Inflation Reduction Act May Become a Misnomer

Inflation Reduction Act May Become a Misnomer
The Inflation Reduction Act's name may become a misnomer.

The Inflation Reduction Act’s (IRA) name may become a misnomer if investment surges while supply chains remain constrained - fueling inflation.

That’s according to a new BofA Global Research report, which dubbed the IRA the most important, and largest, federal green energy and climate package in U.S. history.

“Many tax credit programs included in the IRA specify certain labor requirements that could prove restrictive and drive up project costs,” the BofA Global Research report stated.

“Transmission is a critical piece of the energy transition (particularly onshore) but does not play a prominent role in the IRA. The U.S. has struggled to build transmissions lines from areas of abundant renewables, like the Midcontinent (wind) and Southwest (solar), to key demand centers,” the report added.

“The IRA is certain to spur more investment in renewables-rich regions, which could lead to even more price volatility in those markets as load balancing challenges intensify. Additionally, transmission challenges will lead to capital inefficiencies as renewables projects are developed in areas with sub-optimal capacity factors,” the report continued.

BofA Global Research’s report noted that facilitating transmission build-out requires permitting reform and stated that progress on this front will likely depend on the outcome of negotiations between Senator Manchin and others.

On September 12, U.S. President Joe Biden issued an executive order on the implementation of the energy and infrastructure provisions of the IRA. On August 16, Biden signed the IRA into law.

According to a White House statement last month, the IRA will lower costs for families, combat the climate crisis, reduce the deficit, “and finally ask the largest corporations to pay their fair share”.

Following the IRA’s signing into law, American Petroleum Institute President and CEO Mike Sommers acknowledged that the IRA “takes important steps toward new oil and gas leasing and investments in carbon capture and storage” but added that it “falls well short of addressing America’s long-term energy needs and further discourages needed investment in oil and gas”. 

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