The IRA - The Biggest Climate Spending Bill in History - Turned Two This Year and Now Faces an Uncertain Future
More than 300,000. That's the number of clean energy jobs created by U.S. companies since the passage of the Inflation Reduction Act (IRA) two years ago. More than 100,000 of them are manufacturing jobs. This means the communities most affected by disinvestment in American manufacturing are now the primary beneficiaries of the Biden Administration's signature climate legislation.
In addition, last year, we saw a record investment of more than $250 billion in the U.S. clean energy sector. This year is on track to break that record easily. The private sector has kicked in more than $5 for every dollar the government has recently contributed. But despite all demonstrable success, the future of this highly impactful legislation is uncertain due to the upcoming national and state elections.
How clean energy incentives work
The IRA includes $369 billion in energy and climate incentives. More than two-thirds of these are corporate tax credits. This is intended to steer private capital into clean energy, transportation, and manufacturing[CU1] . The good news is that the tax credits are embedded in the legislation for ten years and would be difficult to remove. The bad news is that tax credits will not be used if investors face uncertainty due to concerns over repealing or rolling back parts of the IRA. Fortunately, the IRA has succeeded in critical districts, and the first House Republicans are starting to advocate for keeping some provisions in place. Parts of it have even found unlikely allies in big oil.
At the same time, most of the funds allocated directly through the IRA have yet to be spent. So, while its impact has been enormous, there are very different future scenarios for the IRA. To understand them, we should turn our attention to the only piece of legislation that can serve as a point of comparison: The European Green Deal.
Two massive industrialization programs with a focus on sustainability
The Green Deal is a comprehensive set of policies launched by the European Union (EU) in June 2021. Like the IRA, it aims to achieve geopolitical, environmental, and social goals by focusing on research, innovation, manufacturing, and sustainability, particularly the expansion of renewable energy. The green subsidies available in the EU are of a similar size to those made available through the IRA, although EU subsidies for renewable energy production remain larger. This is where the two plans begin to diverge.
The U.S. and the EU have created fundamentally different types of incentives for innovation, sustainable industrialization, and decarbonization. The U.S. is reallocating resources within its budget, while the EU is adding policy priorities without cutting back on previous ones. Companies can apply for tax credits in the U.S. or grants and loans in the EU. The IRA tax credits are often credited with being easier to understand and quicker to secure than the EU programs.
As a German American, here's what I'm taking away
Contrary to the fears of some, the IRA had no significant negative impact on Europe since the EU began implementing climate policies and subsidies more than a year before the IRA was adopted. The IRA was a much needed and welcome piece of climate legislation and is inspiring further climate action around the world. In the EU, it inspired the Green Deal industrial plan. And it will significantly lower the cost of deploying clean energy globally.
Just ahead of the IRA's second anniversary, a new report showed that in the first half of 2024, electricity generation from wind and solar in the EU overtook fossil fuels for the first time. The IRA is a net positive for the clean energy transition, not just in the U.S., but globally. So, what's next for the IRA?
What everyone will be watching after November
If Congress and the White House change hands, many are assuming there will be changes to the IRA. While amendments are possible, a lot of money is already out the door, and business is booming. The IRA has brought investment and clean energy jobs to red, blue, and purple states, and there will be limited political will to undo its core provisions. And while a subsidy race between the U.S. and the EU should be avoided, Europe is likely to maintain healthy pressure on whoever occupies the White House to continue the green transition. The U.S. will continue to have a strong incentive to remain a climate and cleantech leader. And the IRA will play an important part in that – regardless of who wins in November.
