The Inflation Reduction Act has already spurred hundreds of billions of dollars of green deals since it was enacted by the US Congress in August, according to analysis by S&P Global Ratings.
The sweeping climate-focused law produced US$232.5bn of climate and cleantech financial and capital markets deals from August 16 until the end of last year, the ratings agency said.
S&P has identified 305 US and transnational deals with energy transition and climate focus. Deal volume accelerated sharply to US$66.4bn in October and doubled to US$122.4bn in November before dropping in December.
This could be the tip of the iceberg. Nora Wittstruck, ESG sector lead at S&P Global Ratings, said she expects more investments in 2023 and beyond, as many businesses are still awaiting further details of how to implement the IRA and potentially lower interest rates next year.
The landmark legislation by Joe Biden’s administration earmarks about US$369bn of incentives – mostly delivered through tax credits – to support the development of clean and renewable energy. It is expected to invest US$437bn over 10 years, raise US$737bn in new revenue, and support more than US$300bn in deficit reduction, the report said.
"Gamechanger"
The power sector, particularly nuclear and carbon capture technologies, is set to benefit the most from the new law, and investments in carbon capture projects are already picking up, according to S&P, which described the act as a "gamechanger" for some segments of the power sector.
“We've actually had a couple of calls on carbon wells in North Dakota,” Wittstruck told IFR, referring to technologies that permanently store carbon dioxide in deep underground facilities. “There are several early-stage projects that could lead to more than US$6bn in investment.”
The IRA would boost the value for dedicated storage of carbon dioxide in the power industry from US$50 to US$85 per ton, the report estimated. It would also slash the cost of generating hydrogen by at least 78% to US$0.8 per kilogram after tax credits, it said.
Oil and gas producers will face higher costs in the long run if they do not invest in carbon and greenhouse gas technology and need to ramp up investments in carbon sequestration and technology aimed at reducing methane emissions to make their operations more sustainable, the report said.
The act could also lead to a “significant increase” in mergers and acquisitions in the oil and gas sector, since smaller players lack sufficient resources and expertise to transition to clean energy, Wittstruck said.
Other sectors such as automakers of electric vehicles, agribusiness, and healthcare providers are also set to benefit. Agribusiness will benefit indirectly as the IRA drives investment into biofuel to meet increasing demand from the aviation industry, which is relying on sustainable aviation fuel to meet its net-zero objectives.
Sustainable fuel production could reach 5% of total jet-fuel consumption by 2030, up from less than 1% in 2022, according to the International Air Transport Association.
Washington’s clean energy incentives are stoking concerns in Europe that local manufacturers might consider relocating production to the US to take advantage of the subsidies, the report said.
In response, European policymakers – who usually favour monetary penalties to encourage emissions cuts – have begun to roll out fiscal incentives to prevent these relocations, Wittstruck said.
“We still don’t know whether the carrot or the stick approach will be better in accelerating energy transition,” she said.