Electricity Markets

Ultimate Public Climate Spending Spurred by Inflation Reduction Act Could be Over $800 Billion: Credit Suisse

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Citing the uncapped nature of tax credits and attractiveness of economics, investment firm Credit Suisse is estimating that the ultimate public climate spending enabled by the Inflation Reduction Act (IRA) could be over $800 billion.

“We see most of the upside coming from solar, wind, battery deployment and manufacturing, clean hydrogen, and carbon capture,” Credit Suisse analysts wrote in a recent report on the IRA. “With subsidized green financing and the multiplier effect on federal grants/loans, the total public plus private financing could reach ~$1.7 trillion over ten years,” it said.

President Biden on Aug. 16 signed into law the IRA, which will extend and expand various energy tax incentives and give public power utilities direct access to such credits through a refundable direct payment tax credit.

The report said that roughly two-thirds of the baseline IRA spending is “allocated to provisions where the potential federal incentive is uncapped, meaning the ultimate outlay is either based on units of production or upfront capital spent.”

Therefore, Credit Suisse believes the Congressional Budget Office “is significantly underestimating costs of certain provisions as the attractiveness of credits could propel much higher activity levels, particularly in green manufacturing, carbon capture and clean hydrogen.”

Using its own forecasts, “we see federal climate spending at over $800 billion, doubling the baseline of >$400 billion. Combined with the multiplier effect on private investments and green financing programs, total spending could reach nearly $1.7 trillion over the next ten years.”

Credit Suisse said that the new credits in the IRA provide long-term certainty, flexibility on the choice of credits and are technology-agnostic.

“Combined with the manufacturing tax credits, the US should benefit from the lowest levelized cost of clean electricity in the world,” the report said.

Permitting uncertainty remains the single biggest execution risk in Credit Suisse’s view in reaching the full potential of the IRA, particularly around transmission, carbon dioxide Class VI permits, and future green infrastructure buildouts.

In a recent article in the Atlantic, Robinson Meyer breaks down the Credit Suisse report’s key conclusions and offers his own predictions about the impact of the IRA on the energy sector.

APPA’s Joy Ditto Details How Public Power Will Benefit From Inflation Reduction Act

Joy Ditto, President and CEO of the American Public Power Association, recently detailed how public power utilities are poised to benefit from the IRA.

“We’ve been working on this for over twenty years,” said Ditto on a recent episode of White House Chronicle, which is hosted by Llewellyn King.

Since the 1992 Energy Policy Act, “we’ve been looking at this idea of parity or comparability in the tax code for publicly-owned utilities, for other not-for-profit utilities like rural co-ops so that we can really be unleashed in the marketplace as we continue to drive toward a cleaner energy future,” she said.

The mechanism in the IRA, a refundable direct pay credit, “allows us to take advantage of these tax credits that have been available to our for-profit brethren for many years both in the form of an investment tax credit and a production tax credit.”