The US Inflation Reduction Act one year on – what’s been achieved for the green economy?

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Douglas Broom, Senior Writer, Forum Agenda

• One year on, the Inflation Reduction Act has sparked a green revolution in the US.
• Tax breaks have seen a surge in sales of electric vehicles and heat pumps.
• The World Economic Forum’s Future of Jobs Report 2023 says demand for green jobs is rising globally.

For a piece of legislation aimed at slowing price rises, the United States’ Inflation Reduction Act (IRA) has had a big impact on the environment. In fact, many experts have credited the sweeping law with turbocharging a green revolution in the US.

The IRA, which was signed into law by President Joe Biden in August 2022, included billions of dollars of investments and tax breaks to advance the country’s green energy transition and boost sustainability efforts. One year on, here’s how the IRA has impacted the US’s green economy.

The Inflation Reduction Act is credited with creating 100,000 new green jobs. Image: Unsplash/American Public Power Association

More green jobs

The IRA has been credited with creating more than 170,000 new green jobs across the country over the last 12 months. Non-profit Climate Power found that by July 2023, over 270 new clean energy projects had been implemented nationwide, amounting to $278 billion in new investments.

These include projects from Arizona to New York, including investment in wind turbine manufacture, solar power infrastructure, battery facilities and the first US electrolyser production facility.

For example, Vestas, a World Economic Forum partner, has released plans to manufacture its newest wind turbine in Colorado, investing $40 million and creating jobs.

Meanwhile, in North Carolina, Toyota, another Forum partner, has scaled-up its investment, pouring $2.5 billion into its electric vehicle battery manufacturing facility in the state.

Some experts say the IRA has stimulated efforts to reduce greenhouse gas emissions to such an extent that forecasts of the degree to which the US is now expected to cut its emissions by 2030 have been revised upwards from a fifth to as much as 42%.

The World Economic Forum’s Future of Jobs Report 2023 said the rapid growth in demand for green jobs could create 9 million new jobs globally each year. Energy-intensive industries were leading the green recruitment wave in the US, Europe and India, the report said.

9 million new green jobs could be created globally every year. Image: World Economic Forum

A boost for EVs and heat pumps

Much of the progress in the US is down to the raft of tax credits that the IRA introduced for everything from purchasing an electric vehicle (EV) to installing a heat pump. Sales of EVs surged 54% in the first quarter of 2023, according to data from Schroders.

Helped by credits of up to $7,500 per vehicle, 1 in 12 cars sold in the US is now an EV, Schroders says. As well as boosting sales of new and used EVs, the tax credit rules have also encouraged carmakers to cut prices.

The subsidy is only available on cars that cost less than $55,000 and SUVs priced at less than $80,000, prompting price reductions by leading manufacturers including Tesla. To be eligible, EVs must also meet domestic manufacturing requirements.

The so-called Made in America rules are also stimulating a rapid expansion of EV battery manufacturing with the US Department of Energy forecasting a 20-fold increase in capacity by 2030, enough to support the production of 10-13 million EVs a year.

Households can also claim up to $14,000 to install energy-efficient installations such as rooftop solar power and heat pumps, depending on income level. Sales of heat pumps exceeded gas home heating boilers in the US for the first time in 2022, official figures show.

So far, 15% of US households have a heat pump as their primary source of home heating and US heat pump sales grew by 11% in 2022 with growth rates predicted to rise to 15% in 2023, according to the International Energy Agency.

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What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.

Cleaning up the environment

With IRA funding, the US Environmental Protection Agency has boosted its efforts to safeguard and clean up the country’s environment.

Over the past year, the EPA has used $30 million in funding to expand community air monitoring in 37 states and awarded $25 million in clean air grants to improve air quality. The EPA has also made $250 million available states and local governments to fund the development of climate action plans.

“The EPA team has been hard at work designing innovative programs to cut emissions in every sector of our economy, while empowering communities across the country with the resources to take decisive action,” EPA Administrator Michael S. Regan said.

The EPA has also made $650 million available for environmental justice projects aimed at supporting low-income and disadvantaged communities dealing with the climate crisis.

The National Oceanic and Atmospheric Administration (NOAA) has awarded more than $500 million, in part funded by the IRA, to make coastal communities and economies more resilient to the impacts of climate change. The NOAA has also announced a further $575 million competition to build resilience in coastal regions to the impacts of extreme weather and climate change.

Funding has also been made available by the US Forest Service to boost equitable access to trees – and the benefits they bring – in urban communities. The funding could ultimately extend to $1 billion in grants.