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US treasury $1bn loan heralds seismic climate economy growth

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A $950 million loan by the US treasury to the Clean Technology Fund (CTF), signals a healthy boost in climate-related spending, which could take on epic proportions given the uncapped tax credits in the Inflation Reduction Act (IRA).

  • The US treasury provided a $950 million loan to the CTF, a multilateral trust, to help heavy developing countries accelerate their transition to cleaner energy.
  • The loan is seen as part of the Biden administration’s commitment to increase international climate financing above $11 billion by 2024.
  • Private spending, incentivised by public investments, combined with uncapped tax credits could result in $1.7 trillion in climate investments over the next decade, according to analysis from Credit Suisse.

The US treasury’s loan to the CTF is an indication of the Biden administration’s intention to restore the country’s climate credibility, which was strengthened by the President’s pledge to increase the country’s annual contribution to climate finance to $11.4 billion by 2024.

Further optimism for climate spending in the US could be shared abroad as the multiplier effect of government-incentivised private investments and uncapped tax credits expand the domestic economy, helping drive global growth via trade and foreign direct investment.

US treasury loan signifies intention by Biden administration 

A $950 million loan by the US treasury, to the Clean Technology Fund (CTF), the first of its kind, fulfils a pledge made by the Biden administration in 2021 at the UN to double its climate finance contribution to $11.4 billion a year by 2024.

Treasury secretary Janet Yellen also described the loan as enabling access to clean energy, which could work to the US’ advantage. Credit Suisse believes the IRA has the potential to make the US the world’s leading energy provider.

The CTF helps low and middle-income countries tackle climate-related challenges by providing access to resources and technology. This could play to the benefit of the US and help extend its influence globally.

US hopes to fulfil G7 and climate pledges under Biden

The US has been seen to be a laggard on climate finance, having fallen short of its commitment to invest $100 billion a year along with its G7 partners to help low- and middle-income countries cope with climate change.

After the Trump presidency, President Biden has attempted to restore the US’ climate credibility by pledging $11.4 billion a year to climate finance by 2024. According to global think tank ODI, the US lags the most in its climate finance commitment.

A report by Credit Suisse estimates that total climate spending in US investments could go far beyond the $369 billion estimated spending contained in the Inflation Reduction Act (IRA). This also bodes well for the country’s export partners and recipients of foreign direct investment.

Climate-spending bonanza may help US step-up to global leadership role

A major reason for more than doubling the initial spending estimates made by economists relating to the IRA are uncapped tax credits, as spending rises with the amount that consumers and businesses invest in sustainable technologies. 

Worsening climate change could further accelerate that spending. Overall, Credit Suisse believes IRA has the potential to generate $1.7 trillion in climate spending over the next decade.

The IRA could create 1.7 million energy supply jobs by 2030, mostly in solar and wind energy, giving the US the lowest renewable energy rates at $5 per Megawatt-Hour. Developments in building green hydrogen capacity, and carbon capture and storage technologies could further add to the US becoming the world’s leading energy provider.

ESG backlash a risk but US getting closer to Paris Alignment

Republican opposition to all things ESG could be viewed as a risk for the long-term prospects for climate spending, but many of the jobs and economic benefits will be seen by red states, according to Credit Suisse. The IRA also provides many concessions to the fossil fuel industry, which may complicate republican efforts at repealing it, should they win the White House in 2024.

But the biggest risk to these optimistic projections may come from building the necessary infrastructure to accommodate the new investments. Examples of these include upgrading the electric grid to accommodate the investment in renewables, or in building a charging network capable of handling the projected rise in demand for electric vehicles.

Increased climate-related investment in the US, however, will expand its economy, consolidating its global leadership position for the near future. Accounting for nearly 24% of global gross domestic production, the world bank estimates that every percentage point growth in the US economy helps global GDP expand by between 0.6% and 0.8%.

With over $6 trillion a year in foreign direct investments, the US can also directly help its allies and trading partners finance their transition to cleaner energy. While politics and bilateral relationships will play a role there, additional funding for multilateral entities like CTG will provide hope for the rest of the world.

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