How the Inflation Reduction Act sparked a boom in U.S. manufacturing and clean energy – NBC Chicago

• Tax credits under the Inflation Reduction Act have led to a boom in new manufacturing projects in the United States
• Republican congressional districts and rural communities in particular benefited from this.
• The presidential election creates uncertainty about the future of these projects, and some investors fear that a Republican victory could weaken the IRA.

The Inflation Reduction Act has sparked a manufacturing boom across the United States and mobilized tens of billions of dollars in investment, particularly in rural communities in need of economic development.

The future of these investments could depend on the outcome of the US presidential election. The prospect of a Republican victory has shaken the confidence of some investors who fear that the IRA could be weakened or, in the worst case, repealed.

Since President Joe Biden signed the IRA law into law in August 2022, companies have announced $133 billion in investments in clean energy technologies and electric vehicle manufacturing, according to data from the Massachusetts Institute of Technology and the Rhodium Group.

Actual investment in manufacturing totaled $89 billion, according to MIT and Rhodium, a 305 percent increase over the two years before the IRA. In total, the IRA has facilitated half a trillion dollars in investment in manufacturing, energy and retail, according to the data.

“It's having a transformative effect on the manufacturing sector,” said Trevor Houser, partner at Rhodium Group. “The level of new manufacturing activity we're seeing right now is unprecedented in recent history and is due in large part to new clean energy production facilities.”

Since the IRA was passed, about 271 clean energy technology and electric vehicle manufacturing projects have been announced. If they are all completed, more than 100,000 jobs will be created, according to advocacy group E2, a partner of the National Resources Defense Council. The investments spurred by the IRA have been a boon, especially for rural communities, Houser said.

“Unlike investments in AI, technology and finance, which are focused on big cities, clean energy investments are really focused on rural communities and are one of the most promising sources of new investment in these areas,” Houser said.

The IRA has also accelerated the deployment of renewable energy, investing $108 billion in large-scale solar and battery storage projects. According to Rhodium data, investments in solar and battery storage have increased by 56% and 130%, respectively, over the past two years.

“The more mature technologies, like wind and solar power or electric vehicles, have reached their escape velocity,” said Houser. “They will definitely continue to grow. It's a question of speed.”

Trump threatens the IRA

But the “renaissance of manufacturing” is still in its early stages and is still fragile, said Houser. Without the IRA, the revival of new factories would not have happened, said Chris Seiple, vice chairman of Wood Mackenzie's energy and renewable energy group.

Former President Donald Trump has threatened to repeal the law as he advocates increasing oil, gas and coal production.

“When I take office, I will impose an immediate moratorium on all new spending grants and giveaways under Joe Biden's gigantic socialist bills like the so-called Inflation Reduction Act,” Trump told supporters at a rally in Wisconsin in May.

“We're going to put an end to his new green scam,” he said. “And we're going to end this war on American energy – we're going to drill, baby, drill.”

Shares of renewable energy providers plunged after President Joe Biden's disastrous performance at the U.S. debate in late June, as investor fears that Trump and the Republicans could capture both the White House and Congress became increasingly likely.

First Solar, the largest solar module maker in the U.S., saw growing constraints on access to capital in the second quarter, both for young solar companies and larger players looking to expand domestic production, CEO Mark Widmar told analysts on the company's July 30 conference call.

Investors are waiting to make decisions until they have a clearer idea of ​​what the political environment for the solar industry will look like, Widmar said. Utilities and oil companies that invested in renewable energy are now considering a switch and prioritizing fossil fuel projects, he said.

Some investors fear that Republicans could use the voting process – which allows legislation to be passed with a simple majority – to roll back the IRA and finance the permanence of Trump's 2017 tax cuts.

Trump told Reuters on Monday he would consider eliminating the $7,500 electric vehicle tax credit. Consumers and businesses have spent $157 billion on zero-emission vehicles since 2022, double what they spent before the IRA went into effect, according to Rhodium.

“Tax credits and tax incentives are generally not a very good thing,” the former president said in an interview with Reuters when asked specifically about the EV credits after a campaign rally in York, Pennsylvania.

Trump has not specifically mentioned the tax incentives that have supported the expansion of renewable energy. The former president's campaign platform says Republicans would support energy production from all sources. The document supports oil, coal and natural gas, as well as nuclear power, but does not specifically mention solar or wind energy.

Republican constituencies benefit the most

Executives of renewable energy companies and analysts expect the tax breaks for investment, production and manufacturing, which account for much of clean energy and technology spending, would persist even under a Republican administration.

A large portion of IRA investments in new projects, namely 85%, went to Republican congressional districts, according to E2 data. And Trump's campaign platform emphasizes expanding domestic production and bringing supply chains back to the United States.

The dynamics of the presidential campaign have also changed since Biden ended his re-election bid, with Vice President Kamala Harris holding a slight lead over Trump in national polls as she formally accepts her party's nomination at the Democratic National Convention in Chicago this week.

“We have seen an increase in the number of Republican lawmakers embracing the Clean Energy Credits within the IRA as they see the positive impacts on their states and communities that are difficult to ignore,” John Ketchum, CEO of NextEra Energy, which operates the largest renewable energy portfolio, told analysts at the company's July 24 earnings call.

“And the tax laws are very difficult to overturn,” Ketchum said. “And we're probably going to have very narrow majorities in the House and the Senate, especially given some of the recent developments,” he said, alluding to Harris' rise as the new Democratic candidate.

In fact, 18 Republican members of Congress warned House Speaker Mike Johnson earlier this month that eliminating the IRA energy tax credits would be damaging to the economy.

“Early elimination of energy tax credits, particularly those used to justify investments already underway, would undermine private investment and halt developments already underway,” the Republican lawmakers wrote.

“A complete repeal would result in a worst-case scenario in which we would have spent billions of taxpayer dollars and received next to nothing in return,” they wrote.

John Berger, CEO of rooftop solar installer Sunnova, told analysts at the company's Aug. 1 earnings call that the Trump trade, which had driven down renewable energy stock prices, may not have much room to run any longer.

“It's clearly a neck-and-neck race now,” Berger said of the presidential race. “I think I would be very cautious about the old Trump trade and so on.”