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Inflation Reduction Act: Clean Energy & EV ETFs Winners

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U.S. President Joe Biden has just signed a $740 billion climate change, healthcare and tax ‘Inflation Reduction Act.’ The coming Democratic message will likely focus on the aspects of the bill that could improve Americans' lives immediately — including tax credits for electric vehicles and energy-efficient home improvements and key health care provisions.

"This is a significant piece of legislation that will have both immediate impact and longer-term economic impact, as well,” Brian Deese, Biden’s top economic adviser, told Yahoo Finance Live on Tuesday. "The goal of this bill is to do what fiscal policy can do at our current economic moment."

The bill benefits clean energy and electric vehicles sectors meaningfully. Energy Secretary Jennifer Granholm pointed to a new 30% tax credit for installing energy-efficient windows, heat pumps, or newer models of appliances. A second tax credit encourages people to install solar panels on their roofs, per CNN, as quoted on Yahoo Finance.

“There are some things that take effect into the future — some that take effect right now,” Granholm acknowledged. But, she added, “A lot of the energy provisions and the energy-efficiency provisions are applicable right now.”

The bill will include $14,000 rebates consumers can avail while buying heat pumps or other energy-efficient home appliances. The new appliances would also help families then save on energy bills. The Per White House, the 30% tax credit to install solar panels on roofs will make the costly ongoing processes more affordable and help save Americans $9,000 on energy bills over the life of the system.

Another climate aspect of the IRA is expanded tax credits for electric vehicles worth up to $7,500 for new electric vehicles and $4,000 for used electric vehicles that will be available immediately. “If you install an electric vehicle charging station in your home, you can also get a tax credit,” Granholm said. The change is a tailwind for EV makers.

No wonder, clean energy and electric vehicle ETFs are winners in light of the latest Inflation Reduction Act.

ETFs in Focus

iShares Global Clean Energy ETF (ICLN - Free Report)

The underlying S&P Global Clean Energy Index tracks the performance of approximately 30 of the most liquid and tradable global companies which represent the listed clean energy universe. The fund charges 42 bps in fees.

First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report)

The underlying NASDAQ Clean Edge Green Energy Index is modified market capitalization weighted index which track the performance of clean energy companies publicly traded in the US and includes companies engaged in manufacturing, development, distribution & installation of emerging clean-energy technologies including, but not limited to, solar photovoltaics, biofuels and advanced batteries. The fund charges 58 bps in fees.

Invesco Solar ETF (TAN - Free Report)

The underlying MAC Global Solar Energy Index is comprised of companies in the solar energy industry. The fund charges 66 bps in fees.

Global X Autonomous & Electric Vehicles ETF (DRIV - Free Report)

The underlying Solactive Autonomous & Electric Vehicles Index tracks the price movements in shares of companies which are active in the electric vehicles and autonomous driving segments. The fund charges 68 bps in fees.

iShares Self-Driving EV And Tech ETF (IDRV - Free Report)

The underlying NYSE FactSet Global Autonomous Driving and Electric Vehicle Index comprises of developed and emerging market companies that may benefit from growth and innovation in and around electric vehicles, battery technologies and autonomous driving technologies. The fund charges 47 bps in fees (read: Play "Greenflation" With These Electric Vehicle ETFs).