Big Incentive Packs

IRA - Inflation Reduction Act

  

The U.S. Inflation Reduction Act (IRA), signed into law in Aug/2022, is poised to cut energy costs, create jobs, and transform climate action in the U.S.  IRA includes USD 369 bn in cleantech & climate investments to unlock opportunities for local governments to accelerate climate & energy commitments.

  

Projects supported include electric vehicle (EV) charging infra, green H2, power infrastructure, heat pumps, energy storage, CCUS, and climate resilience [C40, 2022].  On average, IRA tax credits for renewable electricity & clean hydrogen can reduce the cost of green H2 production by almost half [ICCT, 2023].  In short, IRA acts by [C40, 2022]:

  

• Incentivizing deployment of clean energy in the U.S.: access to the federal clean energy tax credit programmed for municipally-owned and managed utilities, and greater potential for power purchase agreements for cities in competitive markets.

• Lowering energy bills and costs for efficiency upgrades: incentives and funding for the installation of heat pumps, rooftop solar, energy efficiency retrofits, and purchase of EVs.

• Creating jobs thru domestic manufacturing & clean procurement: grants for planning, workforce development and emissions reporting standards.

• Investing in climate-ready agriculture, forest conservation & resilience: coastal restoration and resilience, drought mitigation, and water access projects.

• Advancing clean air thru clean transportation: support walkability, connectivity, and health near transportation corridors in disadvantaged communities, and also the roll out of EV charging infra.

  

The IRA’s biggest impact will likely be in the transportation sector: modified tax credits for new EVs and commercial clean vehicles will decrease costs for cleaner transport options, as will the extension of credits for biofuels (mainly ethanol, biodiesel, and renewable diesel) [GS, 2023].

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REPowerEU - RePower European Union

  

The REPowerEU plan, proposed by European Comission (EC), was originally set out in May 2022 in response to the hardships and global energy market disruption caused by Russia's invasion of Ukraine.  It is a plan for saving energy, producing clean energy, and diversifying energy supplies [EC, 2022].

  

EU Member States can use the remaining RRF (Restaurant Revitalization Fund) loans (currently EUR 225 bn) and new RRF grants funded by the auctioning of Emission Trading System allowances, currently held in the Market Stability Reserve, amounting to EUR 20 bn.

  

West Atlantic vs East Atlantic

  

The rationale behind public support to clean techs is twofold: progress towards climate neutrality by 2050, but also develop a new, competitive manufacturing base aligned w/ the features and imperatives of the energy transition [Natixis, 2023].

  

Broad ambitions of the two packs are relatively similar.  But, the instruments used to reach those ambitions are different: while the U.S. (at the federal level) is primarily using financial incentives, such as assigned financial envelopes for specific techs & infra, and tax credits & loans, the EU is prioritizing carbon pricing, binding targets, performance standards, sectoral regulation, direct technology mandates, and grants & financial support [CFE, 2023].

  

Green Deal Industrial Plan

  

Fact is, some IRA subsidies discriminate against foreign producers while EU subsidies do not [Bruegel, 2023].  As a consequence, the EC published in 01 Feb/2023 the “Green Deal Industrial Plan” to enhance the competitiveness of Europe’s net-zero industry and support the fast transition to climate neutrality.

  

Against the backdrop of the European Green Deal (approved in 2020) and the REPowerEU (proposed in 2022), the plan focuses on scaling up the EU’s net-zero manufacturing and improving the competitiveness of the EU market, especially in light of competition brought by the U.S. IRA [B&B, 2023].

  

The principal pool for this plan would be the EUR 225 bn of loans and EUR 20 bn of grants remaining from the EU's EUR 800 bn post-pandemic recovery fund [REU, 2023].