Climate tech could see increased funding if Senate bill passes

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Climate and energy projects could see $370 billion in new funding thanks to a bill proposed by Senate Democrats. It’s called the Inflation Reduction Act, and it would also revise the tax code and lower the price of drugs.

In a surprise twist, it appears to have been developed with the support of Senator Joe Manchin of West Virginia, potentially paving the way for the bill to pass.

Marketplace’s Meghan McCarty Carino speaks with Jay Koh, Managing Director of Lightsmith Group, a private equity firm that invests in climate technology. He read the long bill and said it would be a game-changer for climate technology. It would inject four times more funds than the last major federal injection into the 2009 stimulus bill. The following is an edited transcript of their conversation.

Jay Koh (courtesy Lightsmith Group)

Jay Ko: This is a purely technological investment. There is also an expansion of training demand in the energy sector, but also in other sectors. And then there are also the direct purchases made by the government. And unusually, it also includes substantial funding for things in the agricultural sector, the forestry sector, in rural communities, as well as a real focus on disadvantaged populations.

Meghan McCartyCarino: Right. Let’s take a look at one of the sections, electric vehicles. [It] restores a tax credit of $7,500 for new clean air cars and $4,000 for used cars, which are new. How important is this level of funding for electric vehicles, given that the automotive market is already seeing a shift towards clean cars?

KB: Well, I think that just reinforces the fact that it’s not a moment in time, it’s really kind of a trendline. I think it’s a critical moment where you’ve seen the first wave of consumer adoption technology come to this point. So I think what you’re seeing here is a kind of conversation between the federal government, innovators, investors, and society that really makes the transition to a climate-smart future much more likely and accelerates it.

McCarty Carino: More broadly, what would an investment of this magnitude mean for the climate tech sector?

KB: I think that means a lot. Setting the scene in the 2009 recovery plan, by starting to lay the fundamental foundations for the energy transition, was an important first step. What you have here now is four to five times more of that longer-term funding across multiple sectors of the economy. And an emphasis also, not only on the energy transition, but on the awareness and resilience of the entire economy to the effects of climate change.

McCarty Carino: Now, you’ve noted that there’s a strong focus on investments in environmental justice to help alleviate some of the disproportionate impacts, environmental impacts, that we see in low-income communities of color. How does this bill support climate adaptation and what kinds of technological innovations might come from it?

KB: Yes, I think the bill really has three main elements, the way we think about it. First, direct technology support. There’s $2 billion for national labs to accelerate cutting-edge energy research. Embedded in the bill are the first steps towards support for climate-smart agriculture, both in the form of direct subsidies and in the form of support through tax credits and other activities to facilitate this transition. So at a fundamental technology level, there is support for pushing the frontier of what we can expect in terms of clean transition and resilient transition. And the second element is that there’s a lot of pull demand that’s created by creating incentives, tax credits, and so on. to accelerate the adoption of these types of technologies and approaches by consumers and industry. And then finally, the government itself is a direct actor. They’re buying over $9 billion worth of clean tech, while moving toward a more resilient economy overall, and particularly focusing much of that activity also through grants to disadvantaged populations through block grants for environment and climate justice and even access grants. and similar approaches that really focus on the underserved.

McCarty Carino: When we talk about these communities, what kinds of solutions could we be talking about?

KB: Well, I think we need to think of the transition now as a sort of climate 2.0 strategy, where it’s not just about electric vehicles or greenhouse gas emission reductions, but also about building resilience at the same time in these communities. If you look at where the impacts of COVID have hit, that’s also where the impacts of environmental pollution are happening. We therefore need a transition that allows communities to have both a resilient future and a low-carbon future.

McCarty Carino: And what about the role of the United States on the world stage in this sector of innovation? I mean, where are we now? And where could we be with this kind of investment?

KB: Well, assuming that goes ahead, it suggests that the United States is once again taking a real leadership position. The real impact of legislation like this means that there are resources available and a stable forecast of the future set of conditions so that private sector players who are already starting to invest, innovators and the next generation who think about the challenges of the future may really be able to deal with a much more stable set of assumptions about how quickly this transition can happen and how it will be sustained in the future.

Here’s the full 700-plus pages of the Inflation Reduction Act of 2022 if, like Jay Koh, you want to know more about it. And, thankfully, a summary from Fast Company of all the climate policies it offers.

For consumers, of course, one of the most immediate effects would be these clean vehicle tax credits. That’s $7,500 back on new cars, which Car and Driver says would be a boon for buyers of Tesla, GM and Toyota vehicles. These manufacturers had to start phasing out tax credits after they sold 200,000 clean cars.

The credits would also be available at the time of purchase rather than when buyers do their taxes. And for the first time, it would extend to used electric vehicles with a credit of up to $4,000, or 30% of the sale price, whichever is less.

The average price of a used EV last month? According to research firm Recurrent Auto: $40,714.

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