The sustainable investor for a changing world

US infrastructure
Front of mind | Article - 4 Min

US climate spending – How does it reduce inflation?

Billions of dollars are set to be allocated to bolstering US infrastructure under the Inflation Reduction Act, a belated but still welcome boost to tackling climate change and runaway inflation. Truly two birds with one stone!

So how does the multi-billion dollar package help lower inflation over time?

Next to lowering drug prices and healthcare premiums, the spending is set to create infrastructure that should – ultimately – have a deflationary effect on ‘everyday energy costs’ and household expenses (see Exhibit 1).

The White House has touted the USD 430 billion bill as tackling decade-high inflation, although it is not clear (yet) to what extent it could replace the need for action by an inflation-busting Federal Reserve in the middle of a rate rising cycle.

Exhibit 1: The IRA could reduce inflation rate somewhat in the first two years
and do more to reduce inflation by the late 2020s

Let’s first note that much of the US infrastructure is in a dire state. Indeed, greater use of clean energy could be derailed without an overhaul of the electricity infrastructure – a task some experts say requires more than USD 2 trillion. The network is decaying thanks to underinvestment and age, its condition underscored by the failures we have seen during increasingly frequent and severe weather events.

Household bills benefit

But what of the cost benefits? Just think of the costs of running an electric vehicle versus that of a petrol car these days (with petrol at just over USD 4 a gallon now, up by 27% from a year ago). Consider also the incentives for buying a new or used EV, which then leaves money for other outlays.

There are ample savings to be had on electricity bills from rooftop solar panels compared to the rates charged by utilities (which have gone up by just over 10% from 2021 levels1).

We believe that electrification and leveraging renewables, such as solar and wind, will bring future costs down. Greater scale will allow these costs to continue to decline – something that is not the case with fossil fuels.

Or with nuclear energy for that matter. While nuclear energy can be seen as low-carbon – it emits four times less CO2 than solar power, two times less than hydroelectricity, and the same amount as wind power – the source is non-renewable (although uranium can be recycled).

The related costs of climate change

Additionally, one cannot ignore related costs. While there is indeed a marginal cost of running a nuclear plant (to say nothing about the initial capital outlay), it is impossible to ignore decommissioning and disaster costs. The clean-up at Fukushima in Japan was estimated at over USD 180 billion.

Preventable costs can also take the form of money needed now to tackle the effects of climate change such as floods, drought, wildfires and hurricanes. Natural disasters cost the US over USD 300 billion in 2021. The White House estimates that this could rise to USD 2 trillion a year by 2100.

Global warming looks set to cost us dearly if no action is taken. As climate change makes the impact of weather-related natural disasters more severe, it can lead to substantial income and productivity losses over time. Rising sea levels would take over land that could have been used productively; heat stress could lead to crop failures.

A UCL study predicts that by 2100, global GDP could be 37% lower than it would be without the effects of global warming. Economies in Asia would be hardest hit. China is at risk of losing nearly 24% of its GDP in a severe scenario, while the world’s biggest economy, the US, stands to lose close to 10% and Europe almost 11%.

Finally, on the cost of inaction, there are the health aspects of rising temperatures, air, water and land pollution, and other effects of climate change. The NRDC estimates annual healthcare costs related to climate change and fossil fuel use to be more than USD 820 billion a year in the US. Just consider what freeing up some of those monies could mean for living conditions.

Long before average temperatures get much higher, tail events will likely spike in severity and frequency. Witness typically rainy England subjected to 40C temperatures and drought this summer.

Do not ignore the outliers

People will ignore the outliers but these are rapidly increasing and their effects will be felt in the form of more fires, heat waves, drought, and pressure on food supplies – and not in the distant future. Expect increasing deaths and people moving home, something which can spark conflict.

The US Inflation Reduction Act can rightly be seen as a game changer. The US is the world’s second-largest greenhouse gas emitter and this legislation comes at a time when energy security is a hotter topic than it has been for years and when the need for climate action is unmitigated.

The passing of the bill could have a positive effect on global action, by restoring the US as a credible international partner on fighting climate change as the world gears up for COP27 later this year.

From an investor perspective, the US news, alongside Australia recently passing a bill to reduce the country’s emissions by 43% on 2005 levels by 2030 and India’s cabinet approving the country’s updated Nationally Determined Contribution (NDC), could result in significant further opportunities for clean energy investment not just in the US, but further afield.

[1] Source: BLS statistics

Also read:


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Related insights

Fixed income outlook: the hunt for inflation
US economy to motor on, though bumps in the road remain

In the U.S., this material is for Institutional use only – not for public distribution. This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

These documents and video clips may also include information obtained from affiliated investment management companies within BNP Paribas Asset Management, the brand name of the BNP Paribas group’s asset management services. The documents and video clips are produced for informational purposes only and do not constitute: 1. an offer to buy nor a solicitation to sell, nor shall they form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Any opinions included in these documents and video clips constitute the judgment of the author/ presenter at the time specified and may be subject to change without notice.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BNP PARIBAS ASSET MANAGEMENT USA, Inc. to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.


BNP Paribas Asset Management seeks to integrate environmental, social and governance (“ESG”) factors into all of our portfolios as a means to mitigate certain short, medium and long-term financial risks, identify better long-term investments, and encourage more responsible corporate behavior. We will never subordinate our client’s interests to unrelated objectives. Certain issuers and industries are excluded from our actively managed portfolios based upon our view of their ESG performance and risk profile. As a result, we may pass up certain opportunities when these excluded issuers or industries are in favor. Due to significant gaps in disclosure regimes around the world, we may need to rely upon voluntary disclosures by issuers, which are often not audited. We therefore may not have consistent access to complete, accurate or comparable information about the ESG performance of our holdings. Please consult the applicable offering document for more information about the specific ESG strategy employed by each investment strategy since a given strategy may not have specific ESG guidelines, and investments are not limited to securities that are ESG compatible.

BNP PARIBAS ASSET MANAGEMENT USA, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. BNP PARIBAS ASSET MANAGEMENT USA, Inc. is a registered trademark of BNP Paribas or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. © 2024 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP PARIBAS ASSET MANAGEMENT is the global brand name of the BNP Paribas group’s asset management services. © 2024 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

To access insights from our teams worldwide visit:
Explore VIEWPOINT today