Air Products’ Seifi Ghasemi describes the US Inflation Reduction Act (IRA) as the carrot versus stick approach to reversing climate change.
The Chairman, Chief Executive and President of the Upper Macungie Township-based industrial gas giant, said it was the most significant piece of legislation to help tackle climate change. “It is huge, it is longer term,” he said.
Signed into law by President Biden on August 16, 2022, the IRA directs new federal spending toward reducing carbon emissions, lowering healthcare costs, funding the Internal Revenue Service, and improving taxpayer compliance.
The act aims to catalyse investments in domestic manufacturing capacity, encourage procurement of critical supplies domestically or from free-trade partners, and jump-start R&D and commercialisation of leading-edge technologies such as carbon capture and storage and clean hydrogen.
It also allocates money directly to environmental justice priorities and requires recipients of many funding streams to demonstrate equity impacts. The Congressional Budget Office (CBO) estimates that the law will reduce budget deficits by $237bn over the next decade.
Ghasemi describes the IRA as, “The most significant piece of legislation to help with climate change that anybody has ever done. It is huge, it is longer term.” He made the remark while speaking at the JP Morgan 2023 Industrials Conference, adding that the IRA will not only fight climate change, it will draw investment to ensure US Companies will be able to make products while using fewer carbon emissions, thanks to the 2022 bill.
The US strategy, using the IRA to subsidise and promote the production of green hydrogen, also shows how it differs to Europe in reducing the carbon emissions linked to global warming. The European approach to making heavy industry switch to cleaner fuel is akin to a ‘stick’.
“Europe is going with the policy of, `You have to do this, otherwise I’m going to tax you,’ ” Ghasemi said. “The IRA is saying you don’t have to use it, but I’m giving the incentive to the producer to make it cheaper,” he said. “So please use it.”
Air Products is the top producer of hydrogen, which is deemed green when it is produced without creating carbon emissions. Ghasemi said heavy industry, such as steelmaking, must use hydrogen to reduce its impact on the environment.
The IRA provides a $3 per kg production tax credit for hydrogen produced with an electrolyser using renewable power. The electrolyser splits water into hydrogen and oxygen.
Ghasemi also discussed his company’s prospects, while not providing any more details on its 2023 forecast.
“In the US, the drivers are obviously post-Covid recovery,” he said. “We are going faster than industrial production and (Gross Domestic Product) because we have new projects coming on-stream.”
He said Air Products is adding market share in helium, because it has the gas available and other makers do not. Helium is scarce, cannot be made synthetically and there are few places where it is made.
“By default, we get additional market share,” he said. As Ghasemi has noted earlier, the industrial gas business is not something that just anybody can get into. In economic terms, it has substantial barriers to entry.
He added, “The Chinese economy has been a positive surprise for us.” Much of China shuts down for the Lunar New Year Holiday in January, but Ghasemi said the country’s economy has “come back pretty well” since the festivities.
“Overall we are optimistic about the performance of our businesses in China,” he said.
Shares in Air Products are traded on the New York Stock Exchange (NYSE) under the ticker symbol APD. They were down 3.5% to $275.73 at 1:22 p.m., on a day depressed for many stocks. The Dow Jones Industrial Average was down 1.7% to 31,620.50 at that time.
