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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Inflation Reduction Act Leads To Record Spending On New U.S. Factories

  • Supply of crude oil is tightening on a global level.
  • Wood Mackenzie reported earlier this year that global upstream investments will continue to rise, but much of it is inflation related.
  • Last year’s energy crisis may have eased significantly but hasn’t been concluded yet.

The Inflation Reduction Act and the pandemic and geopolitical impacts on major supply chains are driving increased spending on manufacturing-related construction spending in the United States.  

Spending on factory building is at a record high, thanks to the incentives for clean energy in the IRA and efforts to reshore supply chains to the U.S., especially in semiconductors and critical materials supply for electric vehicles and renewable energy, analysts and industry officials say.   

Manufacturing-related construction spending hit a record $108 billion in 2022, according to Census Bureau data cited by The Wall Street Journal.

The CHIPS and Science Act and the IRA are expected to result in the creation of new manufacturing and hundreds of thousands of jobs, and some estimates already point to increased demand for clean energy jobs. 

The IRA has nearly $370 billion in climate and clean energy provisions, including investment and production credits for solar, wind, storage, critical minerals, funding for energy research, and credits for clean energy technology manufacturing such as wind turbines and solar panels.

Some Europe-based companies have also announced expansions in U.S. operations, attracted by the provisions in the IRA. 

Since the IRA was passed into law, BMW has announced a $1.7 billion investment in its United States operations, including $1 billion to prepare for the production of electric vehicles at Plant Spartanburg, and $700 million to build a new high-voltage battery assembly facility in nearby Woodruff, S.C.

FREYR Battery of Norway announced in November plans to build a U.S. Gigafactory in Georgia.

“Expanding into the U.S. has been a foundational aspect of FREYR’s long-term strategy from our inception, and with the recent passage of the Inflation Reduction Act, we expect U.S. demand for ESS, passenger EV and other electric mobility applications to grow rapidly over the next decade,” said FREYR’s Co-Founder and Chief Executive Officer Tom Einar Jensen.

In the fourth quarter of 2022, manufacturing-related construction remained the best performer among nonresidential construction segments, accounting and advisory services firm Marcum LLP said in its Marcum Commercial Construction Index for Q4 2022.  

“A combination of trade tensions, pandemic induced supply chain anxiety, and a resulting effort to reshore production has led to an array of massive domestic manufacturing projects,” said Anirban Basu, Chief Construction Economist at Marcum. 

“As a result, manufacturing-related construction spending is up 58.2% since the start of the pandemic, well above the 6.6% increase in overall nonresidential spending.” 

Companies are raising investments domestically, the Q1 2023 Manufacturers’ Outlook Survey of the National Association of Manufacturers showed last month.

“Of companies that are engaged in international trade, 62.3% are planning to increase investments and/or sourcing in the United States after reevaluating their company’s supply chains,” the survey found. 

At the same time, three-quarters of manufacturers cited the inability to attract and retain employees as their top primary challenge, preceding other concerns including increased raw material costs, supply chain challenges, rising health care and insurance costs, a weaker domestic economy, and an unfavorable business climate, the association noted. 

Clean energy projects and jobs are booming, according to a report from Climate Power

Clean energy companies announced 101,036 new jobs in 31 states between August 16, 2022, when the IRA was passed, and January 31, 2023. As of the end of January, there were over 90 new clean energy projects in small towns and bigger cities nationwide totaling $89.5 billion in new investments, Climate Power said.  

U.S. renewables manufacturers could greatly benefit from the IRA, Daniel Liu, Head of Asset Commercial Performance, Power and Renewables, at Wood Mackenzie, said earlier this year. 


The tax credit for U.S.-made renewables equipment and the incentive for developers of U.S. renewable projects to purchase domestically produced equipment spell “boom time for US renewables manufacturers.” 

“We assess the Act will greatly aid the expansion of US renewables equipment manufacturing capacity, though specific opportunities will vary from segment to segment,” Liu said. 

Chad Moutray, chief economist at the National Association of Manufacturers, told Marketplace last week, “We had the CHIPS and Science Act, which is encouraging a lot more semiconductor production in the U.S.” 

“The Inflation Reduction Act encourages a lot of particularly battery production in the EV market to take place here.” 

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on April 11 2023 said:
    This is happening at the expense of the hapless EU. While the Inflation Reduction Act (IRA) and its incentives are driving increased spending on factory building in the United States and encouraging relocations of many European oil companies to the US with some Europe-based companies announcing expansions in U.S. operations, the EU is so meek that it can’t stand up to the United States and take retaliatory measures to defend its the economy. It is busy supplying money and weapon to Ukraine.

    And while the EU has in the past complained that the United States was supplying it with LNG at 3-4 times the price it sells in the domestic market with French President Emanuel Macron describing it as double standards and raising the complaints with President Biden during his visit to Washington DC in December, the EU didn’t dare stop its US LNG imports and President Biden seems to have ignored President Macron’s complaints.

    The EU seems to be witnessing aspects of self-interest and selfishness from its closest ally. But then it has no one to blame but itself for letting the US walk all over it.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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