Inflation Reduction Act

Overall IRA package


  • Up to $1 trillion of public funding for clean energy and climate transition is made available by the Inflation Reduction Act (IRA) of 2022 plus related packages (inc. The Infrastructure and Investment Jobs Act (IIJA) and The CHIPS and Science Act (CHIPS)).
  • Provides the most supportive regulatory environment for clean-tech yet seen in the US. May lead to the first large-scale deployments of green hydrogen and carbon capture technologies.
  • Establishes a US industrial policy centred on clean energy and digital technology. Rationale involves using domestic US investment and investment from global companies to exploit huge US job creation and growth potential.

IRA appropriations and funding:

  • $270 billion tax incentives (Treasury and Internal Revenue Service (IRS))
    • Energy generation
    • Homes & buildings
    • Consumer vehicle credits
    • Manufacturing credits
    • Credit monetization
  • Tax credits extend over 10yrs (up to 20 years)
  • Funding expands loan authority for energy infrastructure, clean energy, and vehicles to $367 billion.

Sector distribution of IRA investments:

  1. Energy (generation and transmission) $250 billion
  2. Manufacturing $48 billion
  3. Environment $46 billion
  4. Transportation and electric vehicles $23 billion
  5. Agriculture $21 billion
  6. Water $5 billion.

Other related public funding:

  • IIJA $80 billion grid and zero emissions vehicles (EVs) infrastructure
  • DoE $39 billion clean energy
  • CHIPS $67 billion (e.g. domestic semiconductor industry, raw materials)
  • State-level funding (e.g. California $54 billion).


  • Department of Energy Loans available immediately.
  • $250 billion of IRA loans to be committed by 2026.
  • Incentive ‘carrots’ work in combination with existing ‘sticks’, e.g. energy regulations and emissions standards.
  • Industry and Government requires technical expertise for ongoing loan application and administration.
  • Five US government agencies dominate:
    • Treasury $345 billion
    • Health and Human Services $111 billion,
    • Environmental Protection Agency $41 billion
    • Energy $36 billion
    • Agriculture $36 billion.

Political Risk?

  • Future repeal of tax credits would be difficult and not considered likely.
  • Since the IRA entered into force, more than 80% of the pledged investment in clean energy and semiconductor manufacturing announced is in Republican congressional districts.
  • West Virginia vs. EPA is consequential in some areas (e.g. carbon pricing).

Trade restrictions / rules:

  • Domestic content and labor requirements (e.g. sourcing requirements on critical minerals for batteries from US or FTA countries).
  • ‘Onshoring’ / ‘Friendshoring’ emphasis in requirements, securing critical supply chains.

Implementation factors and challenges:

  • Higher interest rates and materials costs mean increased project costs despite IRA.
  • Inadequate power grid capacity and grid connection backlog for renewables.
  • Long project development timescales mean near-term barriers to domestic materials sourcing and rapid scale-up in e.g. Electric Vehicles production and mining.
  • Progress needed on grid integration (FERC and ISOs), facing incumbent resistance e.g. from vertically integrated utilities.

Anticipated effects on us economy

  • Accelerates US GHG emissions reductions –projection of 40% below peak levels by 2030.
  • Builds domestic US supply chains, manufacturing and jobs.
  • Makes the US a primary focus destination for global clean energy investment.

One year on from the IRA (to Sept 2023):

  • 280 clean energy projects announced; 44 states; $282 billion
    • Semiconductors and Clean Tech $133 billion
    • Batteries $78 billion
    • Electric Vehicles $44 billion
    • Solar $21 billion
    • Wind $20 billion
    • Hydrogen $12 billion
    • Grid and transmission $5 billion.
  • Surge of fixed investment in manufacturing facilities
  • Investments include:
    • 91 new battery manufacturing sites
    • 65 new or expanded EV manufacturing facilities
    • 84 new wind and solar manufacturing plants.
  • Clean energy investment announcements in year 1 exceed the cumulative total investments from 2015- 2022.
  • Department of Energy loan office had 140 application for $121 billion of clean energy finance and loan guarantees.
Projected economy-wide effects:
  • US becomes a focal point for global clean energy innovation and manufacture.
  • 500,000 manufacturing jobs created in next 10 years.
  • Inflation effect modestly net negative – due to lower retail electricity prices.
  • Announced investments equate to 9-fold increase in solar module production and 15-fold increase in battery storage.
  • $4.5 billion of projected savings for 24 million utility consumers.
  • Average annual additions of low-emitting capacity.
  • Annual addition in renewable generation capacity of 51 GW/ year with IRA through 2035, which nearly doubles the 27 GW / year in a counterfactual without IRA.
  • EV sales to increase from 6% share in 2022 to approx. 50% by 2030.

Financial effects on markets

Event analysis of stock market valuations after IRA announcements:
  • Research from Brookings show a clear equity index and industry portfolio response to IRA announcements – (green) sectors benefitting from IRA measures experiencing sizable abnormal returns (several percentage points) relative to those (non-green) sectors losing out.
  • Little wider correlation of industry greenness to stock market response (firm level more important beyond those directly benefitting from IRA).
Longer term impact on US stocks:
  • “The materials, industrial, energy and utility sectors stand to benefit the most from this boost to manufacturing, though companies will vary widely in their exposure to the IRA. As a result, active stock-picking will be the best way to take advantage of the long-ter opportunities created by the IRA in public markets” (GSAM).
  • Significant pure-play clean technology investment opportunities in private markets.
  • We have found limited analysis of equity market or company profit impacts, because, we believe, it’s still too early to tell.

IRA in a global context

  • China dominates global solar PV, battery, and critical CRM (climate related materials) markets, and is on course to lead EV production.
  • The IRA focus on subsidies and protections to grow domestic supply chains (and jobs) and friendly supply chains signals a global shift that is likely to endure.
  • US strategy also includes measures to stop Chinese products made in Xinjiang or with forced labour entering the US.
  • Industrial policy is back – India and the EU have both responded to the IRA with new industrial policy and clean energy subsidies, while China continues in this regard.
  • EU targets a significant response through e.g. Green Deal Industrial Plan and Net-Zero Industry Act (NZIA) – but fiscal capacity and state aid rule flexibility are limited, and CBAM proposals also face significant barriers.
Trade and investment flows
  • US clean tech and renewables have faced cost increases (e.g. rising materials costs). But IRA and related incentives plus lower and less volatile energy costs make it highly attractive for investors.
  • EU investment environment is suffering high inflation, high and volatile energy costs, and a significant regulatory burden including price caps. EU industrial policy and subsidies are not yet sufficient to respond to the IRA and US cost advantages.
  • US is now key growth market for European wind energy manufacturers (Vestas, Siemens, Gamesa).
  • US imports of EVs are unlikely to decline, including from South Korea, Japan and major EU manufacturers (few from China). As sales volumes increase more manufacturers will likely assemble EVs in the US and take advantage of associated IRA tax credits.
  • Announced investments under IRA to August 2023: South Korean companies account for almost as much as US companies, followed by Japan and China. EU investments were smaller (due to limited battery manufacturing capabilities) but still amounted to $10.4 billion (3.8% of total announcements).
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