The Climate Economy Is About to Explode

A new report suggests that the Inflation Reduction Act could be even bigger than Congress thinks.

An image of solar panels in the Mojave desert.
David McNew / Getty

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Late last month, analysts at the investment bank Credit Suisse published a research note about America’s new climate law that went nearly unnoticed. The Inflation Reduction Act, the bank argued, is even more important than has been recognized so far: The IRA will “will have a profound effect across industries in the next decade and beyond” and could ultimately shape the direction of the American economy, the bank said. The report shows how even after the bonanza of climate-bill coverage earlier this year, we’re still only beginning to understand how the law works and what it might mean for the economy.

The report made a few broad points in particular that are worth attending to: First, the IRA might spend twice as much as Congress thinks. Many of the IRA’s most important provisions, such as its incentives for electric vehicles and zero-carbon electricity, are “uncapped” tax credits. That means that as long as you meet their terms, the government will award them: There’s no budget or limit written into the law that restricts how much the government can spend. The widely cited figure for how much the IRA will spend to fight climate change—$374 billion—is in large part determined by the Congressional Budget Office’s estimate of how much those tax credits will get used.

But that estimate is wrong, the bank claims. In fact, so many people and businesses will use those tax credits that the IRA’s total spending is likely to be more than $800 billion, double what the CBO projects. And because federal spending tends to catalyze private investment, that could send total climate spending across the economy to roughly $1.7 trillion over the next 10 years. That’s significantly more money flowing into green-energy industries than the CBO projected, though it’s unclear if that additional money will lead to more carbon reductions than earlier analyses have projected.

Second, the U.S. is “poised to become the world’s leading energy provider,” according to the bank. America is already the world’s largest producer of oil and natural gas. The IRA could further enhance its advantage in all forms of energy production, giving it a “competitive advantage in low-cost clean electricity and hydrogen production, infrastructure, geologic storage, and human capital,” the report states. By 2029, U.S. solar and wind could be the cheapest in the world at less than $5 per megawatt-hour, the bank projects; it will also become competitive in hydrogen, carbon capture and storage, and wind turbines. (The law will help America’s battery industry, but the bank doesn’t see the U.S. becoming the world’s biggest battery producer, given that China already has such a dominant advantage.)

Perhaps rosiest of all was the bank’s view of major risks to the IRA. The bill passed with not even a single Republican vote, but the bank concludes that the GOP is relatively unlikely to repeal the law, even if they take the White House in 2024. That’s because it would hurt their own voters most: “Republican-leaning states are likely to see the most investment, job, and economic benefits from the IRA,” the report claims. Instead, the IRA is most likely to stumble because America still struggles with building out its energy infrastructure: The country might not be able to get government approval to permit enough power lines, green infrastructure, and carbon-injection wells for the law to matter, the bank said. This risk is all the more heightened now that Senator Joe Manchin’s permitting-reform bill—which, for all its flaws, would have clearly allowed for more renewable transmission construction—has failed. Powerful business groups are also lobbying to revise the most transmission-friendly sections from that bill if Congress revisits it.

The Credit Suisse report is truly remarkable. What stuck with me most was this declaration: For big corporations, the IRA “definitively changes the narrative from risk mitigation to opportunity capture.” In other words, companies should no longer worry that they might be unprepared for future climate regulation, such as a carbon tax. They should be scared of missing out on the economic growth that the energy transition (and the IRA) will bring about.

If the bill’s passage wasn’t signal enough, the report shows that climate change as a political issue—and frankly environmental protection more broadly—has arrived to a wholly new place. For decades, the country’s biggest climate advocates have tried to reduce the harm that the economy causes to the environment. Now they find themselves tasked with the biggest story in the economy itself.

Perhaps most strange, even if the United States slips into recession in the next year, the IRA will only become more important. Historically, economists and businesses have treated helping the environment as a product of prosperity—if the economy is good, then companies can afford to do the right thing. But the IRA’s programs and incentives will keep flowing no matter the macro environment, which makes betting on clean energy one of the most certain economic trends of the next few years. Clean energy is now the safe, smart, government-backed bet for conservative investors. It’s really a shocking reversal of the past 40 years. It is such a change that it hasn’t yet been metabolized by the world of people involved in the issue.

So inspired by the vigor of Credit Suisse’s forecast, let me venture a few predictions of my own. The number of Americans working in a climate-relevant industry is going to explode. It is going to undergo what you might call a techification. I was a nerd and a dreamer in high school in the late aughts, which meant I paid attention to the start-ups of that era—such as Twitter, Facebook, and Flickr—in their early years. I remember that fateful moment around 2010 when the valence of the industry switched—it was right around when The Social Network came out—and working in tech went from being a career choice for dorky optimists to the default career track for many ambitious college students. A similar switch is coming for companies working on climate change: The opportunity will be too large, the money too persuasive, the problems too intriguing.

Finally, those of us who have long worked in climate change—and here I include myself, who started covering this topic in 2015—should have some excitement and even humility about this deluge of new talent. Even setting its arduous politics aside, managing climate change is a legitimately difficult technical and cultural problem—it’s going to require as many attentive and enthusiastic brains as possible, and the path to decarbonizing always required an infusion of new workers, investment, and good will. If you don’t yet work in the industry, but have always cared about climate change as an issue, well, this is your moment to get involved. These companies are going to need engineers, yes, but also programmers, accountants, marketers, HR staff, general counsels—there is space for everyone now.

The fight against climate change is going to change more in the next four years than it has in the past 40. The great story of our lives is just beginning. Welcome aboard.