The View | Inflation Reduction Act shows US means business in global clean energy race

Name: US Senate passes bill that would be country’s single-largest investment in fighting climate change
Uploaded: 2022-08-17T17:30:14.000Z
Duration: 1 min 28 s
Description: US Senate passes bill that would be country’s single-largest investment in fighting climate change

US President Joe Biden’s latest legislative victory could be a game changer for the transition to clean energy sources in the US and around the world

By doubling down on forward-looking industrial policy, the US is poised to give Europe, China and others a run for their money

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The sun sets at a wind farm in McCook, Texas. States such as California, New York and even Texas have long been ahead of the US federal government in supporting renewables, but that could be about to change with the passage of the Inflation Reduction Act. Photo: AP

Gernot Wagner

Published: 1:30am, 18 Aug 2022Updated: 2:21am, 18 Aug 2022

The United States has entered the clean energy race in a big way with the Inflation Reduction Act. Not only will the law subsidise US renewable energy producers and consumers to the tune of US$369 billion over 10 years, it authorises the Department of Energy (DOE) to lend up to US$250 billion to US companies investing in the clean energy transition. Between the act and the recent US$52 billion package to boost US semiconductor production, it is clear that industrial policy is back in vogue in Washington.

These figures might sound modest. According to Bloomberg, global investments in the energy transition topped US$750 billion last year, with China spending US$266 billion compared to US$47 billion in Germany and US$114 billion in the US. McKinsey offers an even more generous accounting, putting total current investments in clean energy and its supporting infrastructure at US$2 trillion.

But these figures refer to total new investments worldwide. They come primarily from the private sector, which is still a long way from where we need it to be. Although global deployment of renewables, electric vehicles and other low-carbon infrastructure is accelerating, there is still a widening gap between what is being done and what needs to be done to manage the climate crisis.

Hence, Bloomberg’s analysts think global investments in clean energy need to triple by 2025 and then double again by the end of the decade. McKinsey calculates that total annual investments of more than US$9 trillion will be needed between now and 2050 to reach net zero, with around US$2.7 trillion per year shifting from dirty to clean energy sources.

This is where the additional US government funding and incentives come in. The point is not to replace or simply add to private investment. Rather, government subsidies – when properly designed – promise to mobilise a much larger multiple of private investment dollars.

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US Senate passes bill that would be country’s single-largest investment in fighting climate change

The act also shines a light on questions that might otherwise have been overlooked, such as the issue of “embodied carbon”. Right now, consumers are generally left in the dark about the amount of pollution produced in the creation of a given product. The act allocates funding to help manufacturers measure embodied carbon and create a labelling programme for materials used in federal construction projects.

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.css-1m2rp1p{color:#34b8b5;}The View | Inflation Reduction Act shows US means business in global clean energy race

The View | Inflation Reduction Act shows US means business in global clean energy race