Politics and renewables in the USA

Jim Wright

Premier Miton Global Infrastructure Income Fund

So Build Back Better is not going to happen. President Biden’s ambitious programme of green subsidies, healthcare, childcare, housing, and other reforms has failed, with the Republican party unable to get the sign-off from West Virginia Democratic Senator Joe Manchin. With the Senate split 50/50 on party lines and no Republican prepared to back the bill, Manchin’s vote became crucial to secure a tied vote and allow the Vice-President to cast her deciding vote in favour of the legislation. This has left US political commentators wondering what comes next – can parts of the bill be resurrected, or has the entire legislative agenda been derailed?

For renewables, we believe that the outlook is constructive. There were many contentious and divisive proposals in Build Back Better, but the extension and widening of subsidies and tax incentives for the energy transition looks to be one area of the bill which might command some bipartisan support. Despite the apparent polarisation between Republicans and Democrats in the debate over fossil fuels and renewables, wind and solar generation are, in reality, important for jobs, revenues, and electricity supply in many Republican states in the USA. Investors in states such as Texas, Oklahoma and Iowa would welcome the certainty of extended tax credits for renewable generation, and it is reasonable to assume that lawmakers from these states from either party would support such measures, as they have in the past. This encourages our belief that the support mechanisms for renewables could be resurrected on a standalone basis, with limited Republican opposition.

However, even if we are wrong and the optics of party loyalty derail any sensible compromise, there is a compelling pragmatic argument for supportive energy transition legislation this year. The US mid-term elections will take place in November 2022, and the Democrats desperately “need a win” to compete against a strong Republican challenge to take back Congress. The sense now is that they will coalesce around whatever legislation Senator Manchin is prepared to support to provide a rallying point in November, and the good news is that he has suggested he might back various climate provisions from the original legislation.

The sections of the Build Back Better Act relating to climate change included measures totalling $555 billion aimed at promoting clean energy usage. The bill didn’t seek to penalise polluters through an emissions trading scheme – colloquially known as a “carbon tax” – but instead offered a variety of incentives and subsidies for industrial users, utilities, and the public to shift from burning oil, gas, and coal for power and for transportation to using zero-carbon energy sources. It included $320 billion of tax credits for wind, solar and nuclear electricity generation, alongside tax credits for buyers of electric vehicles and subsidies to enhance the development of new technologies in energy storage, carbon capture and hydrogen production.

We don’t believe that the provisions in Build Back Better are necessary for the continued energy transition in the USA, but we do believe they can accelerate existing trends, and provide vital support for nascent technologies such as green hydrogen which will be crucial to meeting long-term climate change targets. We remain optimistic that Senator Manchin will support these measures, and the Biden administration can secure a rare victory ahead of November’s elections.

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