TL/DR –
Volvo no longer considers tax incentives as a factor in its geopolitical investment decisions due to their unreliability. Companies that invested in the US clean energy transition under the previous administration lost heavily in July when President Trump and congressional Republicans repealed a large portion of green energy incentives. The discontinuation of these incentives has led to reduced projects, declining deployment of green tech, and job losses, and it could potentially lead to a complete distrust in US tax policy by companies.
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An executive from Volvo recently acknowledged at an international tax conference that the company no longer considers tax incentives when deciding on international investments. The primary reason for this appears to be the inherent unpredictability of tax credits. Read more about Volvo’s stance here.
This revelation is noteworthy, as it suggests that industrial policies based on tax incentives could be at risk if conglomerates increasingly disregard such incentives due to their perceived unreliability. This seems to be a sensible risk management strategy as tax incentives, particularly geared towards green energy, can be easily terminated or defunded.
The United States exemplified this risk recently, as companies that invested heavily in the US clean energy transition under the previous administration faced substantial losses in July. This occurred when President Donald Trump and congressional Republicans enacted a tax-and-spending package that retracted many of the green energy incentives established just three years earlier under the Inflation Reduction Act.
Credits for electric vehicles were eliminated, while subsidies for clean hydrogen, wind, solar, and nuclear energy were substantially reduced. The 2022 bill initially promised a decade of investment in green energy, but turned out to be a reminder of how quickly industrial policy can be overturned by changing political dynamics.
The immediate impact of reducing green tax credits is evident: there are fewer projects, a decrease in the deployment of green technology, and job losses. The long-term effects are less transparent but possibly more challenging to rectify. Once companies lose faith in the stability of US tax policy, they will stop building their strategies around it, reducing the effectiveness of tax credits as a catalyst for investment.
The viewpoint expressed by Volvo is a warning sign. If this perspective becomes the norm, legislators might find that their ability to use tax incentives as a lever to guide corporate behavior could be severely compromised.
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