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How the Inflation Reduction Act will boost smart buildings

Aug. 16, 2022
The smart building sector stands to benefit from the bill, which will allocate nearly $370 billion to nationwide efforts to combat climate change.

Aug. 16, 2022, 5:30 p.m. EDT update: President Biden has signed the Inflation Reduction Act into law.

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).

Energy Efficiency

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.

Energy Financing

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.”

As established in the bill, the GGRF will give the Environmental Protection Agency administrator authority to disburse $20 billion to eligible recipients, defined as nonprofit green banks that “provide capital, including by leveraging private capital, and other forms of financial assistance for the rapid deployment of low- and zero-emission products, technologies, and services.”

Of this $20 billion allocation, $8 billion would be dedicated to financial and technical assistance for low-income and disadvantaged communities. The provision also designates $7 billion to states, municipalities, and tribal governments to drive local investments in sustainability and efficiency—and smarten up their buildings.

Public building initiatives

Along with the incentives and funding for the private sector, the federal government plans to invest $250 million through the GSA to convert buildings owned or managed by the agency to high performance building standards. The impact will be significant due to the sheer size of the GSA, which has an annual operating budget of $33 billion, oversees $66 billion in procurement annually, and manages approximately 8,700 owned and leased buildings. Its large footprint has enabled the GSA to become an influential leader in high-performance building and sustainable design efforts.

Funding to improve the operations of GSA building stock will almost certainly involve upgrades in building management and other smart building technologies as part of the agency’s efforts to improve the operations of its significant portfolio. 

Path Forward

Altogether, the scope of investments outlined in the IRA legislation provides an important step forward for climate mitigation on a national scale. Though the building industry has been steadily moving toward more efficient design, construction, and operations for the past two decades, this legislation can provide a much needed turbocharge.

“The IRA is a significant stride forward in putting the U.S. on a path aligned with the Paris Climate Agreement,” Tallackson says. “While more work is needed, I hope this bill creates political momentum around climate action and a definitive foundation for a clean energy future.”

“We’re on a good path,” Bresette says, “but we’ve been polluting at such an unacceptable rate for so long, it’s going to take a long time to wear off so there is lots of work to do. But we’ll feel better doing it now that we’ve seen some progress.”

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About the Author

Jim Schneider

Jim Schneider, LEED AP, is a writer who has worked in and covered the design and construction industry for nearly 20 years. He writes about architecture, construction, sustainability, industry trends, and building technology.

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