If in the 18 months since the Inflation Reduction Act, you’ve found yourself repeating Jerry Maguire’s timeless mantra “Show me the money!” murmur, a handful of policy analysts have just done exactly that. Their analysis of the nation’s investment in clean energy found that for every dollar the government contributed to promote the transition, the private sector kicked in $5.47, resulting in nearly a quarter of a trillion dollars in just one year flowed to the clean economy.
Across almost every segment detected by Rhodium Group and his collaborators at Massachusetts Institute of Technology, investments since then have not only increased President Joe Biden signed the legislation, the growth rate also accelerated. In the 12 months from October 2022 to September 2023, $220 billion was poured into everything from battery factories to solar farms to emerging technologies like hydrogen, including $34 billion in federal spending, mostly in the form of tax credits.
The report shows, among other things, the extent of investments that the government can incentivize with a clear commitment to a specific course of action. Both figures show a substantial increase in the financial pressures building up behind the transition to a clean economy, and testify to the role that progressive policies are playing in pushing that economic transformation forward.
“It demonstrates the value of the federal government taking the lead and putting policies in place that say, ‘This is the direction we’re going: support decarbonisationthat supports clean energy,” said Hannah Hess, an associate director of climate and energy at Rhodium Group who co-authored the report.
By taking that lead, many billions more have flowed into the clean economy. In 2023, the sector as a whole set new records for another year. Utility scale solar power and storage grew by more than 50 percent compared to 2022 to a total of $53 billion. Investment in the entire EV supply chain reached $42 billion — up 115 percent from the previous year. Meanwhile, retail spending by businesses and households on things like EVs, heat pumpsand solar power on the roof came to $118 billion, all told.
Nevertheless, several economists and analysts have said that, although impressive, the rate of investment that has taken place in the Clean investment monitor is still not enough for the US to meet its climate goals. We certainly can emissions reduced by 40 percentas stated in the IRA, but we are still far from the 50 percent reduction needed by 2030 to meet its obligations under the Paris Agreement.
“We have more work to do,” said Catherine Wolfram, a professor of energy economics at MIT. Although not involved in the Clean Investment Monitor, much of Wolfram’s work at MIT has studied the expected economic impact of the IRA. While she doesn’t see the level of investment as yet sufficient to achieve that ambitious goal, she emphasized that the IRA remains a big win, especially as a symbol of America’s commitment to climate action.
By holding a torch on the path that the country’s economy can take towards a future in which excess emissions fade into myths and fables, the government raised investments in projects that will not receive federal support for years to come. In particular, Hess pointed out that more than one-fifth of the $239 billion spent on clean investment in the 2023 calendar year went to manufacturing, especially in all things EV. In many cases, companies spend tens, sometimes hundreds, of millions of dollars build factories on the promise that they will receive tax credits once batteries, solar panels and other products start coming off the assembly line.
This reality has some investors keeping a close eye on Congress.
Bob Keefe, executive director of the nonpartisan advocacy group E2, said that the dozens of attempts by Republican members of Congress to rescind or otherwise roll back provisions and funding sources in the IRA is sending some investors into a frenzy.
“No one is going to want to invest in anything other than the policies that [are] management is threatened,” Keefe said. “I mean, just the mention of threat is enough to scare people.”
Even with that policy scaremongering and a looming election whose outcome could jeopardize the IRA’s various funding streamsE2 nevertheless tracked announcements for hundreds of clean energy projects across 41 states since the legislation passed, with $4 billion in investments announced in February alone.
As long as the government doesn’t “screw it up,” Keefe said, “we’re literally on the cusp of the biggest economic revolution we’ve seen in this country in generations.”
The tendencies for this have crystallized. Yes, the wind industry has stumbled on land and on the sea, according to the report, but it’s ready to find its feet again. But every other sector has seen significant, even surprising, growth — especially emerging technologies like hydrogen and sustainable aviation fuel. That broad category saw a tenfold increase in spending in 2023, to $9.1 billion.
Federal investments already exceed the Biden administration’s own estimates, and this spending, as Hess pointed out, will only increase. Barring unexpected hurdles, the government is on track to inject, not the oft-quoted figure of $369 billion, but perhaps as much as $1 trillion or more in the clean economy through IRA-related spending alone according to estimates by Wolfram and her colleagues.
Wherever the final dollar figure falls, the report from Rhodium Group highlights the energy and enthusiasm behind this economic transition. For those not steeped in economic forecasting, the outpouring was so vast that it was completely unexpected.
“No one could have ever predicted that we would see this type of investment, this type of job creation,” Keefe said. “It’s absolutely incredible.”
