The introduction of the Biden administration’s Inflation Reduction Act (IRA) has led to 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 world currently vying to develop their own climate policies. Providing comprehensive financial incentives for decarbonization efforts, green energy use, and domestic manufacturing has attracted high levels of investment across multiple sectors, which is expected to continue growing for several years.
The IRA provides nearly $400 billion in federal funds for clean energy. It encourages companies to invest in green energy and clean technology by offering grants, tax breaks and other financial incentives. Since the IRA was introduced, companies have raised around $133 billion in clean energy technology and electric vehicle manufacturing. Investment in manufacturing is up about 305 percent compared to two years before the climate policy was introduced as the Biden administration pushes its Made In America strategy. In total, the IRA has attracted about half a trillion dollars in investment in manufacturing, energy, and retail. That means that for every dollar the government invests in clean energy technologies, it attracts between $5 and $6 in private investment.
Trevor Houser, partner at Rhodium Group, specified“It’s having a transformative effect on the manufacturing sector… The level of new manufacturing activity we’re seeing right now is unprecedented in recent history and is due in large part to new clean energy manufacturing facilities.”
In addition to raising funds, the program has also supported the creation of thousands of jobs in various sectors. New clean energy technology and electric vehicle (EV) manufacturing projects are expected to create 100,000 new jobs across the country, including new energy developments in long-neglected rural areas of the US. US organization Climate Power estimates that new clean energy projects announced since the launch of the IRA will generate around 313,000 new jobs in total.
In the clean energy sector, approximately $108 billion has been invested in utility-scale solar and battery storage projects since the IRA, with financing in both sectors increasing by 56 percent and 130 percent, respectively. Other clean energy sectors such as nuclear, wind, geothermal and hydro have also benefited 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 production is taking place in cities formerly known for heavy industry and coal mining. The Biden administration has stressed the need to invest in disadvantaged regions of the U.S., including former mining and industrial communities. The Midwest and Southeast are rapidly transforming and becoming known as the “Battery Belt.” At the same time, states that have long relied on fossil fuel revenues, such as Texas and Wyoming, are emerging as major green energy centers. Ben Beachy, the special assistant to the president for climate policy, industrial sector and community investment, explained“The government is determined to ensure that the most affected communities and workers, including deindustrialized communities, benefit from this boom.”
Combined with the bipartisan infrastructure bill, the IRA has succeeded in both “stimulating” private investment in already growing, mature technologies such as solar power, electric vehicles and batteries, and spurring “dramatic growth” in investment in new climate technologies such as clean hydrogen, carbon capture and removal and sustainable aviation fuels. accordingly Houser at the Rhodium Group.
Although the clean energy and domestic manufacturing sectors are growing rapidly, they are still in the early stages of growth. If the Democratic Party remains in power after the presidential election in November, this growth is likely to continue as the IRA’s financial incentives are further expanded. If former President Donald Trump wins the election, however, he has made clear his intention to scale back or even disband the IRA in favor of continued fossil fuel production. Trump specified at a rally in May: “Upon taking office, I will impose an immediate moratorium on all new spending, grants and handouts under Joe Biden’s gigantic socialist bills, such as the so-called Inflation Reduction Act.”
The upcoming presidential election casts a shadow over the early and rapid growth of the clean energy and manufacturing sectors, and the outcome of the election is expected to determine the future of sector growth. However, with several Republican states benefiting from the IRA, experts believe green energy and clean technology will continue to grow regardless of the election victory. About 85 percent of IRA investments have gone to Republican congressional districts, and lawmakers in those states are increasingly supportive of a clean energy future.
By Felicity Bradstock for Oilprice.com
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