The recently passed Inflation Reduction Act (IRA) has attracted a lot of attention as a major piece of climate legislation, and for good reason. The IRA is a major investment in US climate resilience and decarbonisation efforts, on a much larger scale than any other climate measures in the past. The White House predicts it will reduce US greenhouse gas emissions by about 40 percent by 2030—a reduction of about one gigaton.
Beyond its obvious climate benefits, the legislation also marks a major investment in American competitiveness and innovation. The IRA is designed to create a new landscape for clean energy, including incentives that will foster technological innovation and encourage domestic manufacturing. With this bill, Congress is not only trying to reduce emissions, but also to do so in a way that helps the United States emerge as a clean energy industrial powerhouse.
In recent decades, the United States has fallen behind in clean energy production. Take solar, for example. The US share of solar manufacturing has fallen by 80 percent in the past decade, while China has grown to dominate almost the entire solar supply chain. This trend has become true for other clean energy. China is currently the leading producer of wind energy, the main investor in renewable energy, and also leads in the production of minerals needed for most forms of clean energy production. Although clean energy production abroad is not inherently bad, its concentration in China means that the United States is missing the opportunity to diversify clean energy supply chains, foster more competition, create domestic manufacturing jobs, and reduce the risks caused by geopolitical factors – most recently stressed the Russian invasion of Ukraine.
Renewing America
Ideas and initiatives for renewing America’s economic strength.
Ideas and initiatives for renewing America’s economic strength.
The IRA seeks to address exactly this issue. It is a budget reconciliation bill; each provision means that money is spent or collected through spending, tax credits, tax revenue, or borrowing. Its allocation of $369 billion to clean energy and decarbonization projects focuses primarily on deployment—meaning it provides incentives for clean energy technologies to be produced and implemented in the United States. Many of the bill’s provisions can be described as demand-pull policies, promising a market for clean energy products and components. This may interest you : President Biden’s remarks at the Launch of the Global Infrastructure and Investment Partnership. It offers tax credits to clean energy suppliers which essentially pay those companies to operate. It also includes subsidies and rebates that make clean energy cheaper for consumers. Other provisions are supply push policies, which offer low interest government loans and tax credits for new factories and clean energy projects. Together, these investments create a landscape where consumers are incentivized to buy clean energy and companies are incentivized to produce it.
Because the bill aims to not only deploy clean energy technology in the United States, but also establish entire clean energy supply chains, the legislation includes a host of incentives for clean energy manufacturing. It creates demand by implementing “bonus” credits that offer additional tax incentives to companies that use components or manufactured products produced in the United States. And because the United States does not currently manufacture most components along clean energy supply chains, it is drawing on supply by investing over $60 billion in onshore clean energy manufacturing.
Using the solar industry again as an example, with the IRA, the federal government will provide loan guarantees to new solar factories that manufacture any and all components of the solar supply chain. It provides further tax incentives for the components that those factories produce. And, it generates demand for the components and solar panels that are created, providing tax credits that pay per kilowatt hour of energy produced.
For American competitiveness, the implications are clear. The Joe Biden administration has prioritized strengthening supply chains and creating good-paying manufacturing jobs in the process. By creating demand and reducing the cost of operating clean energy industries, the legislation creates incentives that allow American companies to compete with producers abroad. If successful, this legislation will strengthen US leadership in clean energy industries for years to come.
In terms of innovation? The IRA does not invest in what some people traditionally think of as innovation, such as the early stages of research and development (R&D) or prototyping. But it creates markets for innovative industries. By extending clean energy tax credits, technologies that are not yet ready for use can take advantage of the promise of a stable market over the next ten years as they develop. This helps bring emerging technologies from the laboratory to the market. In addition, the bill benefits innovation with its “learning by doing” approach. The more the federal government invests in financing and building clean energy, the better it gets. Ultimately, though, the IRA’s impact on clean energy innovation will be how it complements two other major pieces of legislation — the Infrastructure Investment and Jobs Act and the CHIPS and Science Act. These three bills create generous incentives for new clean energy technology at every stage of the innovation process – investing billions in early research and development, funding demonstration projects to help new technologies demonstrate their viability, providing the infrastructure that needed to scale these technologies, and enable their use. by stimulating investment growth. Together, these laws will accelerate American innovation across clean energy industries.
