When Congress passed the Infrastructure Investment and Jobs Act of 2021 to fix and replace roads, bridges and tunnels, a broader definition of “infrastructure” was already on the congressional horizon.
Though the act defined the category more broadly than ever by including funding for increased broadband access and some environmental goals, a more sweeping definition was already developing in the nascent Inflation Reduction Act and CHIPS and Science Act.
Passed by Congress last summer, these two acts bring the definition fully into the 21st century by targeting widely expanded environmental goals and technology.
Belated Impacts
For many affected companies, the market effects of the legislation thus far have been muted or, as it will probably turn out, they are belated. Though many traditional infrastructure names did well in 2020-2021 in anticipation of the infrastructure act’s passage, this was in a still-rising market.
Then came the bear market this year. But the bear is naturally having the effect of sowing discounts in fields that will be fertilized by the legislative packages over the long term.
Even without the bear market, a slow impact would hardly be surprising. After all, a lot of things, both public and private, must happen before federal money starts to flow. And even in brisk markets, impacts are often delayed by calibration to the short attention spans of traders focused on today’s headlines and speculation on tomorrow’s news, not gradual sector growth.
“Clean” Is The Byword
The overriding priority of the bills passed last summer is to stimulate solutions to problems in energy, transportation and industry in non-polluting ways. Thus, the key word in this morass of legislative language is “clean”—for clean water, clean air and, toward environmental, commercial, industrial and consumer goals, clean energy.
For generalist advisors who don’t want to spend a lot of research time down in the weeds, it’s generally a good idea to focus primarily on funds, as predicting which green companies (especially the younger ones) will emerge victorious from the current scrum can otherwise be a crapshoot. To complicate things further, not all green companies don the ESG label, and some that do may not actually be so green.
Energy Priority
The bill’s clean energy focus includes:
• Energy production. The legislation provides tax credits for energy generation from wind, solar, geothermal, bioenergy and hydropower; for energy storage and clean hydrogen; and to modernize utilities’ and states’ infrastructures. Tax credits make the cost of green hydrogen competitive with the more widely used blue hydrogen created from natural gas. Companies likely to benefit can be found in the Invesco Solar ETF (TAN), Invesco MSCI Sustainable Future ETF (ERTH) and iShares Global Clean Energy ETF (ICLN). Noteworthy names in this space are Plug Power (PLUG) and First Solar (FSLR). The latter is especially well positioned to benefit from substantial tax credits for solar panels manufactured in the U.S.
• Adoption and development of electric vehicles. The legislation includes consumer tax credits from $4,000 to $7,500 for consumers buying EVs, and provides manufacturer tax credits for producing them and building new manufacturing facilities. It also offers up to $20 billion in loans and $2 billion in grants for new and existing EV facilities, as well as $3 billion for the procurement of zero-emission vehicles for public transit and the federal fleets. Funds that stand to benefit include the iShares Self-Driving EV and Tech ETF (IDRV) and Global X Autonomous & Electric Vehicles ETF (DRIV), Global X Lithium & Battery Tech ETF (LIT) and Amplify Lithium & Battery Technology ETF (BATT).