How the US’s Inflation Reduction Act has opened new business opportunities across multiple sectors
Re: Julia Brady (MBA 1997); Christian Weeks (MBA 2010); Matt Arnold (MBA 1995); Heather March Takle (MBA 2006); Monica Varman (MBA 2016); Rahul Shendure (MBA 2001); Frank Yang (MBA 2006); Claire Broido Johnson (MBA 2002)
This is a repost from Alumni Stories, see the original post here.
We are in a unique moment in time, where the United States’ chance to make a difference on climate is greater – and more necessary – than ever. With the passage of the Inflation Reduction Act (IRA) in August, business leaders have a nearly $370 billion opportunity to advance decarbonization. Lynn Schenk, director of the HBS Business and Environment Initiative, asked some of our alumni how they view this moment and how they are looking to capitalize on it.
Julia Trotman Brady (MBA 1997)
Partner, Valo Ventures
This is the most consequential policy for advancing the low-carbon economy that we’ve ever seen. By offering 10 years of policy certainty, the IRA encourages technology innovators to form companies and it reassures larger corporates to be their buyers. So as early-stage investors in clean energy, electrified transportation, waste/recycling and food/ag, we’re thrilled with the IRA. We’ve already seen the economics shift for a number of startups in battery development, battery recycling, carbon capture, solar development, and clean hydrogen.
Within EVs, the IRA’s tax credit of 30 percent on commercial EVs (up to $40,000 for medium- and heavy-duty vehicles) means they will achieve price parity with diesel trucks in 2023, five years sooner than previously forecasted. This is leading to big investments by EV battery manufacturers in the US, as well as fleet electrification investment opportunities.
While most of the IRA takes the form of incentives and tax credits, there are also some sticks and penalties in it. The most important one is probably the first-of-its-kind fee on methane emissions from the oil and gas sector, which is boosting the developing market for equipment to detect and measure methane emissions and leaks.
We applaud Congress for coming to consensus on such a critical issue for our nation and the world, and for seeing that it’s also the greatest investment opportunity of our era.
CEO, enVerid Systems
Every year, the world adds 51 billion tons of greenhouse gases to the atmosphere. To avoid the worst impacts of climate change, we need to get to net zero emissions by 2050. Achieving this goal is possible, but it will require nothing less than a national and international mobilization to support economy-wide decarbonization across agriculture, buildings, electricity, manufacturing, and transportation.
The $370 billion in the IRA to advance decarbonization in these sectors is a critical step to mobilize our national resources to accelerate the development and commercialization of both new and existing technologies that can get us to net zero by 2050.
One example of an existing technology that can put a big dent in emissions is enVerid’s Sorbent Ventilation Technology. Commercial buildings contribute 17 percent of US carbon emissions, and heating, ventilating, and air conditioning (HVAC) is responsible for 36 percent of commercial-building energy intensity. This is why improving HVAC efficiency is one of the largest opportunities for reducing commercial-building carbon emissions. Sorbent Ventilation Technology improves HVAC efficiency by cleaning indoor air so that it can be safely recirculated, thereby reducing the need to condition large volumes of outside air typically required to dilute indoor-generated contaminants to maintain good indoor air quality.
The IRA will accelerate the adoption of proven technologies like Sorbent Ventilation Technology by providing funding for state and local governments to adopt more efficient building codes and for the nation's largest public real estate organization, the GSA, to convert facilities to high-performance green buildings. Extended and expanded tax deductions for commercial buildings to deploy clean energy technologies will also accelerate the adoption of technologies like Sorbent Ventilation Technology. This federal down payment on building decarbonization will pay climate dividends for decades to come.
CEO, Unimacts Global
I have been involved in renewables since I went to work for Kenetch Windpower during my time at HBS in the early 1990s, and have been actively involved in many renewables technologies and companies over the past 25 years. Much of the previous work I did was essentially heavily government-subsidized R&D – and quite frankly, I was always quite nervous because I do not like being dependent on the government. The renewables world has significantly changed in the past 5 to 10 years though – our scientists and engineers have delivered massive design improvements and our manufacturing and supply chain leaders have delivered unbelievable cost improvements.
If you take the cost competitiveness of renewables, the increasing concern about global warming actually effecting daily lives, major corporate renewable buyers and the war in Ukraine, you have major tailwinds for our industry. Then you add on the passage of the IRA, and the opportunity for renewables and US manufacturing is unlike anything we have ever seen. Within two months of the signing of the bill, we had committed to opening our first factory in the US and we are close on our second. All of our major growth plans are around renewables. We just can’t move fast enough.
My sense is, the IRA will push us over the edge here in the US, and we will enter an unstoppable virtuous cycle towards renewables and hopefully pull the rest of the world along with us!
Heather (March) Takle (MBA 2006)
President and CEO, PowerOptions, Inc.
In 30 years, I am certain that we will look back on this period as a defining moment in our actions, or inactions, in our fight against climate change. The Inflation Reduction Act is likely to be one of the pivotal battles, not the only one, but perhaps the game-changing one.
As a veteran, it’s not lost on me that climate change is not only one of humanity’s greatest challenges, it threatens our national security and thus eventually could reign even greater tragedies than imagined. As such, it is appropriate to reflect on the IRA’s barrier-breaking spending on climate change compared to our defense budget. The IRA budget for climate is just 4 percent of the country’s defense budget on average annually. Together, the 2021 Infrastructure Bill’s $265 billion for clean energy and the $386 billion in the IRA, the total investment almost reaches the $700-$800 billion annual budget of the Department of Defense. Of course, the bill’s spending will be over 10-15 years and there are other budgets already focused on climate, but now we are getting to the level of serious investment that reflect the nature of the threat demands. I am again in proud service to this country.
Founder, President, CEO Liatris, Inc.
The most intriguing aspect of the IRA for me, running a start-up developing greener and higher performance insulation materials, is the emphasis on building decarbonization and energy efficiency, especially as it relates to retrofitting existing buildings. Including and welcoming these innovations under the umbrella of “clean energy” is an acknowledgment that the more capital-intensive and time-consuming (yet still very needed) route of putting more generation capacity online does not address existing pain points such as double-digit inflation in the US and a looming winter energy crisis in Europe (which could be mitigated by the export of US-manufactured clean energy products).
There is no path to successful decarbonization that doesn't include making the 100+ million existing buildings in the US at least 30-50 percent more efficient (without sacrificing affordability, comfort, or safety). In addition to various deployment programs, we were especially pleased to see the Department of Energy invoking the Defense Production Act for building efficiency products such as heat pumps and insulation. As the specifics of how that can be applied and utilized are formalized, it should create some tremendous opportunities for incumbent players to de-risk scaling up new approaches and technologies such as ours."
Claire Broido Johnson (MBA 2002)
COO, Fermata Energy
As business leaders with lots of privilege, it is our responsibility to focus our efforts on both creating and scaling climate change solutions AND to support bringing more people, from different places, to our efforts. Many of the most interesting solutions I have seen as a climate tech investor have come from people with very different backgrounds than a typical HBS student. As a climate tech entrepreneur, I find that diverse teams make better, more insightful decisions. In addition, all of us who are mentors and who care about climate change have to support early stage start-ups with good ideas.
With respect to the IRA, there is lots of opportunity for public/private partnerships, but both sides have to be flexible. When I was at the Department of Energy, I was responsible for deploying $11 billion of the stimulus package in 2009-2010. We had strict mandates and had to often teach municipalities how to receive federal funding and use the funding efficiently. In 2022, a lot of what needs to happen with the IRA has to do with enabling and scaling and commercializing early-stage technologies and services. The federal government has a history helping to grow interesting science – but not scale technologies and services companies. This requires a lot of grit and determination from companies, and patience in working with the federal government – a tricky combination.
I'm very excited, specifically, about mobility and the importance of it as a climate change solution. I recently joined Fermata Energy, which makes bidirectional vehicle-to-everything (V2X) charging platforms. V2X bidirectional charging platforms turn EVs into a revenue center, extending fleets' value. Fermata Energy is the first company to be commercially deployed in the US for light-duty vehicles, the first to earn UL 9741 certification in North America, the first to earn OEM approval for battery health, and the first to earn revenue for fleet customers from utilities. We are hoping that the IRA helps us to underscore the importance of electric vehicles – as a solution for the grid to reduce electric load.
Partner, G2 Venture Partners
The Inflation Reduction Act is a big deal, by every measure. It's the single largest investment ($350 billion) in reducing emissions in US history. This is 4x the clean energy investments ($90 billion) under the American Recovery and Reinvestment Act in 2008, which kickstarted the first wave of cleantech investing and accelerated companies with over $1 trillion in enterprise value today, including Tesla ($590 billion), Enphase ($40 billion), Sunrun ($15 billion), and First Solar ($15 billion). Additionally, the underlying technologies (solar, batteries) are significantly more cost-competitive than they were a decade ago, which means a dollar of incentive goes a lot further.
The IRA puts the US on a path to achieve 80 percent of its commitment to the Paris Agreement, which is to reduce 2030 emissions to 50 percent of 2005 emissions. Importantly, the IRA, IIJA, and CHIPS Act together represent a return to industrial policy in the US, with significant direct investments and incentives for the onshoring of manufacturing and critical supply chains. An estimated 9 million green jobs will be created as a result of the IRA alone across manufacturing, onshoring, installation, and maintenance.
As a venture investor focused on climate, I see the IRA as an inflection point for inclusive growth here in the United States and a cleaner, greener future for everyone on the planet.
CEO and Director, CarbonBuilt
Given today's political realities, the "carrots"-focused climate provisions in the IRA are a huge win on our country’s journey towards net zero greenhouse gas emissions by 2050. The solutions that it supports will be available globally, so it will have an impact far beyond our borders – and this is critical given the distributed nature of the climate crisis.
CarbonBuilt is in the business of decarbonizing concrete production, which is responsible for about 10 percent of global carbon dioxide emissions. Adoption of our technology can deliver good financial returns for concrete producers, but this is a conservative industry that does not have a history of changing quickly. Making the economics even better can help to change that. IRA's combination of investment tax credits, grant programs, material procurement funding, and product labeling support will accelerate our growth in a meaningful way, enabling us to drive greater emissions reductions and carbon removal in less time.
This is a repost from Alumni Stories, see the original post here.