Energy Resilience and Industrial Policy after the Inflation Reduction Act
August 18, 2022
By Sunny Malhotra
The impacts of climate change and inequality are inextricably linked. And with some of the hottest summers on record occurring in the past few years, temperatures continue to rise while real wages remain stagnant.
This does not have to be the case.
Green industrial policy, if done right, can reduce carbon emissions across critical industries without lining the pockets of the wealthy.
Green industrial policy has emerged as a clear policy priority for the Biden administration. From executive orders to determine green energy supply chain bottlenecks to the passage of the Inflation Reduction Act, there has been an increased focus on the policy tools that government can use to boost green industries in a way that works for the people.
In two new issue briefs, Roosevelt experts outline how current legislation allows for flexible and effective green industrial policy while preventing shareholder supremacy.
In our first issue brief, “Seven Ways the Executive Branch Can Turbocharge Green Industrial Policy,” Arnab Datta, Ashley George, Joel Michaels, and Todd Tucker explain how the US can reach its decarbonization goals through executive action. While it is estimated that the Inflation Reduction Act meets nearly 70 percent of the Paris Climate Accords requirements, the brief elaborates on seven tools the executive branch can deploy to close the remaining emissions gap. The Trade Expansion Act of 1962, Defense Production Act, and other laws and regulations allow for a toolbox of policy solutions that pass constitutional muster and do not require a fight in Congress. The brief outlines the tools at the executive’s disposal, ranging from implementing tariffs and carbon clubs to facilitating market transactions that could expand renewable infrastructure, decrease reliance on fossil fuels, and decarbonize heavy industries.
In our second brief, “The Need for Corporate Guardrails in US Industrial Policy,” Lenore Palladino and Isabel Estevez explain why and how the government can make industrial policy work for the people. By baking in changes to power dynamics within the regulations of industrial policy, the government can bolster domestic production while preventing shareholder primacy. The brief illustrates how our current market rules lead to increasing inequality, where gains are captured disproportionately by the wealthy. While industrial policy is necessary to promote the goals of decarbonization and domestic energy security, government funding of industry without the necessary guardrails leads to critical infrastructure investments being forgone in favor of corporate stock buybacks. The brief highlights policy tools and regulatory changes government can implement to prevent corporate kickbacks and make sure public investment benefits the public.
What This Means for Green Energy
The Department of Energy’s deep–dive assessment on grid energy storage supply chains identifies the key vulnerabilities and constraints to decarbonizing the energy sector. The reports find that insufficient research development and deployment funding, globally uncompetitive recycling policies, and heavy foreign reliance on raw materials and manufacturing are major hurdles that keep the US from decarbonization.
The Inflation Reduction Act primarily uses tax credits estimated to direct $30 billion in investments toward solar panels, wind turbines, batteries, and critical minerals processing; however, the Department of Energy estimates that $7 billion is required to build out a robust supply chain for lithium batteries alone.
Adopting the above ideas could help fill the gaps in investment and policy where the Inflation Reduction Act falls short.
By changing accounting rules as “Turbocharging Industrial Policy” suggests, more resources could be made available to build out renewable energy supply chains and reduce energy security vulnerabilities.
And as subsidies and public investment increase, implementation of guardrails that correct market failures, as suggested by Palladino and Estevez, could ensure that firms invest in production as opposed to financial extraction.
Finally, more direct policy measures—such as restricting critical imports and signing new trade agreements that favor green production—could ensure that these investments are not undercut by cheaper and more carbon-intensive products.
While the Inflation Reduction Act is a great first step, industrial policy that works for the people should not stop there. The tools and methods in our two issue briefs can fuel a renewable future that works for the people.