A year after the Inflation Reduction Act (IRA) was passed, this landmark piece of legislation is already making a dramatic impact on the U.S. economy. The clean technology investments and emissions-reduction incentives created by the IRA have created a new era of innovation: A new generation of businesses is competing for resources and utilizing tax credits with the goal of modernizing and scaling operations to meet the demands and needs of a green industrial revolution. The result is proving to be a resurgence of high-tech, sustainable manufacturing.
With $400 billion in climate incentives extending over a decade, current estimates show that the Inflation Reduction Act is on track to encourage $2.9 trillion in renewable energy investments by 2050. The full scale of change won’t be known for years to come as technologies like clean hydrogen and carbon capture reach their full potential, but we can see the IRA’s influence in more established renewable technologies, including wind and solar energy expansion and electric vehicle supplies.
Renewable Energy Expansion
Wind and solar energy have grown steadily over the past decade, but the first half of 2023 marked a milestone: For the first time in the U.S., wind and solar power provided more electricity than coal. Solar manufacturing alone is growing rapidly both in the U.S. and around the globe with solar energy investments outpacing oil and gas for the first time in 2023.
Globally, the IEA expects photovoltaic solar (PV) capacity alone will exceed coal power by 2027, with almost 500 GW of new capacity. In the United States, electric capacity from solar PV increased 47% in the first quarter, making up more than half of all new grid capacity—but new manufacturing investments stand to boost capacity from 9 GW to 60 by 2026.
The increases are a result of IRA incentives for large-scale manufacturing investments: Since its passing, $270 billion dollars in capital investments and a total of 83 new or expanded facilities for supplying solar, wind, and energy storage materials have been announced, according to a report by the American Clean Power Association. Of these almost two-thirds are planned solar manufacturing facilities.
To help increase the adoption of zero-emissions cars, IRA tax incentives are now cutting $7,500 of the overall costs of electric vehicles. With these tax breaks in place, sales of electric vehicles rose 66% in the first quarter of 2023 and are expected to hit one million cars sold by the end of the year. While reported public interest in electric cars is high, the price of new vehicles and overall availability is still a deterrent for many consumers—but growing supply chain investment, incentivized by IRA tax credits, is poised to increase supply and cut overall production costs.
Since the passing of the IRA, $50 billion has been invested in electric vehicle supply chain manufacturing. The impacts of supply chain investments have yet to fully reach consumers, but according to the New York Times, supply chain subsidies are expected to lower the overall production cost by up to $9,000. When combined with the tax credits for electric vehicle purchases, consumers may see more models drop below the cost of gasoline-powered vehicles. In addition, the Infrastructure Investment and Jobs Act allocates $7.5 billion toward 500,000 electric vehicle charging stations nationwide, expanding the necessary infrastructure needed to support and incentivize widespread electric vehicle adoption.
Climate Projections After the IRA
A year ago, the U.S. Department of Energy projected that the IRA would lead to a 40% reduction in emissions by 2030, compared to peak 2005 levels. New studies are projecting bigger impacts: A Brookings Institution paper projects up to 42% reductions by 2030 and a study published in Science estimates up to 48% emissions reductions by 2035. The impacts still fall short of the Paris Agreement targets of 50% reduction by 2030; however, other federal legislation, such as the Infrastructure Investments and Jobs Act and new federal vehicle emissions standards, coupled with state-level efforts (e.g., California’s Advanced Clean Cars II) may bridge the gap.
Private sector investments are necessary to transform the global economy to avoid the worst impacts of climate change. Commitments to reducing emissions and supporting carbon dioxide removal are essential for building demand for zero-emission energy and transportation. Legislation like the Inflation Reduction Act helps make decarbonization vastly more accessible, but combined, sustained efforts are what will make a net-zero economy a reality.
Influence on Global Climate Policy
The IRA is simultaneously sweeping climate legislation and a powerful boost to American manufacturing. Since its passage, the act has stirred up competition internationally, leading to even more green manufacturing legislation. Fueled in part by climate action and in part by the fear of international investors ignoring home nations in favor of the U.S., the EU announced its Green Deal Industrial Plan, which adds incentives for clean energy production, reduces barriers to sustainable supply chain manufacturing, and offers more funding for research and development. Similarly, Canada launched an $80 billion clean energy plan in March, which includes tax credits for wind and solar production, clean hydrogen, and manufacturing to support sustainable development.
The Inflation Reduction Act's first year illuminates its significant strides in propelling the U.S. towards a green industrial revolution. It is already spurring unprecedented growth in renewable energy and electric vehicle sectors. Internationally, the act has fostered a competitive spirit, prompting other nations to adopt similar sustainable initiatives in a bid to attract global investors. As we look beyond this initial year, the combination of private sector investments, continued legislation, and emerging technologies underlines the potential for a holistic transformation towards a net-zero future, echoing the global commitment to combating climate change.