Climate tech could see big funding boost if Senate bill goes through

Climate and energy projects could see $370 billion in fresh 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 reduce drug prices.

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

Marketplace’s Meghan McCarty Carino speaks with Jay Koh, a managing director at the Lightsmith Group, a private equity firm that invests in climate technology. He’s read the lengthy bill and says it would be a game changer for climate tech. It would inject four times more funding than the last big federal infusion in the 2009 stimulus bill. The following is an edited transcript of their conversation.

Jay Koh: There’s pure technology investment. There’s also expansion of pull-through demand in the energy sector, but also other sectors. And then, there’s direct procurement that’s happening by the government as well. And unusually, this also includes substantial funding for things in the agriculture sector, the forestry sector, in rural communities, and as well a real focus on disadvantaged populations.

Meghan McCarty Carino: Right. Let’s take a look at one of the sections, electric vehicles. [It] reinstates a $7,500 tax credit for new clean-air cars and $4,000 for used ones, which is new. How big of a deal is this level of funding for EVs, given that the car market is already seeing a shift toward clean cars?

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

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

Koh: I think it means a tremendous amount. Setting the stage back in the stimulus package in 2009, by starting to create the fundamental groundwork for the energy transition was an important first step. What you have here now is four to five times as much of that funding on a longer-term basis across multiple sectors of the economy. And a focus as well, not just on the energy transition piece of it, but making the entire economy aware and resilient to the effects of climate change.

McCarty Carino: Now, you noted there is a strong focus on environmental justice investments to help mitigate 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 tech innovation might come out of this?

Koh: Yeah, I think that the bill really has three major components to it, the way we think about it. First is direct support for technology. There’s $2 billion for national labs to accelerate breakthrough energy research. Baked into the bill, there’s the first moves towards climate-smart agriculture support, both in direct grants as well as in support through tax credits and other activities to help that transition occur. So at the fundamental technology level, there’s support for moving forward the frontier of what we can expect in terms of a clean transition, and a resilient transition. And the second piece is there’s a lot of pull-through demand that’s created by creating incentives, tax credits and so on to actually 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 procuring over $9 billion of clean technology, as well as moving towards more of a resilient economy overall, and particularly focusing a lot of that activity as well through grants into disadvantaged populations through environmental and climate-justice block grants and even access grants and similar approaches that really increase the focus on the underserved.

McCarty Carino: When we’re talking about those communities, what kinds of solutions might we be talking about?

Koh: Well, I think we need to think about the transition now as kind of a climate 2.0 strategy, where it’s not just about electric vehicles or reductions in greenhouse gas emissions, but also building resiliency at the same time into those communities. If you look at where the impacts of COVID have hit, that’s also where the impacts of environmental pollution are occurring. So you need to have a transition that enables the communities to have both a resilient future and a low-carbon future.

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

Koh: Well, assuming this moves forward, it suggests that the United States is resuming a real position of leadership. The actual impact of legislation like this means that there’s resources available and a stable forecast of the future set of conditions so that private-sector actors who are already beginning to invest, innovators, and the next generation that’s thinking about challenges for the future will really be able to face a much more stable set of assumptions about how quickly this transition can happen and how it’s going to be supported going forward.

Related links: More insight from Meghan McCarty Carino

Here is the full 700-plus pages of the Inflation Reduction Act of 2022 if, like Jay Koh, you’d like to read more on it. And, mercifully, a summary from Fast Company of all the climate policies it proposes.

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

The credits would also be available at purchase time instead of 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.