Approaching its second anniversary, the Inflation Reduction Act (IRA) has emerged as a surprising boon for red states, driving a surge of green energy investments into traditionally conservative regions. In just two years, the Inflation Reduction Act has channeled over $50 billion into red states, revolutionizing local economies.
This transformative legislation has not only reshaped the clean energy landscape but also sparked a wave of foreign direct investment (FDI), revitalizing local economies across the United States. However, with the General Election approaching, the trajectory set by the IRA could face significant changes. A study by Wood Mackenzie indicates that up to $1 trillion in clean energy investment might be at risk if policy considerable policy shifts occur under a second Trump Administration. Known for his climate skepticism and anti-EV stance, Trump has prioritized expanding U.S. fossil fuel production. This raises concerns about the potential impacts on his base if the IRA were to be altered.
Red States, Green Manufacturing
Despite unanimous opposition from Republicans in Congress, the IRA has directed significant funds into GOP-leaning districts, resulting in an unexpected boom in green energy projects. Of the top 25 congressional districts benefiting from clean energy investments, 20 are represented by Republicans. This influx includes billions earmarked for renewable energy, battery manufacturing, and energy efficiency projects, attracting substantial FDI and creating local jobs.
Why Favorable Employment Laws Are Key to Success
A key reason for this success is the favorable employment laws in traditionally red states. Many of these states’ regulations have positioned them as leaders in clean energy development, despite President Biden’s strong support for labor unions. While Biden aimed to revive domestic cleantech manufacturing with the hope of increasing union jobs, many new factories are emerging in states with laws that make unionization more difficult.
Flying close to the sun: Texas, California, Oklahoma and Ohio
Consider the example of Texas, which has already surpassed California as the solar power leader. In 2023, Texas installed over 6,500 megawatts of solar energy, solidifying its position at the forefront of the nation’s solar revolution. The Seguin Solar Farm, powering Vitesco Technologies, highlights Texas’s aggressive push toward renewable energy and its ability to attract significant green investments. Factors such as available land and lower labor costs also act as magnets for new FDI into traditionally rural and Republican areas.
Meanwhile, the IRA’s financial incentives have led to a manufacturing and mining boom in states like Texas and Oklahoma. Historically dependent on fossil fuels, these areas are now experiencing a diversification of their economic bases. Foreign investors are particularly interested in these regions due to the availability of federal subsidies, skilled labor, and existing infrastructure. For instance, Norwegian solar energy company, NorSun, has selected Tulsa, Oklahoma for its first U.S.-based factory, an initial planned investment of $620 million in a new 5 GW silicon ingot and solar wafer manufacturing facility.
Ohio, the home state of JD Vance, provides another compelling example. Once considered a swing state, Ohio has shifted to the right over the past decade and now stands as a fascinating case study in the renewable energy landscape. Despite political challenges, solar developers continue to invest in Ohio, transforming it into a hotspot for new solar farm developments. The state is also seeing robust growth in solar panel manufacturing and attracting a range of green industries.
Biden’s Bill, GOP Wins – but what next?
The IRA has transformed the US into a cleantech leader. Aaron Brickman, Senior Principal at the Rock Mountain Institute – a US consultancy leading efforts at the intersection of clean energy and economic development states, “Since the IRA, the U.S. has quickly become globally competitive or even dominant across numerous cleantech and clean energy industries. RMI’s research and analytics show that despite a majority of investment flowing so far to politically conservative states, communities across America have the potential to benefit from the IRA with new projects and jobs”.
But as investments continue to favor red states, the likelihood of a clash between political ideology and economic practicalities increases. Thus far, the debate has centered more on personalities and histrionic events. However, with Kamala Harris now firmly in the nominee seat and a pending Vice-Presidential selection, discussions around the future of the IRA will take center stage. A Harris victory would likely lead to the continuation and potential expansion of the IRA.
A second term for former President Donald Trump would definitely lead to tweaks in the IRA rather than a full dismantlement, with EVs as a potential target. However, this rollback would require House Republicans to vote against critical needs in their districts: new jobs and economic investment. For example, in Charlotte, North Carolina, Vice President Kamala Harris announced substantial investments under the IRA aimed at supporting green jobs and bolstering local economies. This initiative illustrates the tangible benefits that green investments bring to communities, making them politically challenging to oppose.
If Vice President Harris wins the presidency, the continuation and expansion of the IRA are likely. Harris has been a staunch advocate for climate action, emphasizing that tackling climate change is synonymous with creating jobs. She stated, “When I think about climate change, I think jobs.” A Harris administration would likely accelerate clean energy projects, drive further economic growth in the green sector, and cement the United States’ leadership in global climate action.
The Inflation Reduction Act has proven to be a game-changer, especially for red states that are reaping the benefits of green energy investments. This legislation has not only fostered economic growth and job creation but has also positioned these regions as new leaders in the renewable energy sector. As the political landscape evolves, the future of the IRA will undoubtedly be a focal point in the upcoming election. A Harris administration promises to build on the successes of the IRA, while a second Trump term may seek to alter its trajectory. Regardless of the outcome, the IRA has indelibly changed the American FDI and energy landscape, making it clear that green energy investments are a vital component of the nation’s economic future and will continue to act as a magnet for new international investment.
Interested in how you can benefit from the Inflation Reduction Act and how it can impact your expansion to the United States. Our US Director Ian Hunter can help. (ian.hunter@ocoglobal.com)
