Insights
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The Inflation Reduction Act & Sustainable Investing
In mid-August, the Inflation Reduction Act1 was passed by the US Congress and signed into law by President Biden. It stands as one of the most significant bipartisan pieces of legislation in recent years, making sweeping changes to taxation, healthcare spending, and job creation. Framed as a solution to inflation and unemployment, the Act is first and foremost a climate bill, with an aggressive target of reducing U.S. carbon emissions by 40% by 2030. While the Penn Wharton Budget Model2, a nonpartisan research initiative, estimates that the Inflation Reduction Act will likely not alter inflation, it will most likely reduce the government deficit, increase wages, improve productivity, and boost GDP.
While healthcare and tax reform make up a significant portion of the bill, climate and energy policies3 receive the bulk of the spending at close to $369 billion of the $437 billion total. The Act’s carbon reduction goal offers 10 times more1 climate impact than any other single piece of legislation in U.S. history. The Act is widespread in its climate efforts, addressing fuel efficiency, fuel alternatives, job creation, manufacturing, and tax credits, among others.
Many policies1 target tax credits or rebates for clean purchases, including $14,000 in direct consumer rebates for purchases of energy-efficient home appliances, a 30% tax credit for home solar panel installation, and $4,000 to $7,500 in tax credits for electric vehicle purchases. The bill estimates that those who take part in such programs can expect to save more than $1,0001 per year on energy bills and fuel costs.
In an effort to build a green economy, the Act’s initiatives will create millions of well-paying jobs1 in the renewable energy sector while investing in a more resilient energy infrastructure. By 20301, the bill aims to add 950 million solar panels, 120,000 wind turbines, and 2,300 grid-scale battery plants to the economy. To reduce the inequality gap, many clean-energy jobs will be brought to rural communities while efforts to clean up pollution and reduce environmental injustice3 will be focused on disproportionately affected communities.
Due to the heavy emphasis on climate policy, confidence in the bill’s passing greatly impacted ESG investment decisions in the lead up to it becoming law. In just the first two weeks of August, over $425 million had been invested in ESG ETFs4, a stark contrast to the $112.8 million invested in ESG ETFs in all of July.
Overall, the Inflation Reduction Act makes sustainable investing far more attractive, though investors should emphasize diversified green funds as opposed to narrowing in on one industry. As the bill’s vision becomes reality and the market picks its new winners and losers in the long run, funds like TrueShares’ ESG Active Opportunities ETF (ECOZ) or its new TrueShares Eagle Global Renewable Energy Income ETF (RNWZ) can allow investors the agility necessary to navigate a relatively nascent sector while also reducing volatility with a diversified portfolio. Both funds are actively managed to allow for flexibility and agility as these initiatives unfold.
1 - https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/15/by-the-numbers-the-inflation-reduction-act/
2 - https://knowledge.wharton.upenn.edu/article/how-the-inflation-reduction-act-will-boost-energy-security-health-care-and-tax-revenues/
3 - https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf
4 - https://www.cnbc.com/2022/08/18/how-to-buy-an-esg-fund-now-that-inflation-reduction-act-is-law.html
Funds focusing on environmental factors may forgo opportunities that might otherwise yield favorable investment results.
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