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Executive summary│EU’s response to the US IRA
Scaling the “Atlantic IRAs” renewables capex supercycle
US Inflation Reduction Act (IRA) is the most supportive regulatory environment in US clean tech history
- The US Inflation Reduction Act (IRA) – a USD369bn legislative package combining large-scale green subsidies with healthcare savings and new revenue measures through to 2032 – is a landmark and welcome US climate policy, that enacts historic deficit reduction to combat inflation.
- At face value, the US IRA is game changing thanks to its long-term visibility, highly executable features, lucid subsidies and source agnostic approach (reducing the risks associated with selecting clean technology winners). Critically, it endeavours to close more than two-thirds of the emissions gap between current policies and the US 2030 climate target.
- Yet, the IRA also includes market and trade distortive measures, including local-content requirements, prohibited under WTO rules – the first time the US has done this which may trigger global protectionism policies.
Europe’s response is a step forward but still a long way to go
- In a clear threat to Europe through its competitiveness effect, the European Commission has presented its response – a detailed piece of legislation labelled, the Green Deal Industrial Plan of which the Net Zero Industry Act (NZIA) is the central initiative, comprising three core pillars:
- Faster renewables development, thanks to a fully revamped approach to permitting, which will strongly accelerate the electrification of the European economy.
- Critical “Made in Europe” focus, with at least 40% of clean energy equipment manufactured locally – in parallel the European Commission has published a Critical Raw Materials Act to address the sourcing of key metals and minerals.
- The financial support of EUR375bn in recycled (not new) funds, which had already been approved (but undeployed) under the Resiliency and Recovery Fund (RRF), Horizon Europe, the Just Transition Fund and other agreed upon packages.
- Whilst the EU’s NZIA lacks the simplicity, clarity and duration of US IRA funding, we believe it will alter the economics of investing in net zero technology manufacturing in Europe. Though questions abound. Crucial is the type and scale at which EU member states channel the NZIA’s principles into actionable support to avoid the pitfalls of prior attempts at green industrial policy.
The “Atlantic IRA” will be a transformational catalyst for a renewables capex supercycle
- Looking ahead, we believe that this supportive legislative backdrop surrounding the US IRA and EU NZIA implies a very fertile ground that could drive a clean energy policy “race to the top” in Europe and the US, and that collectively the “Atlantic IRA” will be a transformational catalyst for a renewables capex supercycle for the remainder of this decade.
- In what is a “goldilocks” era of clean energy regulation across Europe and the US, our estimates point to nearly USD7 trillion of capital in clean energy investments being mobilised over the coming ten years, to accelerate renewable electrons (solar, winds, EVs and energy storage) and renewable molecules (hydrogen, carbon capture and bioenergy).
