Green production chains and technologies have a new structure

Shortly before the one-year anniversary of the passage of the American Inflation Reduction Act, or IRA for short, there are arguably big changes in green technologies in the USA.

Written by Marcelo Brito, Portfolio Manager, Mandarine Gestion

President Joe Biden The IRA’s historic legislative package signed into law has heralded a new era of investment and innovation in renewable energy, electric vehicles, and other key sectors of the environmental and energy transition.

Transforming the clean technology supply chain

In just one year, IRA has revolutionized the clean energy supply chain. In renewable energies such as wind and solar, and in revolutionary technologies such as hydrogen and electric vehicles, the IRA has succeeded in dramatically accelerating investment, job creation and capacity expansion.

One of the most noticeable effects is the increase in production capacity in the country. Today, more and more companies are announcing major investments in order to move their production capabilities to the USA. The numbers speak for themselves. Nearly $86 billion in private investment (see below Illustration 1) flowed into clean energy projects, creating a domino effect across industries.

(Click on the drawing to enlarge)

In the solar panels sector, it was noted that 51 production facilities were established and expanded. Battery production has seen similar success, with there now 91 factories producing batteries. More than 100,000 jobs have been created related to clean energy.

They support the local economy and promote a greener future. This economic stimulus underscores the IRA’s ability to stimulate economic growth and move the nation toward a sustainable energy future.

Giants such as Tesla, General Motors, and Ford (Figure 2, $1 billion) have announced significant investments in electric vehicle production, putting the United States back at the forefront of the development of these vehicles. SK and Ford have built battery manufacturing sites in Tennessee and Kentucky to respond to growing demand for electric vehicles.

LG Energy Solution’s investments in a battery plant in Arizona and Panasonic’s third U.S. battery plant in Oklahoma show that the shift to clean technologies is happening at scale.

A changing geopolitical landscape

The influence of the IRA affects the complex geopolitics of new green technologies. China and the United States – the two largest players in the clean energy race – are competing to maintain their dominance in this important sector.

The IRA increased the competitiveness of the United States and reduced its dependence on foreign supply chains. At the same time, he questions China’s current position as a major supplier of key materials. The fact that many American and foreign companies are moving their production to the United States is evidence of a broader trend sparked by the Internet Research Agency, and underscores the central role of this plan on a global scale.

The focus on domestic production has also motivated other economies to take action. For example, Canada and the European Union (Figure 3) are developing their own initiatives in order to remain competitive in the changing green economy – but with little success at present.

The incentives provided by the IRA caused a major re-evaluation of support and competition strategies.

(Click on the drawing to enlarge)

Support from both political camps and future prospects for the IRA

Critics have speculated on the fate of the IRA if the political winds change. What would happen if there was a change in administration in the United States of America? However, the IRA is resilient because its effects are clearly noticeable.

Strikingly, the legislation introduced by Democrats creates more than two-thirds of jobs and three-quarters of investment in Republican-leaning states (Figure 4). Although the political landscape may change, the economic benefits of the IRA are deeply entrenched in communities and, regardless of political camp, have lasting effects that ensure the future of the IRA.

(Click on the drawing to enlarge)

One year after signing the agreement, the transformative effects that the IRA has had on the clean technology supply chain are undeniable. At a broad level – from restructuring national production to influencing global geopolitics – the IRA charted a new course for sustainable development.

Although doubts persist, one thing is certain: the IRA has succeeded in establishing itself as an engine of change, reshaping global supply chains and laying the foundations for a more resilient future. The IRA makes the United States a leader in innovation in clean technologies and also contributes to a more sustainable future around the world.

Marcelo Brito
Portfolio manager

Patrick Weber
Sales Manager German-speaking Switzerland