Biden’s Climate Protection Act: A Boost to Green Stock Investment

The new fiscal framework will guarantee tax incentives for more traditional energies such as wind, solar and nuclear, but also extends its support to green hydrogen and electric cars.

The U.S. climate bill is an important step toward achieving global warming goals. It guarantees years of support for green technologies: wind, solar, hydrogen, carbon capture and storage, more efficient appliances and heating and electric vehicles, among others, that will benefit investors in the energy transition and decarbonization.

“Although the legislation is not perfect and contains notable concessions, and although many other measures will be necessary, it would represent a structural tailwind for climate technologies,” Fidelity experts comment in a report on the project. On August 16, US President Joe Biden signed his climate and tax bill. The Inflation Reduction Act (IRA) is an important step that ensures crucial support for green technologies.

The Act is expected to raise $737 billion, $369 billion of which will be spent on climate and energy programs over the next 10 years. Tax credits will be granted for solar and wind energy and new ones will be introduced for nuclear, energy storage and hydrogen. Tax credits are also provided for the purchase of electric vehicles, which will favor green energy solutions.

As for wind energy, the tax credit will be increased from $15 million per MWh to $25 and will apply to projects started through 2026. In solar projects, a tax credit of $ 25 per MWh will be introduced with 10 years of validity, something especially noteworthy because it constitutes a long-term commitment that is especially important for the construction of large-scale solar projects.

Solar will also see its investment tax credit increased from 25% to 30%. In nuclear energy, new tax credits will be allocated that will be triggered when electricity prices fall below a specified threshold. Although not applicable at current prices, it certainly reduces the risk profile of projects and ensures greater certainty of cash flows.

The so-called ‘green hydrogen’ (generated by solar or wind energy) will be able to compete with ‘grey hydrogen’ (generated by gas) in terms of prices thanks to the credit of 3 dollars/kg for zero-carbon generation. In hydrogen with carbon production, there is a gradual scale of subsidies based on the level of emissions. Energy storage will receive a new tax credit for investment in individual storage. Those who buy new electric vehicles will be able to receive $7,500 in tax credits.

Catalysts for investors

All these measures are good news for climate investors. “The legislation will have a direct effect on several of our investments, such as wind turbines, solar panels, electricity transmission, batteries and carbon capture and storage,” they point out from the US manager. The growth of these technologies will also generate a virtuous circle that will increase the scale and activity of R+D, which will lead to even better and more competitive solutions and encourage demand. “Having said all this, the legislation suffers from some defects,” they clarify.

The attention to climate issues paid by President Joe Biden’s bill is significant but insufficient. Globally, $4.7 trillion a year over the next 28 years must be spent on meeting the 2050 climate goals. Taking into account the economic activity of the United States, according to its share of global GDP, the country would have to invest just over 1 trillion dollars annually to adequately address climate change.

This means that the law’s total climate spending ($369 billion), calculated on an annual basis, is no more than a fraction of the necessary spending. “If we stick to the principle of the Paris Agreement, according to which richer countries must contribute more because their financial means are greater and they are responsible for historically higher emissions, the United States has to do more,” they elaborate from Fidelity.

“Of course, not all climate spending has to come from public subsidies; The private sector must also do its part… However, the scale of the bill is not going to be enough for us to meet our 2050 goals.”

U.S. spending also lags behind that of China and the EU. According to Bloomberg NEF, last year China spent $297 billion on the energy transition and EU member countries spent a total of $155 billion. The US Green Deal of USD 2 trillion, approved in 2020, will distribute 30% of the budget ($612 billion) in the period 2021-2027 and does not include individual investments and subsidies from member states.

“The United States still has to do more, and we believe there is a good chance that it will do so,” they say from the firm. “The climate bill is an achievement; It is fair to recognize that it represents a major step forward for the world’s largest economy towards achieving climate goals. It also provides substantial multi-year momentum to a range of climate technologies that could generate a positive development cycle, lower costs and increased demand.”

Source: La Información