On December 3, 2024, CPE Senior Associate for Energy Finance Advait Arun presented at the University of Sydney’s Climate Economy political economy and geography workshop about how the Inflation Reduction Act builds state capacity in the public sector. His presentation focused on three aspects of the Inflation Reduction Act—namely, elective pay (direct pay), the Loan Programs Office, and the Greenhouse Gas Reduction Fund—and highlighted the roadblocks American state and local governments face when making public investments into decarbonization. The presentation is embedded here and Advait’s abstract is pasted below.

Abstract:

The Inflation Reduction Act heralds a sea change in the American renewable energy financing landscape. Developers have not just a whole new suite of tax credits and bonus adders but a tax credit transfer market that blunts their reliance on tax equity transactions. “Direct pay” extends the benefits of these tax credits to governments, most public agencies, and nonprofits, too. The Greenhouse Gas Reduction Fund is a massive injection of capital into local climate resilience. And the Loan Programs Office can now finance large pipelines of non-innovative projects alongside state governments. Not only do these IRA provisions come with lots of money attached, but they’re generally all accessible to the state itself—this is an investment in the public sector, should it choose to act on it.

But, where domestic policy is concerned, the American state is a bunch of smaller governments and regulatory bodies and financing authorities stacked up in a trench coat. Evidence and experience suggest that many of the problems associated with the IRA boil down to (1) inadequate or incomplete rulemaking, (2) investment bottlenecks that financing cannot directly solve, and (3) the lack of state capacity across the American federal system. The first two are practical challenges—but attempts to address this lack of state capacity offer contradictory visions of the future of American federalism. 

Insofar as the IRA stresses the role public investment plays in mobilizing the private sector, it’s possible to argue that the IRA simply “derisks” investment in line with the “Wall Street Consensus.” But the IRA really does break ground on an economy more meaningfully guided by the state rather than the other way around; its place in the present and future of American capitalism will be determined by the social and bureaucratic mobilization around its core manufacturing, innovation, and environmental justice goals. Inadequate as it may be, the IRA treats climate change first and foremost as an investment challenge—and acts on it.

Download Advait’s presentation here.