The United States’ landmark Inflation Reduction Act is set to pass tomorrow (August 12), making it one of the largest investments in emissions reductions and sustainable energy in history.
This includes support for both emerging and established low-carbon technologies, making each significantly cheaper to produce and purchase. These include solar panels, wind turbines, batteries, heat pumps and electric vehicles (EVs), as well as green hydrogen, carbon capture and small nuclear reactor technologies.
Taken together, analysts predict that these measures will reduce America’s carbon footprint by 40%, “spurring an era of affordable clean energy in the United States.” But the $369 billion (£300 billion) package could also boost the burgeoning cleantech sector, especially by opening up huge new markets.
Caroline Hargrove, CTO of Ceres, a UK fuel cell and hydrogen engineering company working with companies in hard-to-decarbonize industries such as steel manufacturing, said: .
“It will give international companies the confidence to develop. [green technology] It works in the US and applies what worked there elsewhere. This is why we are so excited. ”
Much of the Act’s subsidies are aimed at helping American companies, but Sam Alvis, economic director of the Green Alliance think tank, said America’s green supply chain is still in its infancy. “There will be opportunities, at least for the first few years, to help companies bridge these supply chains, especially in technologies like heat pumps, where the US lags far behind Europe. “
UK and European manufacturers are preparing to expand their operations in the US in anticipation of a significant increase in demand. “The United States will become the world’s leading energy storage market,” a Norwegian battery company told Sifted, while British power giant Drax said the bill could accelerate its carbon capture business in the United States. increase.
As manufacturers increase their R&D spending, Alvis says there will be an “innovation ripple effect” with a massive influx of money into the sector. “If the United States significantly lowers the cost of producing batteries and clean energy, as well as the cost of manufacturing EVs, it will benefit all our allies and trading partners and enable more innovation.”
Providing long-term plans for clean energy
Many of the tax credits included in the law have lasted more than a decade, in contrast to the so-called “solar coaster” that plagued the industry as US solar subsidies fluctuated dramatically from year to year. This provides all-important peace of mind for investors looking to fund early-stage businesses and projects that may take decades to pay off.
“You have to trust these technologies. [will] It matures and gets cheaper, but unless you give it a long-term incentive and people feel they can commit, that’s hard,” Hargrove says.
She also commends the legislative support for multiple technologies needed to build new energy systems. and the market believes it is a better option than fossil fuels. “We need to build her entire chain of supplies, not just replace her one item in the current system.”
The law’s “carrot and stick” approach has been criticized by some for leaving the door open to fossil fuel companies, but it may be the smartest way to encourage retail investors to follow suit. . “Tax credits are a really great way to free up private capital,” he says Alvis. “It encourages and rewards people to act first, rather than trying to motivate them through other mechanisms.”
This is an approach already deployed by the UK government. Then-Prime Minister Rishi Sunak introduced a “super credit” last year that would allow businesses to claim his 130% tax credit for business equipment. If similar measures focus on clean technology, it could be a game changer and more acceptable to Conservatives wary of “subsidies,” Alvis argues.
But most powerful of all is the potential for ripple effects. The world is still silent when the US makes such an ambitious move. “This is a huge signal for other countries. If the country with the highest per capita emissions is finally doing something, there is no reason why others should not,” he said. increase.