The ripple effect of the US climate bill on the British cleantech sector

The US’s land­mark Infla­tion Reduc­tion Act looks set to be approved tomor­row (12 August), rep­re­sent­ing one of the biggest invest­ments in emis­sions reduc­tions and sus­tain­able ener­gy in his­to­ry.

It includes sup­port for a swathe of both emerg­ing and estab­lished low-car­bon tech­nolo­gies, mak­ing each sig­nif­i­cant­ly cheap­er to pro­duce and buy. These include solar pan­els, wind tur­bines, bat­ter­ies, heat pumps and elec­tric vehi­cles (EVs), as well as green hydro­gen, car­bon cap­ture and small nuclear reac­tor tech­nol­o­gy.

Tak­en togeth­er, ana­lysts pre­dict the mea­sures will slash the US’s car­bon emis­sions by 40% and “kick­start the era of afford­able clean ener­gy in Amer­i­ca”. But the $369bn (£300bn) pack­age could also boost the bur­geon­ing clean tech­nol­o­gy sec­tor across the pond, not least by open­ing up a huge new mar­ket.

“When the US goes big on some­thing, it has a mas­sive impact else­where,” says Car­o­line Har­grove, who is CTO at Ceres, a British fuel cell and hydro­gen engi­neer­ing com­pa­ny that part­ners with com­pa­nies in hard-to-decar­bonise indus­tries such as steel man­u­fac­tur­ing. 

“It will give con­fi­dence to inter­na­tion­al com­pa­nies to devel­op [green tech­nol­o­gy] in the US and then apply what worked there else­where, which is why we’re so excit­ed.”

Although many of the act’s sub­si­dies are geared towards sup­port­ing Amer­i­can busi­ness­es, Sam Alvis, head of econ­o­my at think tank Green Alliance, says US green sup­ply chains are still under­de­vel­oped. “At least for the first few years, there will be oppor­tu­ni­ties to help com­pa­nies bridge those sup­ply chain, in par­tic­u­lar in tech­nolo­gies like heat pumps, where the US is much fur­ther behind than Europe.”

Man­u­fac­tur­ers across the UK and Europe are prepar­ing to boost their US oper­a­tions in antic­i­pa­tion of vast­ly increased demand. “The US will be the lead­ing ener­gy stor­age mar­ket glob­al­ly,” one Nor­we­gian bat­tery firm tells Sift­ed, while UK pow­er giant Drax says the bill will allow it to accel­er­ate its car­bon cap­ture busi­ness in the US.

So much mon­ey flood­ing into the sec­tor will pro­duce “inno­va­tion spill-over effects” as man­u­fac­tur­ers ramp up R&D spend­ing, Alvis says. “If the US mas­sive­ly low­ers the cost of pro­duc­ing bat­ter­ies and clean ener­gy, and of mak­ing EVs, then that’s going to ben­e­fit all its allies and trad­ing part­ners and allow us to inno­vate fur­ther.”

Providing a long-term clean energy plan

In con­trast to what’s been dubbed the ‘solar coast­er’ – in which Amer­i­can solar pow­er sub­si­dies fluc­tu­at­ed dra­mat­i­cal­ly year-to-year, ham-string­ing the indus­try – many of the tax cred­its includ­ed in the act will run for a decade or more. This will pro­vide vital reas­sur­ance to investors hop­ing to fund ear­ly-stage busi­ness­es or projects that might take decades to pay off.

“We need to trust that these tech­nolo­gies [will] mature and get cheap­er, but unless you give long-term incen­tives and peo­ple feel they can com­mit, it’s hard,” Har­grove says. 

She also prais­es the act’s sup­port for mul­ti­ple tech­nolo­gies, which is need­ed to build up a new ener­gy sys­tem. For instance, Ceres’s hydro­gen tech­nol­o­gy relies on access to renew­able pow­er and long-term ener­gy stor­age, as well as a mar­ket con­vinced that it is a bet­ter option than fos­sil fuels. “You don’t just replace one item in a cur­rent sys­tem – you need to build that whole sup­ply chain.”

Although some have crit­i­cised the act’s “all car­rot and no stick” approach has been crit­i­cised for leav­ing doors open to fos­sil fuel com­pa­nies, it may be the smartest way to encour­age pri­vate investors to fol­low suit. “Tax cred­its are a real­ly great way of unlock­ing pri­vate cap­i­tal,” Alvis says. “It incen­tivis­es peo­ple to act first and rewards them for act­ing, rather than try­ing to push them to act with anoth­er mech­a­nism.”

It’s an approach the UK gov­ern­ment has already deployed. Rishi Sunak, then the chan­cel­lor, brought in a “super deduc­tion” last year that allows com­pa­nies to claim 130% tax cred­its on busi­ness equip­ment. If sim­i­lar mea­sures are focused on clean tech­nol­o­gy it could be a game-chang­er, Alvis argues, and poten­tial­ly more palat­able to a Con­ser­v­a­tive par­ty wary of “hand-outs”.

Most potent of all, though, is the rip­ple effect poten­tial: when the US makes such an ambi­tious move, the world still sits up. “This is such a huge sig­nal to oth­er coun­tries — if the biggest emit­ter per capi­ta is final­ly doing some­thing, there is no rea­son for oth­ers not to as well,” Alvis says.