Boom time for US green energy as federal cash flows in

Boom time for US green energy as federal cash flows in

In February the US company LanzaJet, which produces sustainable aviation fuel (SAF) from ethanol, announced that it intends to build a second, larger plant on US soil.

The Inflation Reduction Act (IRA) was a “huge influence”, said Jimmy Samartzis, its chief executive.

The second plant will add to its facility in Soperton, Georgia – the world’s first commercial-scale ethanol-to-SAF plant.

“We have a global landscape that we’re working on…[but] we’ve doubled down on building here in the United States because of the tax credit in IRAs, and because of the overall support system that the US government has put in place.”

Signed into law by President Biden in August 2022, the IRA, along with the so-called Bipartisan Infrastructure Act (BIL) enacted in November 2021, aims, among other things, to channel billions of federal dollars to develop energy clean.

The goal is to lower greenhouse gas emissions, and incentivize private investment, to promote green industry growth and jobs: a new foundation for the US economy.

With a lifespan of 10 years, and an original estimated cost of $391bn (£310bn) but now forecast to reach more than $1tn – the final figure is unknown – the IRA offers new tax credits and juicers, as well as loans and loan guarantees for the use of emissions reduction technologies.

Tax credits are available to companies that either produce clean energy domestically, or manufacture domestically the equipment needed for the energy transition, including electric vehicles (EVs) and batteries.

Consumers can also receive tax credits, for example for buying an EV or installing a heat pump. Tax credits for SAF producers like LanzaJet are new in the IRA and, offer between $1.25 and $1.75 per gallon of SAF (although they only last five years).

The complement is BIL, which lasts for five years and provides direct investment largely in the form of government grants for research and development and capital projects. Under the BIL, about $77bn (£61bn) will be used for clean energy technology projects, according to the Brookings Institution which monitors the legislation.

One company that has benefited so far is EV battery recycling company Ascend Elements.

It has won a BIL grant of $480m (£380m), which it has matched in private investment to build a second commercial facility in Hopkinsville, Kentucky.

“[IRAs and BILs] are massive investments… bigger than the infrastructure-related provisions in the New Deal,” said Brookings’ Adie Tromer. “There is a clear sense that America has become more serious about transitioning to a cleaner economy.”

While the rules for some tax credits are still being finalized, tens of billions in actual public spending are flowing into the economy, said Trevor Houser at the Rhodium Group, an independent research provider. Rhodium, along with the Massachusetts Institute of Technology, runs the Clean Investment Monitor (CIM) to track US clean technology investments.

According to recently updated CIM data, in fiscal year 2023, the federal government is investing about $34bn (£27bn) into clean energy, largely through tax credits.

The extent to which policy instruments drive not only announcements – of which there are many – but actual additional private investment is harder to know: clean energy investment has been on a generally upward trend and IRAs are non-existent. long. But experts believe it is increasing.

Total clean energy investment in the US in calendar year 2023 including from private and government sources reached a record $239bn (£190bn), up 38% from 2022 according to CIM data.

Clean energy investment in the US, as a share of total private investment, increased from 3.7% in the fourth quarter of 2022 to 5% in the fourth quarter of 2023.

IRAs have had two major positive effects so far, Mr. Houser said.

It has “increased” private investment in more mature technologies that have developed very rapidly such as solar, EVs and batteries.

It also, combined with BIL, led to “dramatic growth” in investment in emerging climate technologies such as clean hydrogen, carbon dioxide capture and removal and SAF. While the total magnitude of those investments is still relatively small compared to more mature technologies, “the IRA is fundamentally changing the economy,” Mr. Houser said.

But the IRA failed to achieve some parts of the green economy: so far it has not pulled back investment in more mature technologies that have fallen such as wind and heat pumps, although Mr Houser noted that things would probably have fallen even further without the IRA.

On the industry’s mind is the fate of the law, particularly the longer-run IRA, in the event of a change of government in the November US election.

Repealing or amending the IRA (or BIL) would require Republican control of the President, Senate and House – although wholesale repeal would likely face meaningful opposition from within. The sweep is that many projects that the IRA is incentivizing are being or will be built in Republican states or districts.

But a Republican president alone can frustrate things by delaying or suspending loans or grants, or amending regulations that comply with the law. “A Trump presidency will definitely cool things down and maybe even more,” said Ashur Nissan of Kaya Partners, a climate policy advisory firm.

The Heritage Foundation, a conservative think tank and purveyor of hard-right ideas for the next conservative President, supports repeal for both the IRA and BIL. For the organization’s Diana Furchtgott-Roth, a former Trump administration official, it is fiscally irresponsible for the US, with its huge deficit and debt, to spend like this.

It’s time, he said, for renewables like solar and wind, on which subsidies have been poured for years, to stand on their own two feet.

But others think the US cannot afford not to take this path. And the point of the loan program is to take the risk to help unlock those scalable new solutions. “It will fail if there is nothing called ‘failure’ in it,” said Richard Youngman, of the Cleantech Group, a research and consulting firm.

Meanwhile, the US approach puts competitive pressure on Europe to do more.

Several European clean energy companies are currently building facilities in the US to take advantage of tax credits that should have been built in Europe including solar panel maker Meyer Burger and electrolyser manufacturer Nel and John Cockerill.

“The US was not a market for some of these companies in the past because Europe was more active,” said Brandon Hurlbut, of Boundary Stone Partners, a clean energy advisory firm.

The EU’s Net Zero Industrial Act (NZIA) is expected to come into effect this year. It involves no new money, but seeks to harmonize existing funding and introduce a domestic advantage for the first time – setting a non-binding target for the bloc to produce 40% of its clean energy equipment needs by 2030.

In the UK, chancellor Jeremy Hunt has made it clear that he is not interested, nor can the UK afford to copy the IRA’s approach in some “disruptive global subsidy race” and will stick to other ways to help. The Labor Party recently scrapped a $28 billion green investment plan seen as a move to lean towards IRA-style policies.

A global audience will witness the development of the US clean energy giant. And if it causes others to ask what else they can do to produce clean energy products – even if only for reasons of economic opportunity – it will be good for the human interest, Mr Hurlbut said.

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