiring America, a non-profit organisation focused on energy efficiency, states that these efficient systems not only reduce energy costs but also improve comfort and indoor air quality. Moreover, the savings from energy-efficiency upgrades alone are enough to offset the impact of the last four years of energy cost hikes.
If the Senate were to approve the repeal of these tax credits, it could have serious economic consequences. The more than 1.2 million American families who claimed the Residential Clean Energy Credit in 2023 received an average of roughly $5,000. These tax breaks support nearly half a million jobs in the U.S.
Kristin Eberhard, head of policy at Rewiring America, stated that eliminating the tax credits would increase energy prices rather than reduce them. She also suggested that the proposed move could have negative economic consequences.
The tax credits, first passed in 2005 under the Energy Policy Act, signed by Republican President George W. Bush, were most recently expanded and extended with the 2022 Inflation Reduction Act to last until 2032. They have been instrumental in helping the grid meet growing energy demand for manufacturing and data centers.
When consumers are able to finance energy-efficient systems, they can start to see net savings much sooner, or in some cases, immediately. These tax breaks allow Americans to unlock thousands of dollars in annual savings on their energy bills.
The names of the Senate members who would need to oppose the repeal to prevent these economic consequences are not publicly specified. It remains to be seen whether the Senate will follow the House's lead on this issue.
