How your tax dollars affect the energy sector — America’s biggest infrastructure spending package “Bipartisan Infrastructure Law”
The Bipartisan Infrastructure Law (BIL), a.k.a. ‘Infrastructure Investment and Jobs Act’ represents a rare piece of legislation wherein the ever polarising political factions of Democrats and Republicans came together, held hands and sang kumbaya. At a staggering price tag of $1.2 trillion, it is the largest infrastructure bill in US history (at least by some metrics?).
This post clarifies the provisions of the spending package using simple charts and sets the context for the unininitiated but interested reader. The data-driven approach provides an objective view, in contrast to political or industry-specific lens through which it is too often seen. This post is especially relevant today as many of the bills’ provisions are funding new and innovative projects in the energy sector.
The Basics
The bill was signed into law by President Joe Biden on November 15, 2021, shortly after it was approved by the US House of Representatives on Novemeber 5, 2021 (228-to-206). The bill had passed the US Senate on August 10, 2021 (69–30) after receiving support from a group of Republicans led by the minority leader Mitch McConnell.
“I was proud to support today’s historic bipartisan infrastructure deal and prove that both sides of the political aisle can still come together around common-sense solutions.” — Mitch McConnell, on the eve of BIL passing the Senate
The Pie — What and how much?
The chart below breaks out the total budget by how much feeds into various parts of public infrastructure. Note that only $550 billion of the publicized amount of $1.2 trillion is new spending — the bars in the chart sum to the lower amount. (The higher figure comes from including additional funding normally allocated each year for highways and other infrastructure projects. Inflating how people might perceive your achievements is a good political move — who knew?)
While a lot of the policy money is directed towards traditional infrastructure (42%) like roads, bridges, railroads and airports, modern infrastructure (31%) like broadband, cybersecurity, climate change, public transit, EV charging stations and electric buses has particularly received a spending boost.
I list water and energy and environmental sectors individually as separate sectors instead of placing them in either of the two infrastructure buckets. The provisions in the energy sector are further elucidated in a later section below.
How big is the BIL compared to other bills you might know?
Big numbers are sometimes too big to make sense. This especially happens as they go from the scope of a person to that of an entire nation. This section summarizes a few of these large numbers and should help anchor the reader.
The gross domestic product (GDP) — a measure of a nation’s total spending, for the United States for 2021 was $23 trillion. So, the Bipartisan Infrastructure Law amounts to ~5% of the annual GDP (new spending amounts to ~2.4%). Note that most of the provisions are of the ‘once-in-a-generation’ kind, where total spending could span years or even decades.
As a point of comparison, the covid stimulus bill had an even higher pricetag to the American taxpayer, at $2 trillion. The primary purpose was to provide immediate economic relief unlike the longer term purpose of the BIL. (Another slightly disturbing comparison can be made will the American spending on the war in Afghanistan, which is estimated at $2.3 trillion.)
The US Congress recently on March 11, 2022 passed the $13.6 billion Ukraine aid bill to provide immediate support in the ongoing Ukraine-Russia war. While it is lower than the entire spending packages of the two aforementioned bills, it rivals the individual provisions included in the BIL. For example, the relief amount equals total spending in public EV infrastructure and electric school buses combined, under the BIL.
Energy sector provisions in the BIL
The energy sector is of particular interest to me, given my educational and professional background. Government policy has always played a central role in the energy sector (which is largely seen as a public good) and it continues to be one of the biggest drivers in the clean energy transition that the world, and specifically United States, is embarking on. Policy can often make or break a company in the competitive technological space in the energy world, especially in the early or startup phases.
My experience tells me that professionals in the energy industry often suffer from too narrow a focus. Part of it is due to spending disproportionate amount of time in self-selected interest groups that often serve as echo chambers— for example, folks in battery startups might focus too narrowly on their battery startup rivals but often overlook other technologies like hydrogen which compete for the same applications. By looking at specific allocation of the policy money to individual technologies in a single chart, one can deduce the technologies that the policies (and lobbying groups) favor.
The BIL provides over $60 billion primarily for new major clean energy demonstration and deployment programs. This amount is allocated roughly equally to many of the emerging clean energy technologies like carbon capture, hydrogen, nuclear, electric vehicles and lithium batteries. The BIL does not pick winners or losers — it is remarkable in its sense of balance and portfolio diversity. This ‘all-of-the-above’ approach has been a consistent theme of the American energy policy. For example, $8 billion is earmarked for creating four regional hydrogen hubs, each with a different production method (from renewables, fossil with carbon capture, nuclear) and different end use applications (transportation, power sector, industrial, chemical).
This is in contrast to the approach taken in many other countries. For example — Japan is invested more heavily in the hydrogen sector, and France is doubling down on nuclear. The American approach is fair but by not focusing on a few key technologies, it risks losing some of its geopolitcal heft in a future energy world.
The BIL does not pick winners or losers — it is remarkable in its sense of balance and portfolio diversity.
The chart below provides a more detailed breakup of the clean energy programs.
