Inflation Reduction Act Helps the US Go Green

Just over a year ago, the US passed two pieces of regulation, which among other things, were intended to stimulate the country’s economy after the COVID-19 pandemic, bring manufacturing back to the US, secure supply chains and ensure that critical capabilities were kept in the country. The CHIPS and Science Act and the Inflation Reduction Act (IRA) were signed into law by President Biden within a week of each other. They offered huge incentives to companies for investment in manufacturing and green technology.

The CHIPS and Science Act allocated $52.7 billion for semiconductor research, development, manufacturing, and workforce development in the US. That figure included $39 billion in manufacturing incentives, $13.2 billion in R&D and workforce development, and $500 million to provide for communications technology security and semiconductor supply chain activities. It also provided a 25% investment tax credit for capital expenses for the manufacturing of semiconductors and related equipment.

The IRA provided $663 billion on climate action investments. This figure included finance to extended the solar investment tax credit for 10 years, $12 billion in EV incentives, $14 billion in home energy efficiency upgrades, $22 billion in home energy supply improvements, and $37 billion in advanced manufacturing.

While there has been a lot of news, at least in our industry, about the CHIPS and Science Act in the press, as major semiconductor companies announced a host of new fabs around the US, there’s not been so much information about the effects of the IRA bill. Over a year has passed since its introduction. However, the Bank of America (BofA) has released a new report and it seems that it is starting to do what was intended, with much more to come over the next few years.

According to the new report, much of the work in the first year of the bill was centred around how the funds could be distributed to have the best effect. It estimates that that there will be a large upswing in new project announcements over the next two years. However, that is not to say that it has had a negligible impact so far. The report finds that newly announced clean energy projects have created over 86,000 reshoring and foreign direct investment manufacturing jobs. Employment in the clean energy sector now accounts for more than 40% of all energy jobs in the US. Jobs related to BEVs have grown by 27%, surpassing job growth in the gasoline and diesel vehicle sector by more than 17x. Women accounted for over 50% of the 300,000 energy jobs added in 2022. The IRA was intended to help control company’s carbon emissions by re-shoring/near-shoring supply chains. The BofA report found that corporations within the majority of sectors are already employing re-shoring as part of their net zero strategy.

The IRA progress so far is very encouraging. According to BofA, the next couple of years are when things will really ramp up. It will be exciting to follow the news and see further green investments made.