On Sunday, the U.S. Senate voted to pass the Inflation Reduction Act of 2022, or the IRA. The Act has a $740 billion price tag.
Now, the name claims the Act will reduce inflation. But I don’t believe it will – not in the short term, at least.
That said, this Act does have massive positive implications for certain areas of the markets…
If you recall from my Washington meetings in March… I got the sense that there would be another round of funding for New Energy and Infrastructure this year.
And the IRA is it.
Today, we’ll dive into why the Inflation Reduction Act is so important for the energy transition and infrastructure space.
And I’ll show you what it means for you and your money.
How the Vote Went Down
We see tremendous investment opportunities in New Energy and Infrastructure. As regular readers know, these are two of the five distortion profit themes we track for you in these pages.
And despite recent market volatility, that remains the case. Now, more than ever. Especially in the New Energy space.
The IRA adds confirmation from Washington of more federal funding and tax incentives flowing into New Energy.
It passed the Senate on Sunday along partisan lines. All the support came from the Democrats and Independent Senator Bernie Sanders.
As you know, I’m here to follow the money for you. So from that perspective, it doesn’t matter to me that the vote was partisan in nature.
Nor should it matter to you.
If the IRA becomes law, it will allocate money into specific areas of the economy, regardless of politics.
That’s why you should know that money doesn’t care about politics. It cares about multiplying itself.
And where there is funding from Washington – however inefficient or bureaucratic its path – Wall Street pays attention.
That’s what happened when I worked on Wall Street.
For instance, in 1996, the Clinton administration voted to deregulate the energy markets. Trading desks on Wall Street focused on opportunities in the power markets.
Wall Street banks such as Merrill Lynch began crafting fee-based financial transactions for energy companies, like Enron, Duke, and Reliant.
Even though things didn’t end well for Enron – it went bankrupt in 2001 in a blaze of fraud – a lot of money flooded into the sector. And that’s what still happens today. Where government money goes, private money follows.
The Inflation Reduction Act is now on its way to the House of Representatives. All 775 pages of it.
And that spells opportunity for you. Not because it will reduce inflation tomorrow…
But because it will set a path for New Energy investment today – for those who know where to look.
The Inflation Reduction Act and New Energy
The Inflation Reduction Act has many parts to it. Politicians on both sides of the aisle have no shortage of demands on any act.
The crux is that the IRA will combat inflation over the long run, by funding more sourcing and production at home.
There is a logic to that. For instance, take lithium – one of the top metals on my radar today. Right now, China produces about 14% of the world’s lithium.
Bringing more of that production back home means we wouldn’t have to rely on China for lithium. And we wouldn’t have to pay extra when supply chain disruptions happen.
But that’s not the only thing that would make this Act positive for the U.S. economy…
If the House votes to pass it, the Act will also invest or provide tax incentives in energy technologies…
To the tune of $369 billion.
These initiatives can reduce the cost of alternative energy in the long run. And that’s even as we continue to rely on fossil fuels.
What I mean by that, is that from a practical perspective, we still rely on oil and gas and coal power. And that will continue to be the case.
But we’ll also see a faster transition and broadening into other forms of energy and energy technologies. And this can make that transition more cost-effective and positive for the environment.
There are three main goals of the Inflation Reduction Act that relate to New Energy. These are:
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Lower energy costs for Americans.
This entails reducing prices at the pump and on electricity bills through consumer tax incentives and rebates.
This includes direct incentives for purchasing energy efficient electric appliances, clean vehicles, and rooftop-solar equipment.
All told, it would cover $9 billion in consumer home energy rebate programs.
It would span 10 years of consumer tax credits to make homes more clean-energy efficient. It would do that by making heat pumps, rooftop solar, electric HVAC, and water heaters more affordable.
And it would offer $4,000 tax credits for lower/middle income individuals to buy used clean vehicles, including certain electric vehicles (EVs). And up to a $7,500 tax credit to buy new ones.
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Increase American energy security.
This entails making historic investments in American clean energy manufacturing. The goal is for us to rely less on energy, and energy materials, from China.
There would be a $30 billion production tax credit for U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing.
There would also be a $10 billion investment tax credit to build clean technology manufacturing facilities that make EVs, wind turbines, and solar panels.
Plus, up to $20 billion in loans to build new clean vehicle manufacturing facilities.
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Decarbonize the U.S. economy.
This part entails reducing emissions from electricity production, transportation, industrial manufacturing, and agriculture.
The act would provide $30 billion in tax credits for clean sources of electricity and energy storage. As well as $30 billion in targeted grant and loan programs for states and electric utilities.
This would help to speed up the transition to cleaner electricity.
It also includes $3 billion for the U.S. Postal Service to purchase zero-emission vehicles. And $27 billion for clean energy technology to reduce emissions, especially in poorer communities.
By 2030, the United States is set to reduce its greenhouse gas emissions by 24%-35%, relative to 2005 levels. That’s according to the research firm Rhodium Group.
But if the IRA becomes law, that figure would rise to 31%-44% by 2030.
In short, the Act covers a lot of ground in the New Energy space. But it has one common goal…
Energy efficiency, independence, and carbon-neutrality in the U.S.
The Inflation Reduction Act is moving toward the House of Representatives for a vote there. It could pass the House by Friday.
Then, it will wind up on President Biden’s desk for signing into law.
Next week, I’ll explain how all of this plays into profit opportunities for you. So stay tuned…
Happy investing,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. I hit the road this year, to see where the money is flowing in the energy space… And I put my boots on the ground at the first gas station in America to no longer pump gasoline.
To find out what this means for the future of energy… and what it could mean for your portfolio… check out my video report right here. (Hint: You could potentially double, even triple, your money over the next 12 months.)