The Inflation Reduction Act was supposed to be “one of the most significant laws in our history”. When Joe Biden signed it into law last year, he heralded it as proof that “the American people [had] won and the special interests lost”. As it celebrates its first birthday today, are the American people still winning?
In its main goal — stimulating private investment, chiefly in the renewable energy industry — it has proven to be an outstanding short-term success. Unfortunately, however, on most other counts, this focus on green technology at the expense of other kinds of manufacturing has been a costly mistake. For all the fanfare that accompanied its launch, the IRA is unlikely to meaningfully close the gap in global markets between China’s clean energy exports and America’s, much less in manufacturing as a whole.
In the aftermath of the Covid pandemic and the unveiling of the West’s industrial dependence on China, there was a chance to rally both parties around identifying and reshoring critical manufacturing supply chains. Instead, the Biden administration and its allies in the Democratic Congress decided to spend their limited political capital on creating a slush fund for investors in green energy companies.
One would not know it from the Democratic obsession with a “just transition” away from fossil fuels, but America’s contribution to global greenhouse gases is relatively small and has fallen rapidly over the past two decades. In other words, even if the US achieved Biden’s unrealistic decarbonisation goals, most global greenhouse gas emissions would be unaffected.
Politicians are always vulnerable to the tendency to try to promote multiple unrelated goals with a single piece of legislation. Franklin Roosevelt’s National Recovery Act (1933) had good elements, but collapsed because it tried to stimulate the depressed economy and restructure American industry at the same time. With the IRA, Biden and congressional Democrats indulged in a similar temptation. Here, just one piece of legislation was supposed to accelerate the “green transition” away from fossil fuels to Net Zero, onshore manufacturing supply chains that have been lost to China and other countries, create great numbers of well-paying new jobs, revitalise “left-behind” local communities, and promote racial and gender “justice”.
In practice, this was always going to be too sprawling, premised as it was on a fusion of technocracy and progressive ideology that is already having a surreal impact on the American landscape. In May, for instance, guidance from the Internal Revenue Service on the allocation of a 1.8GW bonus to “low-income communities” divided it up in a manner incompatible with an incentive-based, market-driven energy revolution: 700 MW for low-income communities, 200 MW for Native American communities, 200 MW for facilities on affordable housing properties, and 700 MW for “low-income economic benefit projects”. Elsewhere, the IRA also included $64 billion in funding for Obama’s signature health care programme, the Affordable Care Act. This is neither rational energy policy nor rational industrial policy; it is simply political patronage for Democratic client groups.
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