How the IRA cuts costs and emissions from buildings

This article is sponsored by Environmental Defense Fund.

The Inflation Reduction Act (IRA) is a major win for American businesses, offering companies billions of dollars in tax credits, loans and other incentives to accelerate progress toward environmental sustainability, and it is destined to be transformative — as long as those incentives are implemented efficiently and effectively.

The legislation included serious investments to reduce building emissions, which account for nearly 40 percent of greenhouse gas emissions but are often overlooked when developing climate policy. To get a better understanding of how the IRA is helping to reduce carbon emissions in the built environment, I recently spoke with Katie McGinty, vice president and Chief Sustainability and External Affairs Officer at Johnson Controls.

Victoria Mills: Why was Johnson Controls such a strong advocate for the IRA and how did you weigh in on the policy as it was being formed?

Katie McGinty: Johnson Controls publicly endorsed the IRA because we saw it as an historic opportunity to make real progress in improving energy efficiency and addressing climate change while strengthening the economy and enhancing energy security.  

At Johnson Controls, our engagement in climate policy is a priority. We engage with trade associations and NGOs across the globe to drive action that addresses climate change while enabling economic growth, fostering U.S. competitiveness and supporting communities. We have also worked closely with the Biden Administration and have encouraged them to implement policies to incentivize building decarbonization and electrification. Many of these policy ideas were included in the final IRA legislation.

Mills: How has the IRA’s passage changed the business context for your company?

McGinty: We see the passage of the IRA as a validation of our longstanding business imperative. At Johnson Controls, sustainability is our business. Our products and solutions are driving double-digit energy and emissions reductions and cost savings for our customers. We are also continuously expanding these solutions, dedicating some 90 percent of our new product research and development to climate and sustainability.

The IRA will help to accelerate needed action and progress in cutting greenhouse gas emissions from the building sector. The tax incentives, rebates, and grants for critical energy efficiency improvements in the bill will expand the market for smart, safe, healthy and sustainable building technology and support long overdue action to upgrade critical infrastructure. That in turn will lift the economy by cutting operating costs, ensuring energy security, and enabling resilience and continuity of business.

Mills: What are the key IRA-funded programs and incentives that Johnson Controls is benefiting or expects to benefit from, directly or indirectly?

McGinty: One example is the High Efficiency Electric Home Rebate Program, which provides point-of-sale rebates on heat pumps for home heating and cooling up to $8,000, will be critical to drive heat pump demand and cut energy bills. In addition, the enhanced Energy Efficient Home Improvement Tax Credit (25C) greatly increases the tax credit limit for installing specific high-efficiency equipment such as heat pumps, central air conditioning systems and furnaces — a big help to families and small businesses. Grants for public and affordable housing, industrial facilities and federal government buildings will also support key institutions, organizations and manufacturers to decarbonize and upgrade their buildings assets. 

The expansion of the investment tax credit and production tax credit for renewable electricity also creates significant benefits for both our commercial and government customers. Specifically, government entities in education and healthcare, as well as state and local governments will be able to utilize the new direct-pay provisions to help install renewable energy projects which had previously only been accessible to the private sector. In addition, by further incentivizing the development of renewables, Johnson Controls will have better access to lower carbon electricity for facilities in North America. This will help us to meet our renewable energy commitments and more cost-effectively reduce our carbon footprint.

Mills: Talk through a specific example of how you or your customers benefit from an IRA grant or incentive.

McGinty: In June 2023, the General Services Administration (GSA) announced plans to use $975 million in funding from the IRA to make 28 buildings net zero emitters. The Ronald Reagan Building and International Trade Center (RRBITC) in Washington D.C. is among the first and largest projects, and Johnson Controls was selected as the primary energy service company contracted to install energy- efficiency retrofits, including electrification of the entire complex, using new heat pumps as the primary heating source, eliminating onsite combustion emissions and using steam for space and water heating. This will result in annual savings of over $6.3 million in energy costs and 35 million gallons of water. These numbers show the scale of benefits from improving energy efficiency in buildings.

Mills: How does the IRA support progress toward Johnson Controls’ climate goals?

McGinty: Achieving our climate goals depends on access to low-carbon commodities and components from our suppliers, access to low-carbon electricity and increased customer demand for our own low-carbon solutions. The IRA helps us make progress on all three fronts. For example, we expect that the DOE and EPA will increase their support for hard-to-decarbonize industrial sectors like steel, so we can source more of our steel from lower-carbon Electronic Arc Furnace (EAF) suppliers, we want to increase this share, and as we see EAF steel continue to decrease its embodied carbon, we, in turn, can offer lower embodied carbon products to our customers. Looking downstream, we have decreased the absolute emissions from the use of our sold products by 14% since 2017, bringing us close to our Scope 3 reduction target, far ahead of 2030. Further progress toward our goals will require continued market growth in our high-efficiency heat pumps, and IRA programs will accelerate this shift.

Mills: What needs to happen to make sure the IRA delivers on its potential?

McGinty: Delivering on the IRA’s potential will come down to effective implementation by agencies and strong partnerships with state and local governments and the private sector. The agencies have done great work to date, the Biden Administration’s leadership has been important in establishing timelines and implementation deadlines for various IRA programs. Clear and actionable rules and guidance are indispensable to avoiding delays and enabling our customers to execute sustainable projects and begin reaping the benefits of energy, emissions, and cost savings. Businesses can do our part by providing input on agency guidance through the public comment process.

Mills: What would you like to see other companies doing now regarding the IRA? What’s one piece of advice you’d like to share?

McGinty: Smart action to cut carbon can drive business strategy and success.  For example, bolstering the bottom line by eliminating energy waste enables a company to put every dollar to work driving growth.  In addition, companies with a purpose and goal to help tackle climate change have an advantage in the competition for the best talent, while they better respond to investor expectations that long term asset value be made more resilient against climate impacts. With the passage of the IRA, there never has been a better time to act and secure gains for your business and the environment.