The Inflation Reduction Act’s simple math is luring billions in foreign investment

investment

Companies are now announcing multi-billion dollar investments in U.S. clean energy and transportation seemingly every week. But what’s even more striking than the pace of the commitments is how many of them are coming from overseas.

Meanwhile, LG and Hanhwa, two South Korean giants, announced multi-billion dollar investments in the U.S. last month, in battery and solar manufacturing, respectively.

Where does this flood of investments come from? You guessed it: the Inflation Reduction Act, specifically, how “simple” and “certain” the legislation is, especially after the turbulent Trump era, experts told me.

“It’s a very clear mathematical tax credit,” Alex Mitchell, a clean tech investor based in Los Angeles, told me over the phone. “For every X batteries you produce, with Y of them sourced in the U.S. or its trade allies, you get Z in tax dollar credit. It’s fairly easy to look at the bill, and do a corporate P&L.”

“It’s a decision of simple economics,” Chris Baker, the head of Enel X Way, the U.S. subsidiary of Enel, confirmed. “Enel and large incumbents in Europe are not stupid. They’ve been looking at the market for a long time. But they were waiting for the green light from policymakers.”

Still, it’s intriguing that so many investments come from outside of the U.S. According to Mitchell and Baker, that’s because European (and Asian) companies are more comfortable with two crucial aspects of clean tech investing:

First, you need a long-term investment horizon. “If you think of the European giants in particular, they take a long-term view, and therefore they’re sensitive to probabilities and certainties,” Baker said, referring to the (partially state-controlled) shareholder base in many of these firms.

Second, you need to be at ease with public-private cooperation. “U.S. companies have frankly never understood how to partner with U.S. government,” said Mitchell, who worked for PSA and Toyota, said. “U.S. companies go where there is as little government involvement as possible.”

European companies, he said, “are more public sector reliant or dependent.”

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Source:  finance.yahoo.com

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