The deflationary act sparked a boom in manufacturing and clean energy

The deflation act sparked a manufacturing boom in the US, mobilizing tens of billions of dollars in investment, particularly in rural communities in need of economic development.

The future of these investments could depend on the outcome of the US presidential election. The prospect of a Republican victory has shaken the confidence of some investors who fear the IRA could be weakened or, at worst, repealed.

Companies have announced $133 billion in investments in clean energy technology and electric vehicle production since President Joe Biden signed the IRA in August 2022, according to data from the Massachusetts Institute of Technology and Rhodium Group.

Actual investment in manufacturing totaled $89 billion, a 305 percent increase over the previous two years IRA, according to MIT and Rhodium. Overall, IRA has mobilized half a trillion dollars of investment in the manufacturing, energy and retail sectors, according to the data.

“This is having a transformative effect on the manufacturing sector,” said Trevor Houser, partner at Rhodium Group. “The amount of new manufacturing activity we’re seeing right now is unprecedented in recent history and is largely due to new clean energy production facilities.”

About 271 clean energy technology and electric vehicle manufacturing projects have been announced since the IRA’s approval, which will create more than 100,000 jobs if all are completed, according to advocacy group E2, a partner of the National Resources Defense Council . Investments sparked by the IRA have been a boon to rural communities in particular, Houser said.

“Unlike investment in AI and technology and finance, which are clustered in big cities, clean energy investment is really concentrated in rural communities and is one of the brightest sources of new investment in those areas,” said Houser .

The IRA also accelerated the deployment of renewable energy, with $108 billion invested in utility-scale solar and battery storage projects. Investments in solar storage and batteries have grown 56% and 130% respectively over the past two years, according to Rhodium data.

“More mature technologies like wind and solar generation, electric vehicles, have reached exhaust velocity,” Houser said. “They’re going to keep growing no matter what. It’s a matter of speed.”

But the “manufacturing renaissance” is still in its early stages and remains fragile, Houser said. Without the IRA, the resurgence of new plants would not have taken off, said Chris Seiple, vice president of Wood Mackenzie’s energy and renewables group.

Former President Donald Trump has threatened to repeal the law as he advocates for more oil, gas and coal production.

“Upon taking office, I will immediately impose a moratorium on all new subsidies and donations for spending under Joe Biden’s mammoth socialist bills like the so-called Inflation Relief Act,” Trump told supporters at a rally since May in Wisconsin.

“We will stop his new green scam,” he said. “And we’re going to end this war on American energy — we’re going to drill, baby, drill.”

Clean energy stocks fell after President Joe Biden’s disastrous debate performance in late June as investors worried that Trump and Republicans were poised to sweep both the White House and Congress.

First Solarthe largest U.S. panel maker, saw increasing constraints on access to capital in the second quarter for early-stage solar companies as well as larger players trying to build domestic production, said CEO- ul Mark Widmar to analysts on the company’s July 30 earnings. call.

Investors are waiting to make decisions until they have a clearer view of what the political environment will look like for the solar industry, Widmar said. Utilities and oil companies that used to invest in renewables are now considering a pivot to prioritize fossil fuel projects, he said.

The fear among some investors is that Republicans will use the reconciliation process, through which bills can be passed with a simple majority, to cancel the IRA to fund Trump’s 2017 tax cuts to be permanent.

Trump told Reuters on Monday he would consider ending $7,500 in tax credits for electric vehicles. Consumers and businesses have spent $157 billion on zero-emission vehicles since 2022, double what they did before the IRA became law, according to Rhodium.

“Tax credits and tax incentives are generally not a very good thing,” the former president told Reuters in an interview when asked specifically about electric vehicle credits after a campaign stop even in York, Pennsylvania.

Trump did not specifically mention the tax incentives that have supported the expansion of renewables. The former president’s campaign platform says Republicans will support energy production from all sources. The document supports oil, coal and natural gas, as well as nuclear, but does not specifically mention solar or wind power.

Renewables executives and analysts are betting that investment, production and manufacturing tax credits, which drive much of energy and clean-tech spending, would survive even a Republican administration.

The majority of IRA investments in new projects, 85 percent, went to GOP congressional districts, according to E2 data. And Trump’s campaign platform emphasizes expanding domestic manufacturing and bringing supply chains back to the US.

The dynamics of the presidential race have also changed since Biden ended his re-election bid, with Vice President Kamala Harris moving into a slight lead over Trump’s national polling averages as she formally accepts her party’s nomination at the Democratic National Convention in Chicago this week.

“We’ve seen an increase in Republican lawmakers adopting clean energy credits under the IRA because they see the positive impact on their states and communities that is hard to get away from,” John Ketchum, CEO of NextEra Energywhich operates the largest renewable energy portfolio, told analysts on the company’s July 24 earnings call.

“And tax laws are very hard to overturn,” Ketchum said. “And we’re very likely to have slim margins in the House and Senate, especially in light of some of the recent developments,” he said, hinting at Harris’ rise as the new Democratic nominee.

Indeed, 18 Republican members of Congress warned House Speaker Mike Johnson earlier this month that repealing the IRA energy tax credits would be bad for business.

“Prematurely repealing energy tax credits, especially those that have been used to justify investments that have already broken ground, would undermine private investment and halt development that is already underway,” the Republican lawmakers wrote.

“A full repeal would create a worst-case scenario in which we would have spent billions of taxpayer dollars and received next to nothing in return,” they wrote.

John Berger, CEO of Rooftop Solar Installer Sunnovatold analysts about the company’s Aug. 1 earnings. The Trump trade that sent clean energy stocks lower may not have much more room to run.

“Clearly, it’s a killing heat right now,” Berger said of the presidential race. “I think the old Trump trade and so on, I would be very cautious about that.”