Warming your house the green way just got more expensive

0:01Stacey Vanek Smith:NPR.

0:11Stacey Vanek Smith:This is The Indicator from Planet Money. I'm Darian Woods here with friend of the show, Nate Hedgie, host of the public radio podcast Outside In. Great to be back. You've not been on the show for a while.

0:21Cardiff Garcia:No, I was busy moving. I'm in Juneau, Alaska now. And actually, lately, I've been spending my days digging out of the absolutely record-breaking amount of snow we had.

0:32Stacey Vanek Smith:Yeah, I've been doing a good bit of shoveling here. It has been quite the brisk winter, I must say.

0:37Cardiff Garcia:Yeah, sub-zero temperatures across the country. And I'm sure folks are looking at their energy bills with their jaws dropped. Like, I spent more than$1 ,000 on heating oil already this winter. But if Americans want to make their homes more energy efficient after this cold snap, it might cost them extra.

0:56Stacey Vanek Smith:Yeah, and that's because a series of clean energy tax credits have officially expired. They saved many people thousands of dollars on everything from heat pumps to insulation to energy efficient wood stoves. And now they are no more. So today on the show, what that means for homeowners and the renewables industry. Plus, who's happy these tax credits are gone? When Michelle Dutro and Brendan Jackson bought their first house in Juneau, Alaska, there were a few quirks. The pipes didn't connect. And one of the sinks, they just like emptied into our crawl space under the house. But one of the first big upgrades they made for the house wasn't fixing the plumbing.

1:34Stacey Vanek Smith:It was installing a heat pump.

1:36Cardiff Garcia:Now, if you are unfamiliar with a heat pump, they are an energy-efficient heating and air conditioning system that relies on electricity rather than oil or natural gas. In Juneau, having one can save residents hundreds of dollars a year in heating costs. But they aren't cheap to buy.

1:52Stacey Vanek Smith:It's crazy how expensive it is. Like, you know, just for this home, it's one head unit. It's a pretty simple, relatively simple unit and process, and it still would have cost us$10 ,000 out of pocket. That's where the Biden-era tax credits come in. And here's how they work. Brendan and Michelle pay full price for the heat pump and installation at the shop. And then when they're doing their taxes early in the year, they can write off 30 % of that cost, up to$2 ,000. Which means if they owe any taxes, the feds will slash up to$2 ,000 off their tax bill. Which will probably be significant for me because I was a contractor last year, so my income wasn't taxed.

2:33Stacey Vanek Smith:So it should be pretty helpful.

2:35Cardiff Garcia:These credits were supposed to last until the 2030s, but then Congress passed the one big, beautiful bill act last year, which sunsetted the credits much earlier on December 31st, 2025.

2:46Stacey Vanek Smith:Which is why installing a heat pump before that deadline became a priority for Brendan and Michelle. It's like the whole reason that we're doing it now. I think we would have had to save and plan for this for a number of years, and it just wouldn't have been a priority in the same way.

3:02Cardiff Garcia:When did you get the heat pump actually installed?

3:05Stacey Vanek Smith:It was installed on December 26th, so like just down to the wire. Tax credits for energy efficiency have been around since the 1970s. Originally, they were developed to wean Americans off foreign oil during an energy crisis. Think Jimmy Carter making speeches at the White House wearing a cozy warm sweater. All of us must learn to waste less energy. Simply by keeping our thermostats, for instance, at 65 degrees in the daytime and 55 degrees at night, we could save half the current shortage of natural gas.

3:39Cardiff Garcia:Darian, by the way, I am still following that rule. My house is cold. But man, I am saving money. And yeah, I legitimately wear a sweater most days.

3:48Stacey Vanek Smith:I am wearing long johns, or as you may call them, long underwear. And I like to think that Jimmy Carter would be proud. Absolutely. Back in the Carter era, Americans could receive a 15 % credit for insulating their homes or upgrading their storm windows. Now, whether these subsidies worked is a mixed bag. Home efficiency has gotten better over the years. But there were a lot of other motivating factors, including high energy prices and more stringent building codes.

4:17Cardiff Garcia:The original Carter credits expired in the mid-1980s. Since then, there have been other iterations, but none as big and broad as the ones President Biden enacted when he signed the Inflation Reduction Act. A big part of that legislation was all about climate change. He was pushing for Americans to make the jump away from most fossil fuels. And taxpayers took it up. The nonpartisan Congressional Research Service found that millions of Americans used the credits in 2023.

4:46Stacey Vanek Smith:But here's where the program has critics. A lot of those folks were also higher earners. More than half made$100 ,000 or more a year. Ryan Young is with the Competitive Enterprise Institute, a libertarian think tank.

4:59Cardiff Garcia:If you're going to cut taxes, it's better to do it for lower-income people. Ryan makes the argument that these credits were essentially a tax break for the middle class. Because in order to take advantage of them, you already need money in your pockets. I mean, enough to front the cost of installing a$10 ,000 heat pump or a$30 ,000 solar panel. A lot of the people who are installing solar panels and adding insulation to their homes and other energy-saving measures are people who are going to do that anyway. That's not a very efficient use of the government's resources, especially considering the kind of deficits we've been seeing lately.

5:36Stacey Vanek Smith:The Energy Efficient Home Improvement Credit cost the government more than$2 billion in lost revenue back in 2023.

5:44Cardiff Garcia:To put that in some perspective, tax breaks for oil, gas and coal were nearly$3 billion in 2022.

5:50Stacey Vanek Smith:As the Biden-era energy credits, including the home credit, end, the renewable energy sector might feel a pinch. The nonpartisan Rhodium Group found that natural gas demand in the U.S. will increase, and so will prices, by up to 7%.

6:04Cardiff Garcia:I spoke to Ari Matusiak. He's a former Obama official and head of a non-profit electrification group called Rewiring America. As with anything, when you have kind of a set of incentives and then they go away, there's an impact on the market.

6:21Stacey Vanek Smith:He thinks there will be a dip in the purchase of stuff like heat pumps and solar panels this year. But he's optimistic it could be temporary, because regardless of tax credits, the residential energy market is leaning away from fossil fuels.

6:36Cardiff Garcia:Over half of new homes that were built in 2024 were built with all electric heating. Now, some of that electricity is powered by coal and natural gas, but that's been mostly declining. Heat pumps are another bright spot for Ari. Heat pumps outsold gas furnaces for the fourth consecutive year. Ari also sees an unusual window for more energy-efficient homes, the rise of power-hungry AI data centers.

7:04Stacey Vanek Smith:All roads lead to AI data centers.

7:06Cardiff Garcia:Utilities are looking for ways to, frankly, lessen the amount of power that's being consumed by other customers like households. So they need more efficient options in order to accommodate all of the growth that's happening on the grid. And so we did this analysis that showed that actually 100 % of the electricity needs that these data centers have can be met if we invested in households directly by giving them heat pumps, batteries, and rooftops solar.

7:38Stacey Vanek Smith:But, you know, just because the tax credit is gone, it doesn't mean there aren't other incentives for making your house more energy efficient, including state-by-state rebates.

7:47Cardiff Garcia:Yeah, for instance, in Southeast Alaska, the EPA funded a program that pays up to$8 ,500 to residents who want to make the switch to heat pumps.

7:54Stacey Vanek Smith:And that was something that Brendan Jackson and Michelle Dutro took advantage of in addition to their federal tax credit.

8:00Cardiff Garcia:So that$10 ,000 heat pump with the tax credit and the rebate only cost them a couple of grand.

8:06Stacey Vanek Smith:It sounds like the economic incentives really stacked up for them. Yeah, exactly. This episode was produced by Cooper Katz-McKim and engineered by Kweisi Lee. It was fact-checked by Sierra Juarez. Kate Concanon is our editor, and The Indicator is a production of NPR.