The United States is seeing a clean energy investment level it has never seen before, with tax credits enacted under the 2022 Inflation Reduction Act (IRA) accounting for a large majority of that surge. Those credits have opened the doors to many new technologies eligible for support beyond traditional wind and solar and into areas like standalone battery systems and hydrogen plants.
A new development of note is the establishment of a market for transferable tax credits. This has allowed clean-energy developers to sell their credits to third-party buyers. A significant amount of capital has thus been attracted to this mechanism, with deals reaching approximately $9 billion already in the books, and tens of billions more that are expected this year.
The IRA provisions promote investments that, directly or indirectly, benefit business and society in general. Programs that pay prevailing wages, are developed in disadvantaged areas, or involve domestic content benefits can claim bonus credits, making the economy develop equitably, while the environment is also friendly.
However, the future of these tax credits remains uncertain. President-elect Donald Trump intends to slash the federal spending on clean energy initiatives and will look forward to saving hundreds of billions for the U.S. budget. This change in policy could affect all ongoing and planned investments in the renewable sector.
Despised current policy, even the demand increase for electricity—due to activities involving construction of data center, industrial, or electric vehicle adoption—is envisioned to continue focusing on renewable power projects. Being cost-effective in deployment and a rapid way for meeting increased future demand, many investors and even consumers will benefit from these schemes of renewable energy options.
Clean energy tax credits are one of those incentives that helped propel the United States toward record investments in renewable energy. However, the future sustainability of this trend will depend more on the permanence of incentives in the midst of changing political landscapes.
