The US Inflation Reduction Act (IRA) has been a great boost to the energy transition in America and elsewhere, making available $370 billion for clean energy investments. However, as the Presidential elections approach, there is a danger the IRA becomes a culture wars punchbag and climate action is framed by some as a waste of money.
This could not be further from the truth.
The IRA and related Infrastructure and Jobs Act have already helped generate $200 billion in new private sector investment in clean energy and technology, and delivered more than 211,000 new jobs including electricians, mechanics and construction workers.
It is high time all US politicians understood the clean energy transition is a huge economic and industrial opportunity. It is the best chance they have of standing up to China’s green tech market lead— an issue frequently highlighted by policymakers but without a real plan as to how to change the current dynamics. Developing and growing the IRA would be a win-win for the US economy and jobs and reaffirm America’s leadership on the industrial world stage.
American voters, along with billions of others in elections around the world, will go to the polls this year as temperature records are broken and the impacts of climate change become plain for everyone to see. The whole of 2023 breached the 1.5ºC temperature threshold set down in the Paris Agreement and the US is seeing extreme weather events like never before.
A report published by National Oceanic and Atmospheric Administration in January 2024 shows the US saw a record number of billion-dollar weather and climate disasters in 2023. A total of 28 disasters, including severe storms, wildfires, droughts and heatwaves, caused damages of at least $1bn each, compared to 22 such disasters in 2020. And this is not a one-off. Over the past three years, US weather and climate disaster costs reached more than $400bn.
Addressing the risk of climate change and the opportunities of the clean transition do not look set to be a key discussion point for the elections. Much of the “make American great again” rhetoric is based on the idea of reestablishing old fossil fuel jobs — investing in economic models of the past, ignoring the forward-looking geopolitical positioning of countries around manufacturing clean solutions.
Meanwhile, China is ploughing ahead with a long-term future-proof green industrial strategy that is outpacing the rest of the world. Last year, China commissioned as much solar PV capacity as the entire world did in 2022, and it installed 66% more new wind turbines that year than the year before. The country was also responsible for 38% of total global clean tech spending in 2023, investing an impressive $676 billion.
The South China Morning Post has reported on a massive electricity production and transmission network being set up in the Gobi desert and northwest China, with a combined capacity of 600GW. More than half the networked energy plants are renewable.
To power this green revolution, China has also invested massively in securing minerals which has helped the country dominate the processing of key metals for the green revolution — for example 95% of European solar modules are Chinese. This is incredible progress at a time when there is no place for laggards in the race to decarbonize. The global energy transition is unstoppable – with renewables expected to be close to half the global electricity mix by 2030.
This is all good news, but China’s commanding lead risks other economies being left too far behind to compete and making them reliant on Chinese products. In every energy crisis, the world seems to learn all over again the risks of over-reliance on one region for key commodities.
The IRA is a great move to start to rebalance the situation. Its approval in 2022 meant that pretty much overnight the US became one of the most attractive destinations for cleantech investment. Recent figures indicate German companies invested a record $15.7bn in US projects last year, up from $8.2bn a year earlier.
The US has also implemented other measures to offset China’s dominance, including the development of ‘friendshoring’ that moves the manufacturing of critical components to friendly countries. On this basis, an evolving relationship between the US and India is resulting in millions of dollars flowing into the South Asian nation which is now the fastest growing major economy in the world.
If the US is serious about its workers, its economy and being a world class industrial leader that is not reliant on China, its politicians need to carry on such work even further.
The energy transition isn’t political ideology, it is the backbone of future economic power. Investing in green industrialism will help countries thrive and fuel the growth of clean energy technologies that the world so desperately needs to guarantee planetary and economic stability everywhere.
