Two Years of the IRA: Milestones, Roadblocks, and the Path Forward

As we mark the second anniversary of the Inflation Reduction Act (IRA), arguably the most significant piece of climate legislation to date, it's a moment for us to reflect on both our milestones and the hurdles we've faced.

Signed into law on August 16, 2022, the IRA was designed to accelerate the deployment of renewable energy, drive innovation in clean technologies, and make historic investments to reduce carbon emissions across the globe. Two years later, it's clear the IRA has initiated remarkable progress, though many challenges remain and there's much left for us to execute in order to meet our long-term climate goals.

Tracking Investment

The IRA has unleashed a massive wave of investment into the clean energy sector. According to Rhodium Group, actual business and consumer investment from the second half of 2022 through the first half of this year has totaled $493 billion - a 71% increase from the two-year period preceding the IRA.

Battery and solar have seen a tremendous boom of investments since the IRA, a sign that the law is executing its intention. However, it compounds a pre-existing problem that our industry faces. As investment increases and projects hit the drawing board, EPC costs are increasing drastically. A project that was priced at $1.5B just a few years ago could now look closer to $3B upon completion after EPC costs, supply chain, and skilled labor shortage. Without a more robust supply chain and diversified sourcing strategies, the true potential of clean energy deployment is left on the table.

Kickstarting Projects

At Mitsubishi Heavy Industries, interest in our decarbonization solutions like carbon capture has skyrocketed, partially due to the 45Q tax credit expansion to $85/t. Projects are becoming more financially feasible, doubling inquiries for our FEED studies since its enactment.

Despite this, industry still has not had movement in commercial projects coming off the ground. I echo the same words that I spoke at CERAWeek just a few months ago:

Industry is working to adopt cleaner technologies, but its clientele must be ready to pay a premium for clean products.

The cost of cleaner technologies could surprise consumers who may not see a material difference in the final product. If the consumer industry (roughly 70% of the U.S. GDP) doesn't grasp this and change its thinking, it will be hard for industry to adopt and embrace the clean technologies needed to decarbonize. Producers and clients must work together and determine how to price a premium for their clean product.

Bipartisan Benefits

Despite no Republicans voting for the IRA when it passed two years ago, red districts are reaping an overwhelming majority of its benefits. Of the $206B investments in clean technology manufacturing announced on Biden's watch, $161B is allocated towards Republican districts.

Although we do not know what's in store for the industry beyond November if the political landscape shifts, there's one thing that is clear: The IRA's impact is bipartisan. It's bringing jobs and economic development across America, and Republican lawmakers are noticing. Just last week, 18 house Republicans wrote to speaker Mike Johnson warning him that gutting the IRA's incentives would be the "worst-case scenario" where dollars have been spent with nothing to show for it.

A Global Wake-Up Call

Although much of the IRA's impact is felt domestically, perhaps one of the most important aspects of the IRA is its effect on incentivizing developed nations across the globe to prioritize decarbonization initiatives. As we see private industry flocking to America to take advantage of the tax incentives laid out in the IRA, other nations realized they must move boldly and quickly or risk being left in the dust.

This year, the European Parliament and European Council passed the Net-Zero Industry Act, a direct response to the IRA that provides financial support through funding mechanisms to create more attractive conditions and market access for clean technologies in the EU. Additionally, Japan announced its Green Transformation (GX) policy, aiming for over $1 trillion in public-private financing opportunities over the next ten years.

This global competition is necessary to fuel the adoption of clean technologies and decades from now, will likely prove to be a pivotal moment in the decarbonization timeline.

Looking Ahead

The first two years of the Inflation Reduction Act have set the U.S. and the world on a promising path toward a cleaner, more sustainable future. While the benefits of the IRA are clear, it’s crucial to address the challenges that have emerged and ensure we fully capitalize on the opportunities within this transformative legislation. As we move forward, I believe there are three key pillars to focus on:

1. Collaborate with new partners – Achieving net-zero emissions requires collective effort. No single company can do it alone. We need to recognize our strengths and limitations, combining expertise to accelerate decarbonization solutions.
2. Educate consumers on clean tech solutions – Bringing consumers along on this journey is essential. When they understand the value of clean technologies and are willing to invest in them, we stand a better chance of unlocking the full potential of these solutions.
3. Think outside the box – Innovation is critical to solving one of the world’s greatest challenges. Corporations, startups, investors, governments, and the public must be open to new ideas and push beyond the status quo. By thinking creatively, we can drive the next generation of sustainable energy solutions.