How Biden Can Use the Defense Production Act to Power Green Industry

January 20, 2022

Welcome to the third in our ongoing series on the distinctly American industrial policy toolkit. This week, our focus is on how the Defense Production Act (DPA) could be used to make progress on a core Biden administration objective: ensuring that American workers make the green manufactured products of the future, like advanced solar panels and green steel.

First, a bit of background. The DPA was first passed in 1950, but it had precedents even further back to the wartime mobilizations during World Wars I and II. For the last 70 years, Congress has reauthorized the DPA more than 50 times on a bipartisan basis, and without significantly weakening a set of powers at the act’s core: so-called “priorities and allocations.” As we recount in an issue brief also being released today, “priorities” allow government to act like a traffic cop for private industries, determining in which sequence orders for goods and services get filled. Government procurement can go to the front of the queue when needed, as can important civilian economic needs. The Defense Department has historically been the primary user of priorities, issuing around 300,000 such orders a year. “Allocations”—while used more rarely—represent an even more potent form of industrial planning that determines which economic actors get to use available resources and how. 

The last two years have seen the most significant expansion of use of these DPA powers since the 1950s, with hundreds of actions taken to fight the pandemic, from getting testing kits and vaccines distributed, to facilitating the federal government’s shift to socially distanced and telework. And this summer, the Biden administration used the DPA to allocate private airlines’ airplanes for the Afghanistan evacuation.

While these may seem like particularly acute emergencies necessitating once-in-generations government interventions, there is nothing in the text of the DPA that would keep the executive branch from invoking it for more forward-looking industrial policy uses. Indeed, one of the notable features of the DPA is its numerous provisions encouraging the government to maximize energy supplies generally, and renewables in particular. While little noticed, the DPA played a major role in keeping electricity flowing during the 2000–2001 California energy crisis. More recently, the Navy has used the DPA to catalyze the renewable ship fuel industry.

One area where the DPA could be used to particularly good effect would be onshoring the utility-grade solar panels, cells, and components industry. Over the last 10 years, China rapidly captured the overwhelming share of the markets for these products, while in some segments of the industry, there is no US production at all. That is one reason why the US International Trade Commission (ITC)—a “trade cop” for the government—recommended “safeguard” restrictions on the imports of solar panels and cells, first in 2017 and again at the end of 2021. President Biden has until early February 2022 to decide whether he agrees. Solar importers have claimed that the tariffs are ineffective and will not lead to the reshoring of the industry, as the foreign cost advantage is so high. At the same time, they support the subsidies envisioned for the sector in Build Back Better—legislation currently stalled in Congress. 

The DPA offers a way to further close the US-foreign price disparity. By designating solar panels and components scarce and critical (and it doesn’t get much scarcer than “no domestic production at all”), the Biden administration can unlock numerous authorities to expand the market for domestically produced solar components. Even without such a designation, the government can cover the cost of all equipment installations. These efforts, coupled with the price floor supported by the ITC-recommended safeguard, can ensure that the US has adequate domestic production in the critical years to come, as demand for solar energy is expected to tick further upward.  

A second area is steel, which is on track to consume as much as half of the world’s remaining carbon budget by 2050. Last year, the US and EU announced a historic deal to use their market power to green the global steel industry. While much of the details of this deal remain to be hammered out, a Roosevelt Institute paper authored by myself and Professor Timothy Meyer of Vanderbilt University put forth a framework for design options, including a ban on the trade and production of dirty steel after a 10-year phase-in period.

One challenge for this deal: US and European steel tends to be cleaner than that of economic competitors like China, so some observers questioned whether this was an attempt to simply lock in a positive emissions status quo while gaining a trade advantage. 

Usefully, both in its own right and as a response to these critics, equipment and technology upgrades can push the domestic steel industry to decarbonize still further. This past year has seen some enormous leaps forward in the development of equipment that can support a carbon neutral future. In August 2021, the Hybrit joint venture between Sweden’s SSAB, Vattenfall, and LKAB produced and delivered the world’s first batch of green steel—produced with 100 percent fossil-free hydrogen. Once these and other equipment technologies reach a point of being able to scale and be distributed, the DPA can be used to acquire and distribute them to the nation’s industrial firms (at no cost to the firms). Because government is distributing the equipment, it could ensure that businesses with unions, with owners and workers of color, and in frontline communities have first-in-line access. Government could also use its leverage as equipment distributor to not only enable decarbonization but require firms to pay greater attention to environmental justice concerns in their siting and production decisions. Recent research has indicated this type of action could lead to 25,000 avoided deaths in marginalized communities. 

To be as effective as possible, Congress should appropriate more funds for the agencies with primary responsibility for the DPA. But even with current funding levels, DPA authorities offer broad latitude to advance greater democratic control over the composition and practices of US industry.