Page 16 - DIY Investor Magazine | Issue 37

US AND EU ‘IRA’: MADE IN CHINA? Apr 2023 16 The EU’s efforts to catch up with the US’s massive move to support strategic green industries, jobs and clean technology signal a new era, writes Jupiter’s Environmental Solutions team. DIY Investor Magazine · Last summer, new legislation providing the greatest support for environmental solutions1 in the history of the United States passed into law. Yet you would hardly have known it from the name. The Inflation Reduction Act of 2022 (IRA), signed into law by President Joe Biden on 16 August 2022, was originally billed as the Build Back Better Act, but neither name reflects the true intentions behind the law – combating climate change and reinvigorating US industrial and strategic policy in the process. Not only does the IRA give the US a meaningful chance of meeting its greenhouse gas2 reduction targets of 40% below 2005 levels by 2030, but it also presents an unprecedented catalyst for companies in the environmental solutions space. This could, therefore, be a good time for investors to be considering investment trusts as a buying opportunity. ‘AN UNPRECEDENTED CATALYST FOR COMPANIES IN THE ENVIRONMENTAL SOLUTIONS SPACE’ The IRA provides $369 billion of spending over ten years, including $158bn on clean energy, $13bn on electric vehicle incentives, $14bn in home energy efficiency upgrades, and $22bn in home energy supply improvements. Moreover, there is upwards of $37bn for simple, effective advanced manufacturing incentives that have already begun to shift the corporate investment landscape. These incentives go a step further by squarely aiming tax credits at drawing corporate and investment capital to the US. ‘American taxpayer dollars ought to go to American investments and American jobs,’ was how John Podesta, senior advisor to President Joe Biden, recently put it. In response, the EU’s Net-Zero Industry Act and European Critical Raw Materials Act, both part of a Green Deal Industrial Plan and dubbed the ‘EU IRA’, are designed to prevent the bloc falling further behind. The proposed EU legislation sets a headline benchmark of ensuring that at least 40% of low-carbon technology needs are met by manufacturing within the EU by 2030. What stands out to us is that while the debate rages about whether this is feasible, buried in the documents is an about-turn in the European approach. Recognising the US policy is more carrot than stick, the EU drafts make reference to a largely overlooked framework that offers ‘matching aid’ to companies “where there is a real risk of investments being diverted away from Europe”4. This ‘Temporary Crisis and Transition Framework’ (TCTF), announced on 9 March, came two days after Volkswagen put the brakes on its plans for a European battery plant, citing up to €10bn of tax incentives available in the US over the lifetime of a similar factory. ‘LESSONS LEARNED’ It would be easy to think that an increasingly protectionist3 mindset will ease over time, but we think this is less likely to happen in clean technology markets. Both the US IRA and its European equivalent refer explicitly to ‘lessons learned’.