Washington, D.C. – Impax Asset Management, one of the world’s largest green investment managers, has expressed frustration with certain aspects of President Joe Biden’s landmark climate law. The Inflation Reduction Act, which was introduced in mid-2022, was initially touted as a game-changer, but Impax now argues that the legislation contains too many obstacles that hinder its implementation and benefit intermediaries at the expense of green projects.
Charlie Donovan, senior economic adviser at Impax and a professor at the University of Washington, criticized the clean-energy tax credits of the IRA for being overly complex and not conducive to a scalable and efficient system. The reliance on the banking industry and the involvement of tax consultants have generated significant profits but have hindered the flow of funds on a large scale.
While experts predict that the IRA could reduce US energy-related emissions by 50% by 2050 if properly implemented, the administrative challenges in channeling billions into the real economy have dampened enthusiasm. The Treasury Department and other US agencies are responsible for developing the rules that will determine how the tax credits are implemented, creating further uncertainty.
Impax, which manages around £40 billion ($50 billion) in assets, initially welcomed the IRA as a potential game-changer for green finance. However, the clean energy industry has faced significant losses, with capital-intensive sectors such as wind and solar being hit particularly hard. Despite the increase in green energy capacity, asset valuations have faltered, leading to declines in share prices for low-carbon stocks.
Looking ahead, Donovan remains optimistic about 2024, a sentiment echoed by analysts at major banks like JPMorgan Chase and UBS. They expect a strong recovery for companies in the clean energy value chain. However, Donovan cautions that government policies are not keeping up with the rapid pace of change in clean technologies, hindering the potential for expansion in the clean power sector.
The legislation’s success in decarbonizing the US economy depends on how the rules are interpreted and used in the market. The funding mechanisms and the volume of financing necessary for power grids, storage, and renewable energy supply remain pressing issues.
According to Derrick Flakoll, US policy associate at BloombergNEF, the IRA aimed to establish a simpler and broader market for tax credits to attract more capital for developers. However, the complexity of the current system poses a risk to renewable energy infrastructure in the US.
In conclusion, Impax Asset Management’s frustration with the Inflation Reduction Act highlights the challenges and complexities associated with implementing ambitious climate legislation. While the legislation has the potential to drive the transition to a greener economy, it is crucial to address the obstacles and ensure the availability of adequate funding for sustainable projects.