In the wake of the Inflation Reduction Act (IRA) passing through the United States Congress, the British investment group Impax Asset Management praised the IRA as a significant step forward for the American pursuit of clean energy. Impax went so far as to review its portfolio to capitalise on anticipated developments in green technology. This sentiment was not a one-off example, with several major financial institutions both domestically and abroad finding themselves echoing a similar optimism.
However, since these attitudes in the spring of 2022, the tune of the investment group has changed. In an interview with Charlie Donovan, the same senior partner to applaud the legislation in April, backtracked on his former comments, as green investors lost tremendously post-IRA. The S&P Global Clean Energy Index, to everyone's surprise, concluded 2022 with over a 20% loss and plunged further with a 30% loss in 2023. This contraction all occurred while the S&P 500 experienced 24% and 20% growth, respectively.
Donovan posits that the design of the legislation appears deliberately complex and counter-productive, especially if the true aim of the legislation was to pursue climate preservation. The bill is dependent on a few select industries–notably banking and tax consultancy. However, Donovan’s claim differs from that of the mainstream, arguing that this bank-centric design does not lend itself to an efficient system. He maintains that had the bill truly prioritised sustainable initiatives, the processes for tax breaks and the credit systems imposed would have been more straightforward. Given that of the $370 billion worth of subsidies in the bill, the vast majority is distributed through tax credits, the bureaucratic red tape included in the bill significantly limits its impact.
However, while Donovan raises crucial points about the all-too-American bank-centric legislation, he, to a certain extent, downplays the tangible impact of the IRA’s passage. To critique a piece of American legislation for favouring banks is to critique a garden for favouring sunlight — essential, but not at the expense of the entire ecosystem. The U.S. government has a history of favouring financial institutions in legislation, most notably through the Troubled Asset Relief Program (TARP), and to deviate now would likely cause domestic fiscal consequences in the long term. America was built on banks and has established a precedent of governmental cooperation, but Donovan is right to condemn the government’s choice to place this relationship above the true purpose of the IRA.
The American government’s close relationship with banks is no secret. Joe Biden ran on a campaign that committed him to strengthening regulation on large banks, continuing the work of Former President Obama through the Dodd-Frank Act. This value was consistent throughout Biden’s policies, so his so-called bank bias in the IRA could be surprising. This act, however, is not the only time Biden has demonstrated his allegiance to financial services giants. In the aftermath of the collapse of First Republic Bank in May 2023, the President, in White House press hearings, prioritised the security of the US banking system. To be clear, the close relationship between the White House and the banking system is not inherently negative. In the case of First Republic, it enabled quick reaction time and assurance for taxpayers, shareholders, and small businesses in a time of financial strife. However, the IRA was not a harmless offence. Because of the way the priorities of the banking industry overshadowed that of the act itself, the allegiance that enabled security in May 2023 prevented advancements in sustainability and developments in green energy.