Last Wednesday marked the first anniversary of the passing of the Inflation Reduction Act of 2022 (IRA), the largest investment to combat the climate crisis in the history of humanity.
For a few traumatic months, it seemed like the possibility of the Biden administration passing a significant climate change bill while Democrats still maintained control of both the House and Senate was dead in the water. That was thanks in large part to repeated public comments from Senator Joe Manchin (D-WV), the main party holdout, saying he would not support an expensive climate bill.
But then at the 11th hour, like a miracle from above, Senator Manchin, emerged from his houseboat, charted a new course, and threw his support behind President Biden and the rest of the Senate Democrats (reminder: zero Republicans) thus committing the United States to an astronomical financial commitment to fight climate change. Boy, that felt good!
So, after one year, where do things stand as a result of the IRA? How has the $391 billion in climate finance been put to work? And how is it impacting decarbonization?
Let’s take a look.
As the chart above shows, finance was earmarked for sectors like clean energy, energy efficiency, electric vehicles, clean manufacturing, nature restoration and conservation, and more.
One year later it’s clear that clean energy manufacturing has been the big winner of the IRA.
As of August 2023, research from policy analyst Jack Conness shows that the IRA spurred investments totaling over $76 billion in 109 projects, creating roughly 66,100 jobs.
Inside of clean energy manufacturing, the electric vehicle (EV) industry, including batteries, has received a large share of the finance. According to Wellesley College professor Jay Turner, out of the 109 projects, $53 billion has gone to 62 new projects within the EV supply chain, leading to an anticipated creation of 37,403 new jobs.
Regarding solar energy, roughly $9.12 billion will finance massive manufacturing plants in Arizona, South Carolina, and Michigan.
The IRA also kicked started the US Department of Energy Loan Programs Office (LPO) into action. The LPO has conditionally committed up to $9.2 billion for three battery manufacturing plants in Tennessee and Kentucky, which will produce batteries for future EVs. These investments should displace 455 million gallons of gasoline annually and generate around 5,000 construction jobs and 7,500 operations jobs.
Some of the states receiving the most investment and job creation include Georgia, South Carolina, Michigan, Arizona, Ohio, Oklahoma, and Tennessee. Ironically, many are led by politicians that voted against the IRA.
Georgia has emerged as a major victor, drawing in 35 projects related to electric vehicles and the potential to create over 27,000 jobs. With a current commitment of $21 billion, the state is at the forefront of clean energy investments nationwide.
The clean energy manufacturing movement is excellent, but how are environmental protection and conservation efforts faring?
One of the largest and most dire environmental problems facing the US is how to prevent the Colorado River water system, vital for power, drinking water, agriculture, biodiversity, tourism, and cultural practices, from collapse.
Thanks in part to finance from the IRA, the states that pull water from the river, reached an agreement to safeguard the Colorado River water system from management issues and climate change impacts. $1.2 billion will be paid to some of those states for reduced water use, alongside projects like recycling and harvesting. This alone will not save the Colorado River; however, the money buys the river time it didn’t have before IRA funding was available.
Finally, the big daddy of all the metrics is the most important – greenhouse gas emissions.
Recent assessments and models suggest that the IRA will lead to economy-wide emissions reductions of 33 to 40% below 2005 levels by 2030, with an average of 37%, chiefly due to the implementation of clean energy. This misses the 50% reduction by 2030 target, but it is progress, nonetheless.
Oh, wait! What about inflation?
As the name implies, US inflation has been reduced from 9% to 3.2%, but probably not due to the IRA. Womp!
Well, one year into the IRA and it is clear that climate finance is flowing.
If you have been paying attention to recent US news, this week’s acronym probably caught your eye because the Biden administration just invested $1.2 billion dollars in it. That is a lot of climate finance! Plus, there is even more money to come because this $1.2 billion is just a part of an overall $3.5 billion fund.
🎙️ In case you didn’t catch the announcement last week, our brand-new podcast made its debut!
On the pilot episode of “Untangling Climate Finance,” Jay chats with Sean Penrith (CEO, Gordian Knot Strategies).
Sean introduces the term “climate finance” to listeners. He also recounts his journey from an entrepreneur working outside the realm of climate change to his current position, running a private firm that mobilizes and activates climate finance for clients all over the world.
