• Wednesday, February 21, 2024
businessday logo


US makes almost $1trn clean energy subsidies available to investors

US makes almost $1trn clean energy subsidies available to investors

According to a government report, subsidies for low-carbon energy and related infrastructure worth up to a trillion dollars are available as part of the Biden administration’s push to restructure the American economy.

Earlier this year, EU officials made a lot of fuss when European corporations began formulating expansion plans for the US in order to compete in the incentive race.

Towns and counties in the US are now vying for a piece of the incentive pie by attempting to attract low-carbon projects. According to the Wall Street Journal, one such project is Kontrolmatik Technologies’ battery plant, which will be built in South Carolina, with the Turkish business hoping to get up to $1 billion in federal tax credits over the following ten years.

According to a Wall Street Journal article, Kontrolmatik is investing $279 million in the facility, which will have an annual production capacity of 3 GWh of power supply. It will also employ 575 locals, making it a favourite of local officials.

Steven Murdaugh, Colleton County Council Chairman said in February that he had no idea what a gigawatt-hour is at the groundbreaking ceremony for the plant.

“But I do know what a $279 million investment will do for our county, and I know what impact 575 jobs will have on our community,” he said.

Colleton is far from the only county in America seeking to take advantage of the multibillion-dollar incentive package. Of course, it’s not just counties. Businesses are sprouting up all over the place to compete.

Read also: India’s economy is surging thanks to these three revolutions

A digital marketplace for tax credits under the Inflation Reduction Act is the most recent addition to the list of transition business fruits. The company, Crux Climate, aims to make it easier for businesses to get tax breaks.

“Many of the companies that earn the credits aren’t able to make use of them because they don’t pay large enough tax bills in the year that they get the credits to be able to use them,” Alfred Johnson, Crux Climate CEO, told CNBC.

Trading credits appear to be the means for firms that lack the income to otherwise qualify for the incentives to circumvent this barrier. In that approach, the larger firm that qualifies for the tax credit can sell it at a loss to obtain the cash it requires, while the smaller company receives the credit it could not otherwise afford.

In an interview with an international television station, the CEO of Arcadia said that tax equity has been the fuel of the renewable energy boom for decades, and it’s about to be put on steroids with the IRA. It’s no surprise that many European companies are looking to the United States for growth: the IRA and related efforts are estimated to promote $3 trillion in overall energy transition expenditures.

However, all this is not without problems. Take EV incentives, for example. Two states recently suspended their EV purchase credit programs because they ran out of money.

As one would have expected had one has been paying attention, the incentive programs caused a surge in demand for EVs, and that surge dried up the funds allocated for EV purchase incentives. In New Jersey, the local authorities are not even sure they will renew the incentive program.

That’s not all; as with all business ventures, the possibility of failure is always present. There could also be challenges with loan financing, especially with the Fed planning more rate hikes, and inflation is already high and may go even higher thanks to those massive subsidies.

The subsidy race could also hit taxpayers hard. When Congress passed the IRA, it was estimated that tax credits would cost taxpayers $271 billion. According to Goldman Sachs and the Brookings Institution, however, the final bill could be three times higher.