One Year On, It's Clear the Inflation Reduction Act is Working

By Justin Worland

In late July, I visited a steel mill in Gallatin, Ky., operated by the company Nucor. During my visit, I watched as the facility churned out massive rolls of low-carbon steel destined for use in renewable infrastructure. Nucor’s stock price has increased nearly five-fold in the last three years, and the day before I visited the company had announced blockbuster profits citing, in large part, all the demand created by businesses racing to take advantage of money flowing from federal spending programs, including the Inflation Reduction Act (IRA).

Nucor’s recent success is just one example of how the IRA, which President Joe Biden signed into law on Aug. 16 last year, has rapidly accelerated the transition to clean technology and created new business opportunities. Lithium-ion battery makers are opening factories near auto industry hubs to serve the growing electric vehicle market. Solar manufacturers are setting up shop in Georgia. And old-school oil companies are investing in hydrogen. John Podesta, Biden’s senior advisor charged with implementing the law, put it simply to me this week: “It's a transformation of the economy.”

Companies in the power and transportation sectors caught on quickly, allocating hundreds of billions of dollars to their own clean energy ventures in the last year. But there’s a lesson for every sector: this transition is coming fast.

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At the core of the IRA is a mantra oft-repeated by members of the Biden Administration: the law is designed to be private sector-led and government-enabled. Instead of introducing mandates, the IRA offers tax breaks to companies that deploy clean technologies.

The impact was swift. “It was quick, it was immediate, and it doesn't appear to be slowing down,” says Greg Matlock, who leads EY’s Americas Energy Transition practice. Matlock says that “within a week” of the law’s passage he noticed “tangible movement on investments” from clients.

Companies have invested more than $270 billion in U.S.-based clean energy projects—think wind, solar, and battery—since the IRA became law, according to a?report ?from the American Clean Power Association released earlier this week. Electric vehicle technology investment has totalled more than $130 billion, according to White House?data? . “People are deploying capital because of the IRA. If you talk to anyone in the finance world, where people are seeing uptake in capital formation is in the clean sectors,” says Podesta. “And there's no question that the bill itself has spurred this.”

The IRA has also convinced some longtime skeptics of the energy transition about the opportunity to make money with lower-carbon solutions. Even as oil and gas companies double down on their commitment to fossil fuels, for example, they have also allocated billions in the past year to pursue technologies like hydrogen and carbon capture that can take advantage of federal subsidies. ExxonMobil is even exploring getting into the lithium game, hoping to exploit its knowledge of drilling to make money off the transition.

The movement on big, capital-intensive projects in manufacturing and the power sector is easiest to see. But forward thinkers in other industries are also considering how IRA incentives can help their bottomline, from tax deductions for energy efficiency in retail space to tax credits for electrifying fleet vehicles. In March, I participated in a discussion with local business leaders in Milwaukee who were all clamoring to learn how their companies could take advantage of the IRA incentives. “Fuel cells, solar, heat pumps, clean vehicles, vehicle charging—there’s something in there for everybody,” said Chuck McGinnis, a vice president at Johnson Controls, a conglomerate that makes HVAC among other things, at the event.

All of this private sector enthusiasm means that the federal government may end up spending a lot more on the law’s clean-energy incentives than originally thought. Prior to the law’s passing, Congressional backers citing the Congressional Budget Office and Joint Committee on Taxation?estimated ?that the federal government would spend close to $400 billion on the law’s climate provisions. A?paper ?published in March by the Brookings Institution estimated that it could top $1 trillion as companies and consumers take advantage of the law’s uncapped tax incentives.

A critic of the law might balk at the extra cost to the taxpayer, but there’s another way to look at it: higher uptake means the law is working.

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