Opinion: Investors are bullish on the clean energy revolution one year on from the Inflation Reduction Act
Writing for RealClearEnergy, our CEO Jon Phillips comments on the one-year anniversary of the landmark spending bill in the US
President Biden admitted it: The Inflation Reduction Act (IRA) has little to do with inflation. “It has less to do with reducing inflation than it does providing for alternatives that generate economic growth,” Biden said last week, as his Administration prepared to mark the one-year anniversary of the landmark spending bill.
Whatever its effect on inflation, the IRA represents a golden opportunity to decarbonise and improve America’s transportation and energy infrastructure. In fact, our research shows that the IRA already has buoyed investor sentiment about U.S. infrastructure projects. To maximise that opportunity, it’s crucial that the Administration work with the private sector to stretch limited resources, harness the innovation of the growing “green” sector, and cut through red tape to bring jobs and a more modern infrastructure that is adapted to the times we live in.
After decades of neglect, the Biden Administration’s focus on infrastructure is laudable. The American Rescue Plan Act of March 2021, though primarily a pandemic relief package, catalysed $8 billion in investments in high-speed broadband infrastructure, as well as enhanced wastewater and stormwater systems. The Infrastructure Investment and Jobs Act followed a few months later, allocating $1.2 billion for broadband access, clean water and electric grid renewal, as well as highway, transit and other mobility initiatives. Finally, exactly a year ago on Aug. 16, President Biden signed the Inflation Reduction Act to channel new federal spending toward reducing carbon emissions, as well as provisions involving healthcare costs and taxpayer compliance.
Whether under the guise of reducing inflation or addressing climate change, these infrastructure investments are welcome and much overdue. The American Society of Civil Engineers gave the United States a C- on its most recent Infrastructure Report Card, in 2021, citing broken water mains, the “poor or mediocre condition” of 43% of U.S. public roadways, and 10,000 miles of levees whose location and condition are unknown. The group recommended “leadership and action, sustained investment, and a focus on resilience to raise the national infrastructure grade over the next four years.”
On behalf of leading institutional investors with more than $1.6 trillion under management, I agree wholeheartedly. Only a lasting and meaningful partnership between government and the private sector can bring the infrastructure needed to sustain America’s long-term economic growth, global competitiveness, and quality of life for the millions who rely on good roads, mass transit options, broadband internet access, and alternative energy systems that will power our electric future.
Many private investors had soured somewhat on U.S. infrastructure before Inflation Reduction Act investments began to kick in. Citing inflation-driven cost increases for materials and labor, higher borrowing costs and a shortage of skilled workers, investors who responded to our most recent Infrastructure Pulse survey in May said they were less optimistic about opportunities in almost every market and sector than they were 12 months earlier. But these investors, who can put their money anywhere in the world, are more bullish on the U.S., largely due to the Inflation Reduction Act. Some four in 10 respondents to our survey said they expect to dedicate at least $5 billion each to net zero investment in the U.S. over the next five years, more than twice as many as in Europe.
Although the IRA was signed a year ago, many of the tax credits only became available at the beginning of this year. Since August 2022, $31 billion has been raised by infrastructure funds in North America. Those investments are critical for the U.S. to wean itself off dependence on internal combustion engines and carbon-based power generation, while capturing the innovation-based jobs that come from this global leadership position.
The Inflation Reduction Act is unleashing billions of dollars of investment in wind, solar, battery storage, carbon capture utilisation and storage, hydrogen, electric vehicle charging infrastructure and other elements of our clean energy transformation. Government policies alone cannot fix America’s dependence on fossil fuels. But they can bring private-sector innovators and investors to the table, where they can lead the way to a greener and more prosperous future.
This article originally appeared on RealClearEnergy's website.