COP27: In reasserting US climate leadership, Biden underscores global ripple effects of IRA

During his three-hour sweep through the UN Climate Change Conference on Nov. 11, US President Joe Biden underscored the global impacts the Inflation Reduction Act will have on driving down the cost of clean energy beyond American borders.

"Our investments in technology, from electric batteries to hydrogen, are going to spark a cycle of innovation that will reduce the cost and improve the performance of clean energy technology that will be available to nations worldwide, not just in the US," Biden said. "We're going to help make the transition to a low carbon future affordable for everyone, accelerate decarbonization beyond our borders."

The president's speech sought to reaffirm the US's leadership role in the global energy transition in the wake of his party's better-than-expected returns from US midterm elections. And while the IRA itself focuses spending exclusively within US borders – to the chagrin of the world's developing nations pleading for loss and damages funding – Biden spent his time in Sharm el-Sheikh, Egypt, highlighting the knock-on effects his party's new policies will have on the cost of global decarbonization.

With $368 billion now on tap, the IRA brings a host of new investments to clean energy technologies. It extends tax credits for solar and wind, increases tax credits for carbon capture and sequestration, creates new tax credits for clean hydrogen, invests in a domestic precious metals industry and, among many other items, subsidizes the adoption of electric vehicles for US consumers.

There are several indirect ways these domestic investments could influence the global shift towards net-zero. The clean hydrogen tax credits have already spurred both US and European electrolyzer companies to expand their manufacturing footprints in the US. And they have made the US a likely exporter of low-carbon hydrogen and ammonia.

Pair increased domestic production capacity with increased hydrogen export capacity, and cheap hydrogen fuel disseminating around the world can spark a surge of hydrogen demand.

On Nov. 8, for instance, Plug Power executives said that the company is racing to stand up several green hydrogen production plants in the US over the course of the next year thanks in part to the IRA credits. And in October, the Belgian-based green hydrogen company Tree Energy Solutions announced its US expansion with aims to ship US hydrogen overseas in the form of green methane.

The clean hydrogen tax credits are slated to bring hydrogen costs into negative territory when stacked with renewable energy tax credits, according to several analyses. Combine the $3/kg tax credit with the new clean electricity tax credits – which allows any project producing zero-emissions power to receive either a 30% investment tax credit or a production tax credit worth 1.5 cents/kWh – and hydrogen subsidies could stack up to $4.50/kg.

As of Nov. 10, Platts' assessed cost of green hydrogen produced using PEM electrolysis was $4.55/kg (including capex) on the US Gulf Coast while alkaline electrolysis was assessed at $3.49/kg.

"I came to the presidency determined to make transformational changes that are needed, that America needs to make and that we have to do for the rest of the world – to overcome decades of opposition and obstacles," Biden said.

EU-US trade concerns

While making the US the most attractive market for clean energy investments, the IRA has caused some consternation among European leaders wary of an IRA-induced trade war between the US and EU.

In October, EU and US leaders launched the US-EU Task Force on the Inflation Reduction Act to "address specific concerns raised by the EU related to the IRA," an Oct. 26 press release said.

The task force held its first meeting in early November. However, concerns of a possible trade war remained present during the first week of COP27 in Sharm el-Sheikh. Speaking during the conference on Nov. 9, Anthony Agotha, a member of cabinet of EC executive vice president Frans Timmermans, raised concerns of "discriminatory elements" in the IRA.