President Biden told business and labor groups last summer that Congress would vote on the groundbreaking Inflation Reduction Act, resulting in “the largest investment ever in clean energy and American energy security — the largest in our history.” “It will be the largest American manufacturing investment,” he remarked.
Nine months after Congress passed that law, the private sector has mobilized beyond our expectations to generate sustainable energy, establish battery factories, and develop other greenhouse gas reduction technology.
The law is encouraging private clean energy investment as intended. Businesses, rural cooperatives, nonprofits, and others must decide if investing in a hydrogen factory or wind farm is worth it, notwithstanding tax advantages. The law will only succeed if they invest enough to reduce greenhouse gas emissions and boost energy security meaningfully.
We’ve seen that appetite grow in recent months. The law will spur more renewable energy investment than expected and raise more revenue from high-income taxpayers to decrease the deficit.
Despite hopeful signals, more work is needed to meet the nation’s climate and energy targets. For instance, siting and building clean energy plants must be simplified. Congress must also limit steel, cement, and chemical emissions.
First, assess the country’s progress since the I.R.A. 31 U.S. battery manufacturing projects were announced. That exceeds the previous four years. By 2030, battery plants will produce 1,000 gigawatt-hours per year, 18 times the energy storage capacity in 2021, enough to make 10 million to 13 million electric vehicles. Over the previous eight months, firms have announced 96 gigawatts of new renewable power, enough to power roughly 20 million homes and more than the 2017–2021 investment in clean power facilities.
Qcells North America’s head of market strategy and public affairs, Scott Moskowitz, said, “We will always look at the history of our industry in two eras now that the Inflation Reduction Act has passed”—before and after.
Moskowitz said the I.R.A. has the world’s most ambitious renewable energy industrial incentives.
Investments cross borders. New investment revitalizes Oklahoma, Ohio, North Carolina, and Nevada economies. The I.R.A. encourages investment in toxic industrial sites, towns that rely heavily on fossil fuel production, and closed coal mines and power stations.
Forecasters have revised their long-term law outlook due to the investment boom. The Brookings Institution and the Rhodium Group anticipate that private investment might be 1.5 to 3 times higher in 10 years. Industrial and manufacturing activity for hydrogen, carbon capture, energy storage, and essential minerals—key to energy security—is expected to rise the most.
This investment wave could accelerate economic decarbonization, increase clean energy supplies, and sustain the nation’s competitive edge in dependable, low-cost energy. Rhodium and University of Chicago researchers found that I.R.A. energy production tax credits would lower energy costs for consumers and businesses while reducing power sector carbon dioxide emissions at an average price of $33 to $50 per metric ton—much less than recent estimates of the social cost of carbon, the economic damage caused by emitting more carbon.
Only short-term success is achieved. The bill needed more tools to meet national clean energy goals. Congress and Biden need to do more.
First, politicians must simplify sustainable energy infrastructure construction in America. Bipartisan legislation to accelerate energy production should be passed by Congress quickly. The administration should streamline project timelines. The Federal Energy Regulatory Commission should resolve clean energy project grid connection backlogs faster. New incentives to boost energy capacity include providing federal support to states and localities that alter land-use rules to promote renewable energy development.
Second, authorities should keep encouraging efficient, low-carbon investments. Congress may create an industrial competitiveness program for cement, steel, and chemicals, including an emissions-based border adjustment charge on imported industrial commodities from countries with less stringent emissions standards. This would boost the I.R.A.’s incentives, increase American industry’s competitiveness, and address China’s nonmarket activities, such as flooding the market with items far below their fair value.
Third, we must construct a cooperative international framework around the I.R.A.’s investment incentives with partners from developed and emerging economies. Our allies have little to fear and much to gain from partnering with the U.S. to increase domestic incentives to deploy clean energy since it must be deployed everywhere, and the I.R.A. incentives will lower energy technology costs globally. The administration has already harmonized these incentives with the European Union, Japan, and Canada. Still, it must use all its foreign policy levers to achieve cooperative arrangements to establish robust energy supply chains, especially for crucial minerals.
Fourth, policymakers and the public need better tools to bridge the gap between corporate clean energy announcements and speculative long-term estimates.
Finally, policymakers must monitor fiscal implications. The Congressional Budget Office calculated that private sector enthusiasm for the I.R.A.’s renewable energy subsidies might cost the government budget $200 billion over ten years.
That’s only part of the computation. Beyond clean energy, the I.R.A. It raises business taxes and cuts Medicare prescription drug spending. The I.R.A. is still expected to eliminate the deficit over ten years, reaching $50 billion annually by 2032.
Recent academic research suggests that the I.R.A.’s innovative investments in technology and audit capacity could generate $500 billion or more over the next decade, reducing the long-term deficit more than these predictions. Those investments can save money even with the debt ceiling compromise’s I.R.S. funding cuts.
The I.R.A.’s investment-driven paradigm can lead to more sustainable energy, economic growth, and budgetary stability.