It was billed as the largest investment in climate and energy in United States history, a law that would reshape industrial policy from Brussels to Mumbai.
Yet the impact of the Biden administration’s 2022 Inflation Reduction Act on foreign cleantech companies, which were expected to divert funds from their home territories to the U.S, may not yet be quite as pronounced as some hoped — or feared.
- The top line: There is no doubt that the IRA has resulted in massive investment in the energy transition; Goldman Sachs estimated that the law could unlock $11 trillion in spending by 2050. But for non-U.S. companies, it is simply one of the country’s many attractions. Their investment decisions are just as likely to be triggered by the IRA as by other recent legislation incentivizing government spending on clean energy and climate tech, from the CHIPS and Science Act to the Bipartisan Infrastructure Law.
- The market grounding: The IRA’s generous handouts, estimated to amount to $1.2 trillion in incentives through 2032, prompted foreign governments to parry with plans of their own; in February 2023, the European Commission rushed to unveil its Green Deal Industrial Plan, which focused on simplified regulations and grant funding rather than tax credits. A year later, Sifted reported that the IRA specifically had attracted U.K. clean energy startup Fuse Energy, Swiss direct air capture firm Climeworks, and Norwegian battery maker Freyr to the U.S. Other names said to be lured by the legislation include Audi, Drax, Enel, Holcim, Linde, and Northvolt.
- The current take: In practice, though, it is difficult to tell whether foreign companies’ interest in investing in the U.S. is directly related to the IRA or simply a function of the country’s generally favorable climate for energy transition technology manufacturing. “It would be naïve to say the IRA had zero impact in the evaluations we make in future investments,” said Elena Scaltritti, chief commercial officer at the Danish low-carbon technology developer Topsoe. “It is one component. Is this the predominant component? No.”
Topsoe, which produces hydrogen electrolyzers among other equipment crucial to the energy transition, has been around since 1940. Today, 40% of the company’s revenue comes from sales to its customers in North America.
Topsoe is currently weighing the possibility of establishing a U.S. solid oxide electrolyzer manufacturing plant, and Scaltritti said the investment case is driven by two things: “The incentives that potentially we might have access to, but as well the expected growth of the market in the U.S. We are focusing on the North American market in general — the U.S., but as well Canada,” she said.
Meanwhile, Germany’s Thyssenkrupp Nucera is also planning to make electrolyzer manufacturing investments in the U.S. But the company’s automated pilot assembly line for alkaline water electrolyzers, announced in March 2024, will benefit from $50 million of infrastructure law funding, rather than the IRA.
An October 2023 report from the climate think tank E3G failed to establish a link between the IRA and foreign direct investment.
“It is not a given that the IRA will generate a significant economic stimulus for the U.S. economy overall, or that it will attract significantly more foreign direct investment,” it said, concluding that manufacturing construction spending “is more linked to impacts of the CHIPS+ Act.”
E3G said $278 billion of cleantech investments had been announced — not confirmed — in the U.S. as of last fall. Roughly two-thirds of that amount was split equally between U.S. and South Korean companies, followed by Japanese and Chinese companies.
European manufacturers, which were expected to flock to the U.S. in the wake of the IRA, accounted for less than 4% of the investment volume announced, according to E3G. “The IRA is expected to only have a marginal impact on the transatlantic economy,” it found.
Verus von Plotho, the founder and CEO of VVP Consult, which advises European cleantech firms on entering the U.S. market, said the IRA had little to offer small-to-medium-sized companies because its incentives were mostly focused on large-scale manufacturing.
“For an IRA tax credit, you first have to generate revenue,” he said. “Tax credits don’t really apply if you don’t have much tax liability.”
Another issue for foreign companies is that while the U.S. tax credit system is seen as being simpler to deal with than, say, Europe’s regulatory maze, the sheer volume of support schemes on offer stateside is bewildering.
Add to that the fact that support is often conditional on local content or job creation conditions, and it is clear the IRA favors established U.S. market players with plenty of financial muscle, von Plotho said. As a result, it is likely that small companies such as Canada’s Heliene Solar are more the exception than the rule in tapping into IRA benefits.
“There are 5,500 German companies active in the United States,” von Plotho said. “They were there before [the] IRA. They will be there after [the] IRA. So, IRA is not that thing that makes a company move to the U.S. It’s one of many variables.”
