Biden’s Clean Tech Tax Credits Are Draining Investment From London

Discussions in London’s clean tech circles have recently taken on a tone that is remarkably similar to the tense conversations that used to follow pandemic supply shocks or Brexit votes, when capital surreptitiously started testing other shores.

The Inflation Reduction Act signed into law by President Biden was not a surprise. It came like a steady current, drawing investment toward the United States with remarkably effective force, leaving Britain to question whether the tide was temporary or real.

The appeal is simple to understand, especially for financiers who value math over ambition. In contrast to the UK’s more conditional approach, the IRA creates conditions that feel incredibly clear by telling investors exactly what they get, when they get it, and for how long.

Investors in clean energy have learned to act fast over the last ten years, reallocating money in a manner similar to how a swarm of bees shifts toward the richest nectar source—not out of loyalty, but out of survival.

Investment in clean energy in the UK fell by about 10% in 2022, just after the IRA was passed. That drop might have seemed doable on its own. It appeared very different when compared to a twenty-four percent increase in the US.

London’s talent has not diminished. Climate scientists continue to spin out startups from British universities, and engineers continue to congregate in co-working spaces close to King’s Cross. The patience of capital has changed.

The IRA’s carbon capture credit (approximately 8.5 dollars per ton) and hydrogen credit (approximately 3 dollars per kilogram) are not just generous. Their bankability, which simplifies financing models and drastically lowers risk, makes them especially advantageous.

In contrast, British incentives frequently come with pilot programs, consultation periods, and future reviews. After carefully reading those footnotes, investors silently contrast them with U.S. term sheets, which seem much more definitive.

London was greatly impacted by Drax’s choice to make a significant carbon capture investment in the United States. It was a sign that incentives had reached a level that boards could no longer ignore, not a criticism of British ambition.

Other businesses adopted this strategy. Project pipelines were reversed by battery companies listed in London. Before British deployment, early-stage energy startups started creating roadmaps based on the assumption that they would be American in scale.

The calculation is especially harsh for clean tech companies that are medium-sized. Scaling in the U.S. offers something more concrete: certainty, but staying in the UK offers proximity to regulators and research partners.

One fund manager was blunt in his remarks at a recent investor briefing in the City. He remarked, “The United States doesn’t ask us to believe.” “The spreadsheet is displayed to us.”

That spreadsheet is important. Effective tax credits lower financing costs, quicken construction schedules, and draw in supply chain partners—all of which add up to momentum that is hard to overcome with just words.

Policy ambition is still high in Britain. Net-zero goals are still required by law. Offshore wind is still growing. However, ambition without execution frequently feels unfulfilled, especially when contrasted with American policies that directly convert climate goals into financial gains.

I recall hearing a founder in a Shoreditch café describe how, after factoring in the U.S. tax credits, his company’s growth projections abruptly accelerated. The change felt more pragmatic than ideological.

Using the US capital markets, energy prices, and industrial scale as examples, some policymakers contend that the IRA is only a portion of the picture. It’s accurate. However, incentives serve as stimulants, transforming preexisting advantages into sizable ones.

The difficulty for early-stage startups is frequently endurance rather than innovation. Teams may become exhausted by protracted approval procedures before products are ever put on the market. American incentives are like oxygen in that situation.

London faces the threat of gradual hollowing rather than an abrupt collapse. Research remains. There is still a headquarters. Scale and manufacturing quietly move elsewhere.

This pattern is not brand-new. It has previously been observed in semiconductors and pharmaceuticals in Britain. If incentives don’t keep up with global competition, clean tech now runs the risk of taking a remarkably similar route.

British companies investing in the United States, according to optimists, will eventually repatriate expertise. That is possible. However, history indicates that supply chains, factories, and jobs rarely return without equally strong justifications.

In the meantime, boardroom culture has changed as a result of the IRA. Clean energy is no longer just presented as a moral requirement. It is presented as a business-friendly approach that is especially creative in the way it synchronizes industrial expansion with climate policy.

That alignment is important. Coherence is what investors react to. Employees react to scale. Permanence has an impact on communities.

Responses have been proposed by UK officials, ranging from simplified planning reforms to guarantees for green investment. Though progress is still uneven and markets are impatient with promises without deadlines, these concepts are encouraging.

Site selection has become much simpler as a result of the United States’ ability to coordinate federal incentives with state-level support through strategic partnerships. In contrast, Britain continues to have difficulty coordinating across agencies.

But there is one window that is still open. Britain’s research depth, legal system, and financial know-how are all very solid bases. They don’t have a strong enough policy signal to compete for already-existing capital.

Investment in clean technology will influence employment, export potential, geopolitical leverage, and emissions trajectories in the years to come. Losing ground now could have long-term effects.

However, despair is not necessary at this time. It requires lucidity.

The UK could swiftly regain credibility by providing incentives that are transparent, long-standing, and simple to underwrite. Investors are realistic. If conditions significantly improve, they will return.

Biden’s tax credits have demonstrated the results of climate policy that is fluent in the language of finance. London now has to decide whether to react as smoothly as possible or to keep letting capital drift.

Rivalry for its own sake is not the focus of the story that is being told. It has to do with momentum. And those who take decisive action are rewarded once momentum is established.

Britain can still influence the next phase of clean energy growth if it decides to take on this challenge head-on rather than cautiously. It will be able to do so as a serious competitor ready to move quickly, not as a spectator.