There is no question that the Inflation Reduction Act is a big deal — but its impact on transatlantic investment may have been overstated.
A robotic arm works on an electrolyzer at a European factory. Photo credit: John Macdougall / AFP via Getty Images
A robotic arm works on an electrolyzer at a European factory. Photo credit: John Macdougall / AFP via Getty Images
It was billed as the largest investment in climate and energy in United States history, a law that would reshape industrial policy from Brussels to Mumbai.
Yet the impact of the Biden administration’s 2022 Inflation Reduction Act on foreign cleantech companies, which were expected to divert funds from their home territories to the U.S, may not yet be quite as pronounced as some hoped — or feared.
Topsoe, which produces hydrogen electrolyzers among other equipment crucial to the energy transition, has been around since 1940. Today, 40% of the company's revenue comes from sales to its customers in North America.
Topsoe is currently weighing the possibility of establishing a U.S. solid oxide electrolyzer manufacturing plant, and Scaltritti said the investment case is driven by two things: “The incentives that potentially we might have access to, but as well the expected growth of the market in the U.S. We are focusing on the North American market in general — the U.S., but as well Canada,” she said.
Meanwhile, Germany’s Thyssenkrupp Nucera is also planning to make electrolyzer manufacturing investments in the U.S. But the company’s automated pilot assembly line for alkaline water electrolyzers, announced in March 2024, will benefit from $50 million of infrastructure law funding, rather than the IRA.
An October 2023 report from the climate think tank E3G failed to establish a link between the IRA and foreign direct investment.
“It is not a given that the IRA will generate a significant economic stimulus for the U.S. economy overall, or that it will attract significantly more foreign direct investment,” it said, concluding that manufacturing construction spending “is more linked to impacts of the CHIPS+ Act.”
E3G said $278 billion of cleantech investments had been announced — not confirmed — in the U.S. as of last fall. Roughly two-thirds of that amount was split equally between U.S. and South Korean companies, followed by Japanese and Chinese companies.
European manufacturers, which were expected to flock to the U.S. in the wake of the IRA, accounted for less than 4% of the investment volume announced, according to E3G. “The IRA is expected to only have a marginal impact on the transatlantic economy,” it found.
Verus von Plotho, the founder and CEO of VVP Consult, which advises European cleantech firms on entering the U.S. market, said the IRA had little to offer small-to-medium-sized companies because its incentives were mostly focused on large-scale manufacturing.
“For an IRA tax credit, you first have to generate revenue,” he said. “Tax credits don’t really apply if you don’t have much tax liability.”
Another issue for foreign companies is that while the U.S. tax credit system is seen as being simpler to deal with than, say, Europe’s regulatory maze, the sheer volume of support schemes on offer stateside is bewildering.
Add to that the fact that support is often conditional on local content or job creation conditions, and it is clear the IRA favors established U.S. market players with plenty of financial muscle, von Plotho said. As a result, it is likely that small companies such as Canada’s Heliene Solar are more the exception than the rule in tapping into IRA benefits.
“There are 5,500 German companies active in the United States,” von Plotho said. “They were there before [the] IRA. They will be there after [the] IRA. So, IRA is not that thing that makes a company move to the U.S. It’s one of many variables.”