The Inflation Reduction Act led to a surge in manufacturing and clean energy growth in the U.S.

• New manufacturing projects in the U.S. have increased due to tax credits under the Inflation Reduction Act.
• GOP congressional districts and rural communities have benefited in particular.
• The outcome of the presidential election is causing concern among some investors about the future of certain projects, particularly those related to the Individual Retirement Account (IRA).

The Inflation Reduction Act has stimulated a manufacturing surge in the U.S., attracting billions of dollars in investment, especially in underdeveloped rural areas.

The outcome of the U.S. presidential election could determine the future of those investments, particularly those related to the IRA. Some investors are concerned that a Republican victory could lead to the weakening or even repeal of the IRA, which has shaken their confidence in the investment.

Since President Joe Biden signed the IRA into law in August 2022, $133 billion of investments in clean energy technology and electric vehicle manufacturing have been announced by companies, according to data from the Massachusetts Institute of Technology and the Rhodium Group.

The IRA has attracted $89 billion in manufacturing investment, resulting in a 305% increase compared to the previous two years, according to MIT and Rhodium. This has led to the leveraging of half a trillion dollars of investment across the manufacturing, energy, and retail sectors.

"Trevor Houser, a partner with the Rhodium Group, stated that the manufacturing sector is undergoing a transformative change. He explained that the recent surge in new manufacturing activity is unprecedented and largely driven by new clean energy manufacturing facilities."

Since the IRA passed, over 271 manufacturing projects for clean energy technology and electric vehicles have been announced, which will result in more than 100,000 jobs if completed, according to E2, a partner of the National Resources Defense Council. These investments have had a positive impact on rural communities, as stated by Houser.

Unlike investments in AI, tech, and finance, which are typically found in urban areas, clean energy investments are more concentrated in rural communities and represent a promising source of new investment opportunities in those regions, according to Houser.

The IRA has boosted the use of renewable energy by investing $108 billion in utility-scale solar and battery storage projects. Over the past two years, investments in solar and battery storage have increased by 56% and 130%, respectively, according to Rhodium data.

"According to Houser, mature technologies such as wind and solar generation, electric vehicles have achieved escape velocity, meaning they will continue to grow at an accelerating rate, regardless of external factors. The speed at which they will grow is the only question."

Trump threats to IRA

The manufacturing renaissance is still in its early stages and remains fragile, according to Houser. Without the IRA, the resurgence of new factories would not have taken off, said Chris Seiple, vice chairman of Wood Mackenzie's power and renewables group.

As he advocates for increased oil, gas, and coal production, former President Donald Trump has threatened to dismantle the law.

Trump announced at a May rally in Wisconsin that he would impose an immediate moratorium on all new spending grants and giveaways under the Joe Biden socialist bills, including the Inflation Reduction Act.

""We're going to put an end to his green energy scam and end the war on American energy by drilling," he declared."

After President Biden's poor debate performance in late June, clean energy stocks fell as investors became increasingly concerned that Trump and the Republicans would win both the White House and Congress.

In the second quarter, the largest panel manufacturer in the U.S., saw growing constraints on access to capital for both early stage solar companies and larger players trying to build out domestic manufacturing, CEO Mark Widmar stated on the company's July 30 earnings call.

Widmar stated that investors are delaying their decisions until they have a clearer understanding of the policy environment for the solar industry. Utilities and oil companies that were previously investing in renewables are now reconsidering their priorities and may shift towards fossil fuel projects, he added.

Some investors are concerned that Republicans may use the reconciliation process to repeal the IRA in order to permanently extend Trump's 2017 tax cuts.

Trump stated to Reuters on Monday that he might eliminate the $7,500 tax credits for electric vehicles. Since 2022, consumers and businesses have spent $157 billion on zero-emission vehicles, which is double the amount before the IRA was enacted, according to Rhodium.

The former president stated in an interview with Reuters that tax credits and incentives are generally not beneficial.

The former president's campaign platform supports energy production from all sources, including oil, coal, natural gas, and nuclear, but does not specifically mention solar or wind power.

Republican districts benefit most

Renewable companies and analysts are confident that tax credits for investment, production, and manufacturing in clean energy and technology will remain intact even under a Republican administration.

E2 data shows that 85% of IRA investment in new projects has been allocated to GOP congressional districts. Trump's campaign platform highlights the importance of expanding domestic manufacturing and returning supply chains to the U.S.

Since Biden dropped out of the presidential race, the dynamics have shifted, with Vice President Harris now leading Trump in national polling averages as she officially accepts the Democratic nomination at the Chicago convention.

John Ketchum, CEO of the company that operates the largest portfolio of renewable energy, stated on the July 24 earnings call that there has been an increase in the number of Republican lawmakers embracing clean energy credits within the IRA, as they recognize the positive impact on their states and communities, which is difficult to ignore.

Ketchum stated that the tax laws are challenging to change and that the House and Senate may have thin margins, especially considering recent developments, such as Harris' emergence as the new Democratic candidate.

Earlier this month, 18 Republican congressmen cautioned House Speaker Mike Johnson against repealing IRA energy tax credits, stating it would harm businesses.

Repealing energy tax credits prematurely, especially those used to justify investments that have already started, would harm private investments and halt ongoing development, according to Republican lawmakers.

A full repeal would result in a worst-case scenario where we would have spent billions of taxpayer dollars with little to no return, according to them.

John Berger, CEO of a rooftop solar installer, stated on the company's Aug. 1 earnings call that the Trump trade that negatively impacted clean energy stocks may not have much more room to decline.

"Berger stated that the presidential race is now a tie, and he advised caution regarding the old Trump trade policies."