The US climate bill has made emission reductions dependent on economic success

The nation is entering markets already crowded with international rivals, many of which have been investing billions for decades. China alone has spent more than $50 billion to establish control of virtually every segment of the solar supply chain. To compete with China’s dominance in electric vehicle batteries, the European Union established an alliance in 2017 with the goal of ensuring that European firms are suppliers along the entire battery supply chain. To advance its goal of building domestic clean energy supply chains, the EU also spent more than 40 percent of economic stimulus funds allotted during the start of the covid-19 pandemic on green industrial policy initiatives, to build up clean-energy supply chains.

To establish US clean energy industries that can replace and compete with global wind, solar, and battery supply chains will be particularly challenging in the timeframe envisioned in the IRA. Many content requirements contained in the tax credits take effect almost immediately. But developing domestic manufacturing capacity and opening new mines could take years, not months.

If US supply chains for solar, wind, and batteries take longer to build than expected, clean energy products will fail to qualify for government support, which could in turn slow deployment. Climate policy is now explicitly framed as an economic policy issue, dependent on economic policy success in ways that could complicate efforts to reduce US carbon emissions.

This could be particularly problematic, because the use of the so-called local content requirements and other industrial policy tools in the IRA—including loans for retooling and constructing manufacturing plants—is unprecedented in the United States. And even if meeting supply chain targets turns out to be unexpectedly difficult, it would be difficult to adjust and tweak the bill. Narrow political margins in the House and Senate offer few prospects for correcting industrial policy goals and incentives contained in the IRA, even if they threaten to undermine the bill’s climate objectives.

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