Following a year of starkly revealed vulnerabilities in water, energy and supply-chain assets, some game-changing legislation suggests that governments are finally getting serious about infrastructure investment.

Today’s CIO Weekly Perspectives comes from guest contributor Michael McCarthy.

In the infrastructure world, roads, bridges, ports and utility transmission assets are not the only things we are building. You can add anticipation to the list, too.

This year has seen a growing sense of infrastructure emergency in the developed world. The recovery from the COVID-19 pandemic laid bare the remaining vulnerabilities in our supply chains, and the invasion of Ukraine has been a stark warning of how much we still depend on unreliable supplies of fossil fuels. Both have led to damaging levels of inflation. Then a blisteringly hot northern-hemisphere summer not only brought home the effects of climate change but also stretched U.S. and European water systems to the breaking point.

In response, governments have been busy legislating, with the latest arrival being none other than the U.S. Inflation Reduction Act (USIRA) that was signed into law on August 16.

With it, and other legislative mandates like it, the world may finally be getting serious about infrastructure investment. And as big as these recent legislative initiatives are, we think things are just getting started.

The Net-Zero Charge

The USIRA allocates almost $350 billion of spending to zero-carbon energy and emissions-reduction technology alone.

Analysts estimate that it will cut annual U.S. emissions by a billion metric tons by 2030, and note that it will give the U.S. renewed authority to lead the net-zero charge at this year’s G20 and COP27 summits.

By adding 950 million solar panels, 120,000 wind turbines and 2,300 grid-scale battery plants to America’s energy mix, it also represents a major infrastructure investment opportunity: $1.2 trillion in renewables through 2035, according to energy consultancy Wood Mackenzie.


The USIRA spending commitments are big. But many analysts view its reform of Investment Tax Credits (ITC) as even more significant.

Currently, qualifying for ITCs means being able to demonstrate that you were investing in one of a short list of renewable energy technologies, or that your investment was directly linked with a project deploying one of those technologies.

For example, to claim an ITC for a battery storage investment, you have to take the sometimes complex road of demonstrating that your investment is integrated into, say, a solar- or wind-power project.

From 2025, the USIRA introduces technology-neutral ITCs—all you will need to demonstrate is that your project generates zero emissions.

This has the potential to make billions of dollars of renewable infrastructure investment opportunities economically attractive for the first time. It is a significant move from the current top-down, “picking-winners” way of doing things to market-led innovation, which brings into scope standalone investment opportunities, not only in battery technology, hydrogen energy, carbon sequestration and carbon capture, but also, potentially, in a range of barely imagined technologies.


Why do we think this is just the start?

First, while the USIRA has removed much of the uncertainty that has hung over U.S. renewables investment in recent years, in some ways it delivers less than was anticipated by the industry from the Build Back Better bill, which failed before it got to a Senate vote earlier this year.

Perhaps most importantly, the USIRA does not extend ITCs to power transmission investments, as was proposed in the earlier bill.

Analysts project that the USIRA will help grow battery-storage capacity by five or six times over the next five years, and that will enable us to use existing transmission infrastructure more efficiently.

In our view, however, that is far short of the modernization required to make 20th-century transmission assets match up with 21st-century power generation. There is already twice as much solar power generation being installed annually than just a few years ago, for example, and the USIRA looks set to double that again. Without new transmission infrastructure, a lot of our new power will likely be trapped in places where the sun shines and the wind blows.

That’s why we think the U.S. government will eventually revisit the question of transmission ITCs.


In addition, we see similar developments elsewhere in the world.

Governments are just starting to spend the €2 trillion sustainability stimulus packaged up in the European Union’s long-term budget and NextGenerationEU recovery plan. As I write, the Labor government in Australia is passing new climate legislation that targets a 43% reduction in greenhouse gas emissions by 2030 and incentivizes a shift in extractive industry resources from fossil fuels to the metals and minerals critical to the low-carbon transition.

And finally, incidents like this summer’s Mississippi water crisis and European drought are raising awareness, and the political stakes, around the fitness of our critical infrastructure for a warming climate. The threat of recession may also have focused the attention of hitherto skeptical politicians, such as U.S. Senator Joe Manchin, on the high-quality jobs they can promise when they vote for renewable infrastructure spending.

Two weeks after President Joe Biden signed the USIRA into law, he made 26 new appointments to his National Infrastructure Advisory Council. It didn’t make the same worldwide headlines as the record-breaking legislation, but it suggests similar intent for the future. We believe there’s a palpable change in the climate for infrastructure investment.

In Case You Missed It

  • ISM Non-Manufacturing PMI: +0.2 to 56.9 in August
  • Eurozone 2Q 2022 GDP (Final): +0.8% quarter-over-quarter
  • Japan 2Q 2022 GDP (Final): +3.5% quarter-over-quarter annualized rate
  • European Central Bank Policy Meeting: The ECB increased its policy rate by 75bps
  • China Consumer Price Index: +2.5% year-over-year in August

What to Watch For

  • Tuesday, September 13:
    • U.S. Consumer Price Index
  • Wednesday, September 14:
    • U.S. Producer Price Index
  • Thursday, September 15:
    • U.S. Retail Sales

    – Andrew White, Investment Strategy Group