Last summer, during a meeting with business and labor leaders as Congress prepared to vote on the landmark Inflation Reduction Act, President Biden Debate that it will result in “the largest investment ever made in clean energy and energy security in the United States — the largest investment in our history.” “This will also be the largest investment in U.S. manufacturing,” he added.
Nine months since that law was passed by Congress, the private sector has mobilized beyond our initial expectations to generate clean energy, build battery factories, and develop new technologies. other technologies to reduce greenhouse gas emissions.
The law is doing exactly what it was designed to do: encourage private investment in clean energy. Tax incentives make investments attractive, but businesses, along with rural cooperatives, nonprofits and other organizations, must evaluate whether to invest money their energy into a hydrogen plant or a wind farm will be effective or not. Ultimately, this legislation will only succeed when they want to invest at a meaningful scale that reduces planet-warming emissions and enhances the nation’s energy security.
Over the past few months, we’ve started to see how big that craving can be. It is clear that this legislation will stimulate significantly more investment in clean energy than originally planned, while generating more revenue from high-income taxpayers to reduce the deficit.
But despite all the encouraging signs, much work remains to be done to meet the nation’s climate and energy needs goals. For example, the often cumbersome and time-consuming process of site selection and construction of clean energy projects must be streamlined. And Congress needs to take additional steps to reduce emissions from heavy industries like steel, cement and chemicals.
But first let’s see how far the country has come since IRAs became law. Companies announced at least 31 new battery production projects in the United States. That’s more than in the previous four years combined. The pipeline of battery factory up to 1,000 gigawatt hours per year by 2030 — 18 times more energy storage capacity by 2021, enough to support the production of 10 million to 13 million electric vehicles per year. In energy production, companies announced 96 gigawatts new clean energy over the past 8 months, more than the total investment for clean power plants from 2017 to 2021 and enough to provide electricity for nearly 20 million households.
Scott Moskowitz, head of market strategy and public relations for Qcells North America, a Georgia-based solar panel parts maker, summary the impact of the law in this way: “We will always look at our industry history for the two periods in which the Inflation Reduction Act was passed” – that is, before and after.
“The IRA includes some of the most ambitious clean energy production incentives enacted anywhere in the world,” said Moskowitz.
Investment taste defies geographic and political boundaries. From Oklahoma State and Ohio come North Carolina and Nevada, new investment is breathing economic life into communities that have seen their economies shrink. This is partly because the IRA offers a explicitly recommended invest in areas with contaminated industrial sites, communities whose economies are significantly dependent on traditional fossil fuel production, or communities whose coal mines or coal-fired power plants are closed.
The surge in investment has led forecasters to significantly update their views on the law’s long-term potential. Analysts at two research institutions, Brookings Academy and Rhodium group, has estimated that within 10 years, private investment could be at least one and a half to three times larger than originally anticipated. The largest gains are projected to be in industrial activity and hydrogen production, carbon capture, energy storage and key minerals — areas key to long-term energy security.
This collective investment wave has the potential to drive a faster and more efficient decarbonisation of the economy while increasing the supply of clean energy and maintaining the nation’s competitive edge in sustainable energy. , low cost. Rhodium, for example, along with researchers from the University of Chicago, found that the IRA energy production tax credit will reduce energy costs for consumers and businesses and reduce the power sector’s carbon dioxide emissions at an average cost of $33 to $50 per ton — significantly less than recently estimate on the social cost of carbon, the economic loss of additional carbon emissions.
But these encouraging early signs do not guarantee long-term success. The law does not provide all the tools needed to achieve the national goals of expanding our clean energy supply. Congress and the Biden administration have more work to do.
First, legislators must make it easier to build clean energy infrastructure in America. Congress should immediately go beyond the allowable provisions contained in the recently announced debt limit compromise bill and passed comprehensive legislation to speed energy development, an idea supported by both parties. The administration should use its authority to streamline project timelines. The Federal Energy Regulatory Commission needs to be more active to address the backlogs that prevent clean energy projects from connecting to the grid. Policymakers should consider new incentives to expand energy capacity, such as the condition of federal support for states and local land-use policy reforms to enable development. clean energy development.
Second, legislators should continue to encourage efficient, low-carbon investment. For example, Congress could develop an industrial competition program for heavy industries such as cement, steel and chemicals that would include emissions-based border adjustment fees for imported industrial goods. from countries with less ambitious emissions control measures. This will boost IRA incentives, increase the competitiveness of US industries, and address Chinese non-market activities in these areas, such as flooding the market with products that are not in the market. products are priced far below their fair value.
Third, we need to work with allies across developed and emerging markets to build an international cooperation framework around IRA investment incentives. Our allies have no fear and there is much to gain from working with the United States to expand domestic incentives for deploying clean energy technology because it must be deployed everywhere and IRA offers will global cost reduction of energy technologies. The administration has created agreements to harmonize these incentives with european union, Japan And Canada but will need to use all the levers of its foreign policy to secure cooperative arrangements to build sustainable energy supply chains, especially for critical minerals.
Fourth, policymakers and the public need better tools to bridge the gap between corporate clean energy announcements and speculative long-term projections to understand investments. where are being done and what are they achieving.
Finally, policymakers should be cautious about budgetary implications. The Congressional Budget Office recently estimated that private-sector enthusiasm for IRAs’ clean energy incentives could increase the cost of the federal budget by about $200 billion over 10 years.
But that’s only part of the overall calculation. IRAs are more than just clean energy. It also includes an increase in corporate taxes and a reduction in Medicare prescription drug spending. That’s why IRAs as a whole are still projected to reduce deficits in 10 years, with the reduction increasing to $50 billion a year by 2032.
Recently academic research indicated that the long-term deficit reduction could be much larger than these estimates predict, with the IRA’s innovative investments in technology and auditing capacity generating about $500 billion and potentially potentially even more in the next decade. While cutting those investments is a mistake, savings can be achieved even if the Internal Revenue Service funding cuts are included in debt limit compromises.
If we build on the investment-driven model of the IRA, optimistic outcomes in terms of cleaner energy, more economic potential, and a stronger financial future are within reach.
Brian Deese served as director of the National Economic Council during the first two years of the Biden administration and helped shape the Inflation Reduction Act.
