The Inflation Reduction Act (IRA) has spurred nearly $400 billion in federal funding and an additional half a trillion dollars in private investment for clean energy and manufacturing in the US.
This investment has led to significant job growth, particularly in previously neglected industrial regions, and is driving a rapid expansion of renewable energy capacity.
While the IRA’s success has been remarkable, its future remains uncertain, with the outcome of the 2024 presidential election potentially impacting its continued implementation.
The introduction of the Biden administration’s Inflation Reduction Act (IRA) has spurred a rapid acceleration of the green transition, supported by high levels of domestic manufacturing and a rapid increase in the country’s renewable energy capacity. The IRA is the most far-reaching U.S. climate policy to date and is highly competitive, with many other countries around the globe now racing to develop their own climate policies. The provision of widescale financial incentives for decarbonisation efforts, the uptake of green energy, and domestic manufacturing has attracted high levels of investment across several sectors, which are expected to continue growing for several years.
The IRA provides almost $400 billion in federal funding to clean energy. It encourages companies to invest in green energy and clean technology by offering grants, tax breaks and other financial incentives. Since the launch of the IRA, companies have invested around $133 billion in clean energy technology and electric vehicle manufacturing. Manufacturing investment has increased by approximately 305 percent compared to two years before the launch of the climate policy, as the Biden administration advances its Made-In-America strategy. In total, the IRA has attracted around half a trillion dollars of investment in the manufacturing, energy and retail sectors. This means that for every $1 the government invests in clean energy technologies, it attracts between $5 and $6 in private investment.
Trevor Houser, a partner with the Rhodium Group, stated, “It is having a transformative effect within the manufacturing sector… The amount of new manufacturing activity that we’re seeing right now is unprecedented in recent history and is in large part due to new clean energy manufacturing facilities.”
In addition to attracting funding, it has also supported the creation of thousands of jobs across several sectors. New manufacturing projects for clean energy tech and electric vehicles (EVs) are expected to provide 100,000 new jobs across the country, including new energy developments in long-neglected rural regions of the U.S. The U.S. organisation Climate Power estimates that new clean energy projects announced since the launch of the IRA will create around 313,000 new jobs in total.
In terms of clean energy, since the IRA, around $108 billion has been invested in utility-scale solar and battery storage projects, with funding across the two sectors increasing by 56 percent and 130 percent, respectively. Other clean energy sectors such as nuclear, wind and geothermal energy, and hydropower have also benefitted from the IRA. However, there is still significant room for growth in some long-overlooked sectors, including offshore wind and heat pumps.
Much of the clean energy manufacturing is taking place in cities previously known for their heavy industry and coal mining. The Biden administration has emphasised the need to invest in disadvantaged regions of the U.S., including ex-mining and industrial communities. The Midwest and Southeast are quickly transforming to become known as the “Battery Belt.” Meanwhile, states that have long relied on fossil fuel revenues, such as Texas and Wyoming, are now becoming major green energy hubs. Ben Beachy, the special assistant to the President for Climate Policy, Industrial Sector, and Community Investment, explained, “The administration is committed to ensuring that hard-hit communities and workers reap the rewards of this boom, including deindustrialised communities.”
In combination with the Bipartisan Infrastructure Law, the IRA has been successful in both “supercharging” private investment in mature technologies that were already growing, such as solar power, EVs and batteries, as well as spurring “dramatic growth” in investment in emerging climate technologies, such as clean hydrogen, carbon capture and removal and sustainable aviation fuels, according to Houser at the Rhodium Group.
While the clean energy and domestic manufacturing sectors are growing rapidly, they are still in the early stages of growth. Should the Democrat party remain in office following the November presidential elections, this growth is expected to continue as the financial incentives of the IRA continue to be rolled out. However, if former president Donald Trump wins the election, he has been clear about his intentions to roll back or even dismantle the IRA in favour of ongoing fossil fuel production. Trump stated at a rally in May, “Upon taking office, I will impose an immediate moratorium on all new spending grants and giveaways under the Joe Biden mammoth socialist bills like the so-called Inflation Reduction Act.”
The upcoming presidential election has cast a shadow on the early and rapid growth of the clean energy and manufacturing sectors, with the outcome of the election expected to determine the future of sectoral growth. However, as several Republican states benefit from the IRA, experts believe that green energy and clean tech will continue growing regardless of who wins the election. Around 85 percent of IRA investments have gone to Republican congressional districts, with lawmakers across these states increasingly supporting a future in clean energy.
By Felicity Bradstock for Oilprice.com
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