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The Inflation Reduction Act (IRA) recently celebrated its first birthday.

In the 12 months since the $41 billion law was signed into law, the U.S. Environmental Protection Agency (EPA) has leveraged the legislation as an engine to reduce emissions, build a cleaner economy, lower energy costs for American households, and advance environmental justice across the country.

While the bill has gained an inordinate amount of hype, it bears asking: What impact is the IRA actually having on HVAC contractors’ bottom lines?

The ACHR NEWS spoke with a couple of contractors, as well as leaders from the Air Conditioning Contractors of America (ACCA), to learn how they’re utilizing the legislation today and how they envision capitalizing on it going forward.

Boxed In by State Lines

The IRA brought forth the expansion and extension of numerous energy efficiency tax incentives designed to benefit HVAC contractors and their customers.

“From our perspective, perhaps the most significant of these incentives is the 25C credit for residential energy efficiency improvements,” said Chris Czarnecki, director of government relations and advocacy, ACCA. “This credit was extended for 10 years and expanded significantly from 10% of the project cost to 30% of the project’s cost, meaning homeowners can take advantage of it every year to make efficiency improvements to their homes.”

The IRA also offers more than $8 billion in rebates through the Home Efficiency Rebates and Home Electrification and Appliance Rebate programs.

“These programs will be administered through individual states via federal grants,” said Czarnecki. “The Department of Energy just issued guidance to states on submitting applications, and we were very happy to see that they included a ‘consumer protection plan,’ requiring states to take steps to promote minimum installation standards and also develop a list of qualified contractors.”

States can offer up to $8,000 in rebates for electrified products based on income, and consumers are eligible for federal tax credits of up to $2,000. Since state legislators must submit and administer plans individually, the structure of these programs could vary greatly from state to state.

“We will get a better idea of exactly what to expect regarding the rebate programs in the coming months as states begin to submit applications and DOE goes through the approval process,” said Czarnecki.

According to the United States Green Building Council (USGBC), at least two states have recently enacted legislation that will help maximize the impact of IRA dollars:

• Minnesota HF 1656: Some federal funds require states to match federal grant funds. In March, Minnesota Gov. Tim Walz signed into law HF 1656, which establishes a "state competitiveness fund" to provide matching grants that Minnesota can leverage to take full advantage of all available federal funding opportunities.
• Oregon HB 3409 and HB 3630: The Oregon legislature ended its legislative session in June by passing two bills collectively known as the climate resilience package. This included more than $90 million in new climate spending, which is estimated to position Oregon access to as much as $1 billion from IRA programs. The new law provides funds to help marginalized communities, local governments, and community organizations apply for federal grants.

Additionally, in Illinois, Chicago’s ComEd offers up to $2,000 in rebates for air-source heat pumps and up to $1,350 for mini-split heat pumps. Maine has awarded more than 116,000 rebates for heat pumps, surpassing its goal of 100,000 new heat pumps installed by 2025.

On the flip-side, some state leaders are turning away from federal IRA money. A veto by Florida Gov. Ron DeSantis signals his likely rejection of more than $346 million in federal money for direct-to-consumer rebates for residential building upgrades, including the installation of high-efficiency, electric HVAC equipment.

While DeSantis is the first to block the energy rebates, leaders in other states, such as South Dakota, Iowa, and Kentucky, recently turned down pollution mitigation funding provided through the IRA.

DeSantis’s veto didn’t surprise Barton James, president and CEO of ACCA, who called it a political maneuver.

“There are going to be more states where this is going to happen,” he said. “This is the political ramification of Congress passing a bill without one vote from the other party.”

Contractors Take Control

For some contracting companies, the bill has served as a catalyst to broaden their comfort menu.

EFFICIENT OPTIONS: For some contracting companies, the bill has served as a catalyst to broaden their comfort menu. (Courtesy of Leap Partners)

“The IRA has allowed us to introduce more comfort options to our customers, which has benefited us immensely,” said Mitch Mobley, regional vice president for Leap Partners, Nashville, Tennessee. “Oftentimes, there’s a big price gap between traditional equipment and high-efficiency systems, and these rebates and incentives allow us to have a conversation about the benefits of each system. Then, we let customers make the decision that best fits their needs.”

Chad Peterman, president and CEO of Peterman Brothers, in Greenwood, Indiana, said his company is only able to play the hand it’s been dealt.

“The provisions of the Inflation Reduction Act that have been most beneficial for us revolve around the federal credits, where the program has been rolled out completely,” he said. “We’re still waiting on guidance from the state of Indiana, so, in the meantime, we’re focused on using the funds that are available to us.”

A great deal of confusion continues to cloud the legislation. The burden to explain exactly how the IRA works, and how consumers can best use its provisions, falls largely on the technicians working within customers’ homes.

“The real questions get asked and answered at the kitchen table,” said Mobley. “While we don’t expect our techs to understand the tax implications, they do need to be able to demonstrate the value of higher efficiency systems and how these rebates make them more feasible and affordable for our customers.

“Maybe they've heard of heat pumps, maybe they haven't, so it’s up to the techs to not only introduce customers to these options but to show how and why they should consider them,” continued Mobley. “Your technicians have to be both the experts and the educators in the house.”

Contractors are working to broadcast the message to as large of an audience as possible, hoping to at least stoke curiosity in potential customers.

“We’re advertising the incentives and benefits of the IRA on social media, TV, and radio,” said Peterman. “It’s been a big part of our message everywhere we advertise. We want to make sure customers know the benefits of replacing their system with higher efficiency equipment and that they understand right now is probably the best time to do it.”

“We’re highlighting what the IRA entails and how it can be best utilized by homeowners across all our social media platforms,” Mobley said. “We’re also doing some direct-mail efforts. We’re all in on making sure customers are aware of the savings that are available.”

SOCIAL AWARENESS: Engineered Heating and Air, a Leap Partners company, is using social media to increase awareness of the IRA incentives. (Courtesy of Leap Partners)

Next Steps

Ultimately, the IRA offers homeowners an opportunity to save energy and money, which Mobley said should not be overlooked by end users or comfort providers.

“There are different types of customers out there, each with different needs and different wants,” he said. “Our first step is to make sure our customers are comfortable, but if we can also lower their energy bills and help the environment at the same time, that’s a huge win for everybody.”

Peterman said his company will adjust its marketing materials once the state announces its direction, ensuring customers are informed of any available incentives.

“As with any rebate program, there are always different boxes that have to be checked,” he said. “It’s important to make sure customers are educated about the process and the energy and cost savings that are available.

“Using higher efficiency equipment and working toward cleaner energy use is always a good thing for the environment,” he continued. “Letting customers know how they can put some more money in their pocket is a win for us as well.”