The US discovers its climate policy: A holistic assessment & implications

This extensive paper by Kaya unpacking the US climate policy process shows that following passage of the IRA, if the impact of that and other policies are added together, the consolidation reflects there is a ‘US Clean $1Trillion’ to flow into the system.

While further policies are still required to be certain that the NDC outcome is in place, we are confident these will emerge and have not changed our expectations that this will be achieved. The potential for a CBAM style border adjustment is welcome.

Executive Summary

• The amount of public money now available in the United States for clean energy and climate is greater than most realise at nearly $1 trillion. From an innovation perspective this ‘US Clean Trillion’ could be a ‘Ten Tesla Event’
• The Inflation Reduction Act (IRA), Infrastructure and Investment Jobs Act (IIJA) and the CHIPS & Science Act usher in a new US climate and industrial policy grounded in realpolitik
• The combination of these three legislative bills positions the United States at the epicentre of global clean energy innovation and production for the next decade
• The ramifications of this moment are seismic for the United States’ own decarbonisation journey with implications for the global net zero odyssey
• In the IRA, the United States has found a formula that breaks the log jam for scaled federal action on climate. It is predominantly ‘carrots’ but has meaningful ‘sticks’
• Attention turns to execution challenges and opportunities for the transition including permitting, money deployment, and demand creation
• We provide a simplified model of the US’s climate policy ‘tool kit’. It is a culmination of 75 years of ad hoc legislation, judicial rulings, and administrative state expansion
• The politics of climate trends positively ahead of November’s mid-term elections. Long-term clean energy investment cycles have medium-term implications. Politics, in essence, are a lagging indicator
• One of the most underestimated yet consequential movements in the United States is the battle between coalitions of states. Divergent agendas on climate could make or break efforts to achieve the NDC, lead to a balkanisation of finance based off ESG, and may create legal liability risks for corporations and systemic risk for the financial system
• West Virginia vs. EPA ’22 signals a broader attack on the administrative state, with implications for decarbonisation
• Internationally, cooperation on global emissions under a Paris Agreement format is becoming more difficult. Strategic competition for clean energy assets will now dominate, something which may hold a silver lining
• While a price on carbon does not feature in the US’ new federal climate and industrial policy agenda, we watch for this topic to resurface under the guise of a Carbon Border Adjustment Mechanism (CBAM) or a Climate Club, or both