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Officially one year old this month, the Inflation Reduction Act (IRA) was passed into law last year. The Act combined two dozen tax provisions meant to save families money on their energy bills. It also accelerates the deployment of “clean” energy, buildings, vehicles and manufacturing processes. “These tax provisions reflect the President’s strong belief in building the economy from the bottom up and middle out,” the White House announced when introducing the IRA.
“Many of the clean energy tax provisions offer bonus credits to projects that are located in low-income communities or energy communities, pay prevailing wages and use registered apprentices or meet certain domestic content requirements,” the White House explained, “all with the goal of creating good-paying, high- quality jobs and shared economic growth that will last well beyond the Biden- Harris Administration.”
What Does the Act Cover?
More specifically, the Act’s $370 billion in investments are focused on lowering energy costs for families and small businesses; accelerating private investment in clean energy solutions in every sector of the economy/country; strengthening supply chains for everything from critical minerals to efficient electric appliances; and creating good-paying jobs and new economic opportunities for workers.
For example, the IRA includes these funding and tax programs:
- Up to $250 billion in new loan authority for Energy Infrastructure Reinvestment Financing. The Inflation Reduction Act provides the Department of Energy with $5 billion in credit subsidy to support up to $250 billion in new loan authority to guarantee loans to projects that retool, repower, repurpose, or replace energy infrastructure that has ceased operations or that enable operating energy infrastructure to avoid, reduce, use or sequester greenhouse gases.
- Extension and Expansion of the Advanced Energy Project Credit. The Act also provides the Secretary of the Treasury with new authority to allocate $10 billion to projects that (1) re-equip, expand or establish an industrial or manufacturing facility for the production or recycling of a range of renewable energy and energy efficiency equipment, carbon capture equipment and advanced vehicles; (2) re-equip an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20 percent; or (3) re-equip, expand or establish an industrial facility for the processing, refining or recycling of critical materials.
- A new Advanced Manufacturing Production Credit. The IRA also included a new production tax credit for domestic manufacturing of components along the supply chain for solar modules, wind turbines, battery cells and modules and critical minerals processing.
These are just some of the financial opportunities that manufacturers can leverage through the Inflation Reduction Act, which also includes a tax credit for investments for certain advanced energy projects; an advanced manufacturing production tax credit for domestic manufacturing of components for solar and wind energy, inverters, battery components and critical minerals; and energy infrastructure reinvestment financing to guarantee loans to projects that retool, repower, repurpose or replace energy infrastructure.
The IRA’s Track Record Thus Far
In the 12 months since the Inflation Reduction Act became law, companies have announced more than $270 billion in new clean energy investments.
Also, 83 new or expanded manufacturing facilities are either already underway or have been announced. “Manufacturers are definitely taking advantage of the tax incentives that have been provided through the Inflation Reduction Act,” says Antonio Soda, Regional Vertical Market Head Industrial Energy at DB Schenker. “Companies are getting out there and assessing what they can do to invest in the clean energy market.”
The IRA is also expected to provide nearly 30,000 jobs annually and help boost economies nationwide. Some of those new hires are also being called upon to help construct new manufacturing facilities, with more projects expected to be announced in the coming months.
“The Act is creating jobs and drawing in the companies that are probably not headquartered here and driving them to set up manufacturing facilities in the U.S.,” says Soda. “This, in turn, is helping to boost the national economy.”
Jacques de Smit, Senior Director Energy at DB Schenker says it’s too early to assess the potential domestic consumption related to the increase in products that will be produced in the U.S. as a result of the Act. “However,” he adds, “what’s clear is that all of the companies that are setting up manufacturing facilities here are doing so because of the tax credit that they’re receiving—depending upon the products that they produce.”
Measuring the Impact on Logistics
In assessing the Inflation Reduction Act’s potential impacts on the logistics and transportation sectors, De Smit points out that the output from the new manufacturing facilities probably won’t be “fully consumed” in the U.S. As a result, there will most likely be an increase in outbound shipments from the U.S. to destinations like Europe in the near future. De Smit says DB Schenker is factoring this and other IRA-related trends into its current and future strategies.
More manufacturing in the U.S. will also mean less dependency on imports from countries such as China. It ultimately may also lead to a production surplus in the domestic market, de Smit predicts, and potentially fewer inbound shipments originating from both Asia-Pacific and Europe. In any case, we must account for a fundamental change to global trade and supply chains.
“Additionally, some companies who were initially about to invest in the European market & elsewhere and set up manufacturing facilities there,” de Smit adds, “are now re-directing their investment portfolio to the U.S. as a result of the Inflation Reduction Act.”