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Executive summary │ US Inflation Reduction Act (IRA) two years on
How the US elections may alter the contours of the capex supercycle
Renewable capex supercycle marches on
US elections will determine the scale and scope of the IRA's trajectory
We build on our previous assessments of the US Inflation Reduction Act (IRA) – the largest clean energy and climate legislation in US history (see here and here) – by providing a comprehensive examination of what the IRA has achieved two years on and how the US elections may impact this transformational capex supercycle.
Two years on since US President Biden signed the landmark IRA into law and we continue to hold conviction that we are in the early innings of a renewables capex supercycle, with our base case that this goldilocks era of clean energy regulation will spur ~USD3tn in investments towards decarbonisation initiatives over the next decade.
To date, there continues to be no shortage of figures attesting to the cosmic transformation of the “Made in America” clean energy renaissance since the passage of the IRA in August 2022:
- Investments. USD493bn in clean energy investment announcements (a 71% increase from the two year period pre-IRA), with USD78bn of the total driven federal spending through tax credits, grants, loans and loan guarantees.
- Projects. 542 new facilities or facility expansions have been announced, with batteries, solar and electric vehicles (plus related infrastructure), dominating capex by technology.
- Power capacity. Over 300GW of clean power capacity have been pledged (enough to power the equivalent of over 47 million US households), with 55GW of capacity already built.
- Jobs. Clean energy projects have created more than 100,000 manufacturing jobs in nearly every US state, with over 460,000 employed in clean energy.
The largest risk facing the unrivalled merits of the IRA remains the impending US elections:
- A Harris win could sustain momentum for expanding provisions under the IRA, predominantly extending a range of clean energy tax credits, with a quadrupled stock redemption excise tax (1% to 4%) potentially comprising enough bite to hamper oil companies from buying back stock.
- A Trump win may see a watering down of IRA incentives given the Republican Party’s criticism for its hefty price tag, especially the loan guarantee and grant programmes as well as consumer tax credits, such as electric vehicle purchases – particularly around foreign entity of concern (FEOC) requirements. Critically though, the surge of IRA investments and jobs created has predominantly flowed to rural Republican-leaning congressional districts with cheap and abundant land, and thus such benefits will make it challenging for Trump to repeal the IRA outright (even if Republicans gain control of both chambers of Congress).
Taken collectively, the central aim of the IRA is to ensure energy security, boost domestic manufacturing, create jobs and reduce reliance on foreign (especially Chinese) supply chains. At present, all these elements have bipartisan support.
All in, whilst there may be notable amendments to the contours of the IRA under a Trump presidency, it will be less than feared – and not a full repeal as this would not be in the best interests of the Republican party. Yet, irrespective who wins the election, the IRA – and broader US federal climate policy – faces major challenges, with the country’s 52% emissions reduction target by 2030 (versus a 2005 baseline) increasingly under pressure. As ever, it will (inevitably) be up to ambitious states and the private sector to take the lead on decarbonisation for the duration of the IRA’s lifespan and beyond.
