Americas

US IRA Bridging ESG Gap with Red States

Republican-held US states set to significantly benefit from blended finance investments in clean energy projects. 

Interaction between public and private finance flows through the US Inflation Reduction Act (IRA) is providing an “innovative” way to make ESG a more palatable concept in Republican-run US states, according to some investment experts. 

Speaking at the Innovation Zero event held in London this week, Jamie Broderick, Deputy Chair at non-profit Impact Investing Institute, described the US IRA as the “granddaddy of all blended finance projects”. 

International climate policy organisation Climate Policy Initiative said the US IRA “represents a massive opportunity to deploy targeted public funding to mobilise private investment in climate action across the US”. 

Broderick underlined the importance of blended finance in creating collaboration and offering a “great example of parties participating from different segments of the financial economy, coming together and building something”. 

Broderick also noted the role blended finance through the US IRA is playing in making ESG a more digestible concepts in so-called red and purple (swing) states by providing economic self-interest.  

There have already been almost 100 anti-ESG bills filed in the US, more than double the 39 filed the whole of 2022. Last year, Republicans states withdrew US$1 billion in assets from BlackRock over the asset manager’s ESG investment policies. A group of Republican states recently requested a federal judge in Texas to strike down a Biden administration rule allowing socially conscious investing by retirement plans. 

Red senators have also demanded further information on the Securities and Exchange Commission’s proposed climate disclosure rule requiring public companies to disclose climate-related information in their registration statements and periodic reports, which they have argued will “unnecessarily harm consumers, workers, and the US economy”. 

A letter sent by attorneys-general from Republican-run states to members of the Net Zero Insurance Alliance, warning of potential breaches of anti-trust laws, has precipitated an exit from the group by some of its largest members.  

Red state clean investment boom 

The US IRA contains US$370 billion in clean energy incentives and tax credits. Despite no Republicans in the House of Representatives or the Senate voting for the IRA when it was passed through Congress in August, the majority of the funds from it are going to red states.  

Republican-leaning states are receiving larger climate investments per person than Democrat-led states, with Wyoming topping the list at US$39,192 per-capita amount of green investment for each resident. 

Texas is projected to get 100,000 new jobs and US$15 billion in new GDP by 2030 from IRA clean energy tax credits, while Florida is forecast to benefit from 85,000 new jobs and US$10 billion in new GDP. 

According to estimates from the White House, red states are set to attract up to US$337 billion in investments for large solar, wind and storage projects from the IRA, while Democrat-led states are set to generate roughly US$183 billion in investments. 

Modeling has shown the IRA’s clean energy tax credits could increase US GDP by up to US$200 billion and create as many as 1.3 million jobs across the county 2030. The tax credits have led to US$250 billion in project announcements with the capacity to create 140,000 new jobs, and more than US$70 billion has been invested in 85 new manufacturing projects since the IRA was signed, creating nearly 57,000 jobs. 

Under a scenario whereby states adopt clean energy technologies at a pace and scale needed to meet 2030 climate goals, red states would receive US$4,221 in IRA funds per capita, while blue states would receive at US$2,427 per capita. 

According to analysis by American Clean Power, 80% of all utility-scale wind or solar farms and battery projects currently in advanced development are located in red states. 

Three of the five states which are projected to benefit the most from growth in jobs and GDP as a result of the IRA Texas, Florida and North Carolina, all of which are Republican-run. California is projected to benefit the third most, but is the only blue state in the top 10.  

RMI analysis showed that Texas could benefit from US$131 billion in IRA-linked investments this decade; Florida may see US$62 billion while Georgia could realise US$16 billion.  

Generating self-interest 

Broderick said that the predominance of projects resulting from the IRA in red states was providing an opportunity to change perspectives on ESG and clean energy projects. “How do you convince the public on clean energy project? You convince the public by showing them it’s in their interest,” he said.  

“It’s remarkable that a lot of the projects benefit people who from an ideological and political standpoint would not be supportive, but you’ve articulated the projects a way that they can relate to and see it as a form of self-interest,” Broderick added. 

Fellow panel speaker Katherine Stodulka, Partner at environmental consultancy firm Systemiq, said that the impact investing sector is “getting better at explaining, defending and rationalising the economic benefits of investing for impact at the same time as return”. 

She noted the importance of the industry being “better equipped to communicate and clearly identify the economic rationale of a different type of investing”.  

A recent report by Climate Central showed that US wind and solar capacity grew 16% compared to 2021, with the country generating 683,130 gigawatt-hours (GWh) of electricity from solar and wind last year, up from 588,471 GWh in 2021.  

Wind and solar are likely to see further growth as more projects announced as a result of the US IRA are realised.  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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