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Infrastructure Act could invigorate industrials while greening America

The Infrastructure Investment and Jobs Act’s (“the Act”) $550 billion in new planned spending  signals a long-term federal commitment to upgrading existing US infrastructures and supporting a transition to a clean economy. The investments could be a boost for industrial products, engineering and construction enterprises positioned to contribute to targeted projects. The Act, however, does reinstate a superfund excise tax on producers and importers of 42 hazardous chemical substances, which will likely impact not only the chemical industry, but also those industries using petrochemical commodities. Modernizing infrastructure also is fundamental to making the country’s supply chain ecosystem more efficient, which could raise US competitiveness, especially as companies rethink global supply footprints in the pandemic’s wake.

Where the money will flow

Makers of commodity building and construction materials and other parts of the infrastructure supply chain will likely be clear beneficiaries. Many of the investments in existing infrastructure are likely to involve a swath of industrial sectors. Consider the largest allocation: about $250 billion to modernize and expand the nation’s passenger and freight transportation networks spanning roads, bridges, airports, rail, marine ports and public transit. For such projects, central players are likely to be producers of commodity building materials, including steel, aluminum, copper, cement, lumber, aggregate materials (e.g., asphalt, sand, recycled concrete, geosynthetic aggregates) and advanced materials (lightweight metals and composites). About $100 billion would be used to modernize and upgrade public transport (bus and rail), engaging bus and railcar makers and their suppliers.

Power and broadband would get jolts of funding, too.

The legislation also provides $65 billion for modernizing and adding resilience to the nation’s power grid. This funding would benefit producers of myriad components, including distribution and transmission wires, substations, and transformers to cyber-protection hardware and software. 

Part of the allocation is dedicated to expanding — by thousands of miles — the grid’s high-voltage transmission-line network to facilitate delivery of renewable energy through high-priority transmission corridors. This would help the country move to a more integrated grid that could share power among regions and potentially help control electricity price volatility and shortages. 

The push for a more expansive transmission network will also likely be accommodated by expedited permitting and other processes to better streamline networks that cross state lines. Major players for these projects would include power-transmission developers and their suppliers of materials and products, including lines, wood, steel and concrete poles, and lattices.

An additional allocation of $65 billion supports building out broadband networks, with beneficiaries including producers of fiber optic cable and companies that lay down that cable.

Clean water, EV initiatives are allocated modest funding.

The Act also earmarks $55 billion for clean drinking water initiatives, principally by replacing lead service lines. These allocations will benefit many industrials, including producers of water lines and commodity materials such as iron, steel, clay, concrete and PVC. 

Electrification of passenger cars and trucks receive modest funding, $7.5 billion. These funds  support the buildout of a national public electric vehicle (EV) charging network, which is crucial to meeting President Biden’s ambition to have half of the national fleet electric by 2030. This could lead to economies of scale (and lower costs for charges), help make EV charging a more attractive and viable business, and accelerate the buildout of the EV charger network. US-based EV battery production and research also get funding, which could lead to lower battery costs. Producers of cathode materials (nickel, cobalt, manganese) and lithium, as well as battery and charger makers, are among those that stand to benefit.

Secondary and tertiary players will also be needed across the spectrum of infrastructure projects, ranging from producers of heavy machinery (graders, excavators, aerial lifts, cranes, pumps and even aerial drones) to advanced manufacturing technology firms specializing in automation, industrial 3D-printing, industrial robotics, digital and information and communications technology, and cyber protection, etc. The Act also allocates funding to systems that capture and store carbon for power and other industrial plants, which may benefit industries that are developing such systems, such as the oil sector.

Another winner? The workforces at industrial products companies.

The Biden administration has estimated that  the legislation will generate two million new jobs. Many of them will likely be in the industrial products sector. 

Some of the infrastructure buildout will naturally rely on large industrials and multinational engineering and construction firms with a track record of building sophisticated infrastructure, such as airports. However, many projects — including roads, water-pipe replacement and grid substation modernization — will likely be awarded to local small- and midsize shops and construction firms, which will draw from a vocational workforce. These include local road and building construction firms, electricians, machinists, fabricators and welders. 

The legislation could increase demand for technologists in industrial sectors overall. It could also boost the need for green energy jobs to build and operate solar and wind farms, or to develop the infrastructure to advance hydrogen fuel.

Offsets include reinstating superfund excise taxes on chemical manufacturing, imports

The Act includes an offset by reinstating a provision of The Comprehensive Environmental Response, Compensation, and Liability Act (enacted in 1980 and allowed to expire in 1995) which imposes excise taxes on chemical manufacturers and importers to pay for hazardous substance superfund programs administered by the US Environmental Protection Agency. The Act imposes a per-ton tax on the sale of 42 chemicals, ranging from 44 cents per ton on potassium hydroxide to $9.74 per ton on benzene, butane, and other common chemicals found in fuels and industrial products. The taxes could, in turn, lead to higher costs and possible supply-chain issues for a broad range of manufacturers that use petrochemical commodities in intermediate and final products.

What should industrials consider now?

As state and local governments prioritize projects and get closer to awarding contracts and disbursing grants and loans, there are a number of steps industrial products and services companies can begin taking:

  • Define what kind of role you can play — whether as a primary player (e.g., engineering and construction) or in a supporting role (e.g., makers of commodities, heavy machinery). 
  • Get ahead of what could be a tightening (or already tight) labor market — and be prepared to pay a premium for that talent. Additionally, companies that are likely beneficiaries ought to prepare for scale-ups in operational capacity and employee base to cope with heightened demand.
  • Consider which acquisitions, joint ventures and partnerships might better position you to secure infrastructure jobs. On a higher level, there will also be a need for all levels of government (federal, state and municipal) to establish the apparatus that engenders enhanced trust in the programs — and to confirm that the disbursal and use of funds is accounted for to help prevent fraud.
  • Assess how infrastructure improvements — as they are carried out — could affect the global supply chain, and whether these improvements could strengthen the case to nearshore or reshore back to the US to add resiliency and competitiveness.
  • Chemicals producers need to prepare for excise tax Chemicals manufacturers and importers should review their operations and possible product pricing, compliance, and other effects of the Act’s reinstatement of the superfund chemical excise taxes in preparation for its proposed July 1, 2022 effective date.

Although it is unclear how quickly investments would be disbursed in the short- and medium-term, it is clear that numerous industrials will likely become key players in the infrastructure buildout over the next several years. Companies well aligned with the areas of investment will need to secure the talent and production capacities — sooner than later — to fully benefit from their participation in this new infrastructure spending. 

Additional insights on the Infrastructure Investment and Jobs Act

Modernize

Billions of federal dollars are allocated to road, bridge, rail and other modernization projects, with significant implications for businesses that depend on this infrastructure.

Learn more

Decarbonize

The provisions signal that the drive toward a more sustainable economy powered by low-carbon alternatives—including wind, solar, hydropower and nuclear—is bipartisan and considered to be in the national interest.

Learn more

Secure

Cybersecurity is not optional. The bipartisan deal allocates funding for governments to upgrade their networks, and invests to better secure power and water infrastructures.

Learn more

Fund new infrastructure

The infrastructure agreement draws on unused pandemic relief funds, strengthened tax enforcement for cryptocurrency and other offsets for funding.

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