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How half a trillion dollars is changing US climate technologies

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How half a trillion dollars is changing US climate technologies

Half a trillion dollars is making its way through the US economy, transforming climate technology in the process. A year ago, the Inflation Reduction Act (IRA) was signed into law, the US government’s most significant measure to combat climate change to date. The law allocated hundreds of billions of dollars to support new and existing technologies – from solar panels and heat pumps to batteries for electric vehicles – to lower the cost of clean technologies and reduce the greenhouse gas emissions that cause climate change.

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According to experts, the law has already started to make waves throughout the economy. This is most visible in the steady stream of company announcements springing up new manufacturing facilities across the United States. The most significant impact of the legislation is yet to come, however, as many of the programs are set to last a decade or more. There are even some unanswered questions about how key parts of the law will play out, including which projects will qualify for the much-discussed hydrogen fuel tax credits.

The IRA includes hundreds of billions in grants, loans and tax credits that will transform sectors like energy, transportation and agriculture. Funds go to technologies in various stages of development, supporting new research and the manufacture and deployment of more established technologies.

When the first details of the draft law became known at the end of July last year, the estimated total amount of climate financing through the Inflation Reduction Act was $369 billion. This represents the largest ever US investment in climate technologies. An updated estimate from the Joint Committee on Taxation in April this year put the total government investment under the IRA from 2023 to 2032 at $515 billion. although that number doesn’t include all of the programs in the law, such as the electric vehicle tax credits.

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“A large chunk of the expected hundreds of billions of dollars in spending has yet to materialize, and it will take a while for all of the funds to be pulled in,” said Ben King, associate director of energy and climate at Rhodium Group, a nonprofit Organization for politics and research.

Many of the tax credits will only be paid out to companies after the 2023 tax return has been filed. Some of the largest sums fall into this category, including an estimated $30 billion in tax credits for companies that install clean energy projects like wind and solar farms, and $60 billion in tax incentives for companies that make equipment like solar panels and batteries for electric vehicles.

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Corporate tax credits could make the difference in making it cheaper for companies to do business in the US. That should boost private finance and create jobs, says Ellen Hughes-Cromwick, senior resident fellow for the climate and energy program at Third Way, a public policy think tank.

The IRA includes both tax credits that help cover some of the cost of major investments like building a new factory, as well as others that subsidize the manufacturing of products like batteries. So some provisions of the law can help reduce upfront costs, while others promise to pay a certain percentage of each product a company makes.

Although funds have barely started flowing, the prospect of this huge pot of money has sparked a seemingly never-ending stream of corporate news. They want to take advantage of the new incentives by building or expanding manufacturing for clean energy and transportation projects in the US. “Really not a day goes by without an announcement,” says Hughes-Cromwick.

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Since the IRA was passed on August 16, 2022, companies have announced investments totaling $76 billion for facilities in the United States. That’s according to a tracker website that Jack Conness, a policy analyst at Energy Innovation, uses to track manufacturing investment announcements.

While the list of planned projects includes sites manufacturing components for solar panels, wind turbines and power transmission equipment, most of the announcements concern companies involved in the electric vehicle and battery supply chain.

One reason for the high concentration of battery announcements is additional tax credits for private individuals who buy electric vehicles. These credits can be as much as $7,500 towards the purchase of a new EV. To be eligible, vehicles must meet certain requirements about where the batteries and materials come from—usually from the United States or from free trade agreement partners. So buyers may pay less for an EV that’s largely made in the United States. These restrictions are designed to encourage more companies to source materials in the US and manufacture vehicles in the US. So far this seems to be working.

A total of 62 projects with a total volume of 53 billion dollars in planned private financing have been announced since the IRA came into force for electric vehicles and battery projects alone. That’s according to another tracker by energy researcher Jay Turner of Wellesley College. So many billion-dollar battery projects have been announced in the Midwest and Southeast that a region stretching from Michigan to Georgia has earned a new moniker: the Battery Belt.

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Most of the projects announced since the IRA’s passage are still in the planning stages, although some have already begun, such as the $3.5 billion joint venture between Honda and LG Energy Solution announced last October. The benefits for people in these regions are yet to be seen, but well-paying jobs should emerge in local and regional communities, says Anand Gopal, Energy Innovation’s research policy director. “We still have a long way to go, but the early signs, especially in manufacturing, are very good,” Gopal said.

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