Signed into law by President Biden in August 2022, the IRA, along with the so-called Bipartisan Infrastructure Law (BIL) enacted in November 2021, are intended to funnel billions of federal dollars into developing clean energy.
The aim is to lower greenhouse gas emissions, and incentivise private investment, to encourage the growth of green industries and jobs: a new foundation for the US economy.
With a planned 10-year duration, and a cost originally estimated at $391bn (£310bn), but now predicted to top over $1tn – the final figure is yet unknown – the IRA offers new and significant tax credits, as well as loans and loan guarantees for the deployment of emissions reducing technology.
The tax credits are available to companies for either domestically producing clean energy, or domestically manufacturing the equipment needed for the energy transition, including electric vehicles (EVs) and batteries.
Consumers can also receive tax credits, for example for buying an EV or installing a heat pump. The tax credit for SAF producers like LanzaJet is new in the IRA and, offers between $1.25 to $1.75 per gallon of SAF (though it only lasts five years).
Complementary is the BIL, which runs for five years and provides direct investment largely in the form of government grants for research and development and capital projects. Under the BIL, about $77bn (£61bn) will go to clean energy technology projects, according to the Brookings Institution which monitors the law.
Meanwhile, the US’s approach is putting competitive pressure on Europe including the UK to do more:
Some European clean energy manufacturing companies are now building facilities in the US to take advantage of the tax credits that otherwise would have been built in Europe including solar panel maker Meyer Burger and electrolyser manufacturers Nel and John Cockerill.
The EU’s Net Zero Industrial Act (NZIA) is expected to enter into force this year. It doesn’t involve new money, but seeks to coordinate existing financing and introduces domestic favourability for the first time – putting in place a non-binding target for the bloc to locally manufacture 40% of its clean energy equipment needs by 2030.
In the UK, chancellor Jeremy Hunt has made clear he isn’t interested, nor can the UK afford to copy the IRA’s approach in some “distortive global subsidy race” and will stick to other ways of helping. While the Labour party recently scrapped its £28bn green investment plan seen as an approach looking to emulate an mini-IRA style policy.
A global audience will be watching as the US’s clean energy juggernaut unfolds. And if it leads others to ask what more they can do to produce clean energy products then it could be seen as a win for the World economy and maybe Humankind.
(Source: BBC)