Landmark stimulus for clean energy in the United States

Insights — August 2022

The United States government has passed nearly US$400 billion in stimulus for clean energy

The United States Senate has recently passed the Inflation Reduction Act. The bill has now been passed by the House of Representatives and is on its way to the President’s desk for a final signature which is expected as early as next week.

The bill is one of the most significant pieces of economic policy in recent United States history including nearly US$400 billion in tax credits, rebates, investments and subsidies all aimed at accelerating the adoption of clean energy.

In inflation-adjusted terms, the financial commitment is nearly twice the amount that was spent on the Apollo space program putting man on the moon.

The bill is aimed at reducing electricity bills, accelerating the uptake of electric vehicles and achieving a step change in household in energy efficiency.

The two main aspects of the bill are significant incentives for:

  1. private enterprise to produce significantly more renewable energy; and
  2. households and the general public to transform the nature of their energy consumption.

The Democrats intend that the latter point, in particular, will slash electricity bills which have skyrocketed in the present energy crisis.

The Rocky Mountain Institute (a leading an independent, non-partisan, non-profit energy research organisation) estimates that increasing the penetration of lower cost solar and wind electricity will save United States households up to US$5 billion per annum within two years.

Energy consultancy Wood Mackenzie estimates that the bill will increase total spending on renewables to US$1.2 trillion by 2035.

  • More specifically, the bill has the following line items targeting clean energy:
  • US$260 billion for clean energy tax credits. Aimed at incentivising the installation of new renewable energy generation capacity (such as solar, wind, hydroelectric power, geothermal, etc.) by subsidising the construction of the capacity itself as well as the supply chain of specific components such as solar equipment. Crucially, these credits offer ten years of policy certainty which is a step change from the ‘stop-start’ approach to previous tax credit regimes that have arguably hampered the orderly development of renewable energy so far.
  • US$80 billion in rebates for electric vehicles (including up to US$7,500 for new and US$4,000 for used electric vehicles), rooftop solar panels, heat pumps.
  • US$27 billion to establish a federal ‘green bank’ to leverage small amounts of public capital into much greater amounts of private sector capital. In states where green banks already exist, public funds have been leveraged up to 20 times with private capital.
  • US$29 billion in industry subsidies aimed at driving reductions in emissions-intensive industries.