The US takes a step forward in its fight against climate change… but insufficient

On August 16, US President Joe Biden signed his climate and tax bill.

This is the Inflation Reduction Act (IRA). It ensures government support for green technologies. “It aims to tackle inflation through policies that reduce the cost of energy as well as the fiscal deficit,” explains Marina Severinovsky, Head of Sustainability for North America at Schroders.

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.

Wind, solar and green hydrogen

For wind energy, the tax credit will be increased from $15 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.

Green hydrogen, generated by solar or wind power, will be able to compete with gray hydrogen (generated by gas) in terms of prices thanks to the three-dollar/kg credit 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, which is a significant incentive.

Increasing climate investments

According to Velislava Dimitrova and Cornelia Furse, managers of Fidelity International, 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.

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 flaws,” they say.

For both experts, the attention to climate issues paid by Biden’s bill is significant but insufficient. “Globally, $4.7 trillion a year needs to be spent over the next 28 years to meet the 2050 climate goals. Given U.S. economic activity as measured by its share of global GDP, the country would have to invest just over a trillion dollars annually to adequately address climate change.” This means that the Act’s total climate spending ($369,000), calculated on an annual basis, is no more than a fraction of the necessary expenditure.

The U.S. is the largest historical producer of emissions

“If we stick to the principle of the Paris Agreement, according to which richer countries should contribute more because their financial means are greater and they are responsible for historically higher emissions, the US needs to do more. Of course, not all spending on climate issues should come from public subsidies; The private sector must also do its part. However, the scale of the bill is not going to be enough to meet the 2050 targets.”

US 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 Accord of two 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 U.S. still has to do more, and we think there’s a good chance it will,” they conclude.

Source: Funds People