Biden's Climate Law Is Ending 40 Years of Hands-off Government - The Atlantic - 0 views
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IRA industrial policy climate response energy climate change history crisis economics
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It is no exaggeration to say that his signature immediately severed the history of climate change in America into two eras. Before the IRA, climate campaigners spent decades trying and failing to get a climate bill through the Senate. After it, the federal government will spend $374 billion on clean energy and climate resilience over the next 10 years. The bill is estimated to reduce the country’s greenhouse-gas emissions by about 40 percent below their all-time high, getting the country two-thirds of the way to meeting its 2030 goal under the Paris Agreement.
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, the IRA makes a particularly interesting and all-encompassing wager—a bet relevant to anyone who plans to buy or sell something in the U.S. in the next decade, or who plans to trade with an American company, or who relies on American military power
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Every law embodies a particular hypothesis about how the world works, a hope that if you pull on levers A and B, then outcomes C and D will result
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Democrats hope to create an economy where the government doesn’t just help Americans buy green technologies; it also helps nurture the industries that produce that technology.
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The idea is this: The era of passive, hands-off government is over. The laws embrace an approach to governing the economy that scholars call “industrial policy,” a catch-all name for a wide array of tools and tactics that all assume the government can help new domestic industries get started, grow, and reach massive scale.
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If “this country used to make things,” as the saying goes, and if it wants to make things again, then the government needs to help it. And if the country believes that certain industries bestow a strategic advantage, then it needs to protect them against foreign interference.
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From its founding to the 1970s, the country had an economic doctrine that was defined by its pragmatism and the willingness of its government to find new areas of growth.
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It’s more like a toolbox of different approaches that act in concert to help push technologies to grow and reach commercial scale. The IRA and the two other new laws prefer four tools in particular.
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“Yes, there was an ‘invisible hand,’” Stephen Cohen and Brad DeLong write in their history of the topic, Concrete Economics. “But the invisible hand was repeatedly lifted at the elbow by the government, and placed in a new position from where it could go on to perform its magic.”
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That pragmatism faded in the 1980s, when industrial policy became scorned as one more instance of Big Government coming in to pick so-called winners and losers.
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The two other large bills passed by this Congress—the $1 trillion bipartisan infrastructure law and the CHIPS and Science Act—make down payments on the future as well; both laws, notably, were passed by bipartisan majorities.
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Since the 1980s, when Congress has wanted to spur technological progress, it has usually thrown money exclusively at R&D. We have had a science policy, not an industrial policy
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inextricable from that turn is Washington’s consuming anxiety over China’s rise—and China has embraced industrial policy.
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although not a single Republican voted for the IRA, its wager is not especially partisan or even ideological.
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the demonstration project. A demonstration project helps a technology that has previously existed only in the lab get out in the real world for the first time
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supply-push policies. As the name suggests, these tools “push” on the supply side of an industry by underwriting new factories or assuring that those factories have access to cheap inputs to make things.
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demand-pull policies, which create a market for whatever is coming out of those new factories. The government can “pull” on demand by buying those products itself or by subsidizing them for consumers.
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protective policies, meant to insulate industries—especially new ones that are still growing—from foreign interference
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Although both parties have moved to embrace industrial policy, Democrats are clearly ahead of their Republican colleagues. You can see it in their policy: While the bipartisan infrastructure law sets up lots of demonstration projects, and the CHIPS Act adopts some supply-push and protectionist theory, only the IRA uses all four tools.
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In order to stop climate change, experts believe, the United States must do three things: clean up its power grid, replacing coal and gas power plants with zero-carbon sources; electrify everything it can, swapping fossil-fueled vehicles and boilers with electric vehicles and heat pumps; and mop up the rest, mitigating carbon pollution from impossible-to-electrify industrial activities. The IRA aims to nurture every industry needed to realize that vision.
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Hydrogen and carbon removal are going to benefit from nearly every tool the government has. The bipartisan infrastructure law will spend more than $11 billion on hydrogen and carbon-removal “hubs,” huge demonstration projects
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These hubs will also foster geographic concentration, the economic idea that when you put lots of people working on the same problem near one another, they solve it faster. You can see such clustering at work in San Francisco’s tech industry, and also in China, which now creates hubs for virtually every activity that it wants to dominate globally—even soccer.
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Then the IRA will take over and deploy some good ol’ supply push and demand pull. It includes new programs to underwrite new hydrogen factories; on the demand side, a powerful new tax credit will pay companies for every kilogram of low-carbon hydrogen that they produce
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Another tax credit will boost the demand of carbon removal by paying firms a $180 bounty for trapping a ton of carbon dioxide and pumping it undergroun
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Today, not only does China make most batteries worldwide; it alone makes the tools that make the batteries, Nathan Iyer, an analyst at RMI, a nonpartisan energy think tank, told me. This extreme geographic concentration—which afflicts not only the battery industry but also the solar-panel industry—could slow down the energy transition and make it more expensive
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the new tax credit is also supply-minded, arguably even protectionist. Under the new scheme, very few electric cars and trucks will immediately qualify for that full $7,500 subsidy; it will go only toward vehicles whose batteries are primarily made in North America and where a certain percentage of minerals are mined and processed in the U.S. or one of its allies. Will these policies accelerate the shift to EVs? Well, no, not immediately. But the idea is that by boosting domestic production of EVs, batteries will become cheaper and more abundant—and the U.S. will avoid subsidizing one of China’s growth industries.
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Right now, next to no solar panels are made in the U.S., even though the technology was invented here. The IRA endeavors to change that by—you guessed it—a mix of supply-push, demand-pull, and protectionist policies. Under the law, the government will underwrite new factories to make every subcomponent of the solar supply chain; then it will pay those factories for every item that they produce
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“It’s realistic that within four to five years, [U.S. solar manufacturers] could completely meet domestic demand for solar,” Scott Moskowitz, the head of public affairs for the solar manufacturer Q CELLS, told me.
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In each of these industries, you’ll notice that the government isn’t only subsidizing factories; it is actually paying them to operate. That choice, which is central to the IRA’s approach, is “really defending against the mistakes of the 2009 bill,” Iyer told me. In its stimulus bill passed during the Great Recession, the Obama administration tried to do green industrial policy, underwriting new solar-panel factories across the country. But then Chinese firms began exporting cheap solar panels by the millions, saturating domestic demand and leaving those sparkly new factories idle
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So many other industries will also be touched by these laws. There’s a new program to nurture a low-carbon aviation-fuel industry in the U.S. (Long-distance jet travel is one of those climate problems that nobody knows how to solve yet.)
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the revelation of the IRA is that decarbonizing the United States may require re-industrializing it. A net-zero America may have more refineries, more factories, and more goods production than a fossil-fueled America—while also having cheaper cars, healthier air, and fewer natural disasters. And once the U.S. gets there, then it can keep going: It can set an example for the world that a populous, affluent country can reduce its emissions while enjoying all the trappings of modernity,
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There are a slew of policies meant to grow and decarbonize the U.S. industrial sector; every tax credit pays out a bonus if you use U.S.-made steel, cement, or concrete. “You would need thousands and thousands of words to capture the industries that will be transformed by this,” Josh Freed, the climate and energy leader at Third Way, a center-left think tank, told me.
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Five EVs were sold in China last year for every one EV sold in the United States; that larger domestic market will provide a significant economy of scale when Chinese EV makers begin exporting their cars abroad. For that reason and others, many people in China are “deeply skeptical” that the U.S. can catch up with its lead,
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We are about to have a huge new set of vested interests who want the economy to be clean and benefit from that. We’ve literally never had that before,” Freed told me.
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that is the IRA’s biggest idea, its biggest hypothesis: that America can improve its standard of living and preserve its global preeminence while ruthlessly eliminating carbon pollution; that climate change, actually, doesn’t change everything, and that in fact it can be addressed by changing as little as possible.
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This hypothesis has already proved itself out in one important way, which is that the IRA passed, and the previous 30 years of climate proposals did not. Now comes the real test.