The recently passed Inflation Reduction Act includes a wide range of climate change incentives to encourage American consumers to switch to a “greener” lifestyle. These incentives are expected to bring the United States closer to the climate-focused policies of many European nations. Here is a detailed look at the new personal decarbonization incentives in the United States and how they compare to those in Europe.
1. Electric Vehicles
The Inflation Reduction Act introduced initiatives designed to improve the US market share for electric vehicles, which currently stands at less than 5 percent of new car purchases. This bill includes point-of-sale tax credits of up to $7,500 for new electric vehicles and up to $4,000 for used models.
Larger vehicles (such as electric vans, pickup trucks, and SUVs) only qualify for the credits if they are valued at less than $80,000. For smaller vehicles, that limit is $55,000 for new models and $25,000 for used EVs. There are some income restrictions on these tax credits, along with restrictions based on where the eligible vehicles were manufactured. Some states also offer additional cash incentives for purchasing electric vehicles.
Some European nations have gotten a head start on transitioning to electric vehicles. For example, Norway has transformed its vehicle market share over the past decade. According to the Norwegian Electric Vehicle Association, less than 5 percent of its vehicles were electric in 2016. Today, that number has increased to over 25 percent. In 2021, 85 percent of new cars in the country were plug-ins.
Norway accomplished this goal by taxing CO2 and NOx emissions for new car purchases and making EVs exempt from certain types of taxes. This made gasoline-powered cars much more expensive and electric models much more affordable. While this is not technically an incentive like the US tax rebate, it has proven to be extremely effective.
2. E-Bikes
While nations across Europe have been promoting e-bikes for several years, the United States has been slow to adopt this technology. A $900 rebate was included in the Build Back Better Bill that passed the US House in 2021, but the rebate was not included in the Inflation Reduction Act. This was a major disappointment for e-bike manufacturers and advocates who believe that consumers should be encouraged to stop relying on cars altogether. While there are no federal e-bike incentives in the US, states like Vermont and Massachusetts have implemented state-level incentives.
Many European nations have already introduced highly attractive incentives to promote widespread e-bike use. France, for example, offers an e-bike incentive program with a rebate of up to 4,000 euros. To qualify, residents must live in an urban low-emissions zone and trade in their old cars.
3. Residential Solar Power
The Inflation Reduction Act restored a 30 percent tax credit for residential solar power in the United States, and this program was extended through January 1, 2034. The plan also includes a 30 percent tax credit for home battery storage systems. Solar power is one of the few areas where the US may be ahead of Europe, as such subsidies are uncommon across the Atlantic.
However, some European nations do incentivize the use of residential rooftop solar systems. Nations such as Italy, Sweden, and Lithuania offer tax credits or rebates for installing solar panels. Other countries pay premiums to homeowners on the electricity their solar systems provides to the grid. According to the Climate Action Network Europe, France and Germany offer the best subsidies for rooftop solar power.
4. Electric Heat Pumps
High-efficiency electric heat pumps are a renewable energy alternative for space heating and cooling, along with water heating. The Inflation Reduction Act includes a rebate of up to $8,000 for purchasing heat pumps, $1,750 for heat pump water heaters, and $840 for electric induction stoves. Households only qualify for the rebate if they earn less than 150 percent of the median income in their area. Each family can collect up to $14,000 in rebates.
European nations have been promoting heat pump usage for years, and the installation of high-efficiency electric heat pumps has increased significantly due to the Russian invasion of Ukraine. European nations are seeking alternatives to imported natural gas, as a large portion of the continent’s gas consumption comes from Russia. In March 2022, the European Commission announced its REPowerEU initiative, which seeks to double the use of heat pumps over the next five years.
Over a dozen European countries offer subsidies for heat pump purchases. France offers up to 11,000 euros, while Germany pays 45 percent of the cost of replacing oil-powered heating systems with heat pumps and 35 percent of the cost of transitioning from other types of fossil fuels.