The US climate law made emissions reductions conditional on economic success

The country is entering markets already crowded with international competitors, many of whom have invested billions over decades. China alone has spent more than $50 billion to establish control over virtually every segment of the solar energy supply chain. To compete with China’s dominance in electric vehicle battery production, the European Union created an alliance in 2017 with the aim of ensuring that European firms are suppliers throughout the battery supply chain. To advance its goal of building internal clean energy supply chains, the EU has also spent more than 40 percent of economic stimulus funds allocated at the start of the COVID-19 pandemic on green industrial policy initiatives to build clean energy supply chains.

Building a clean energy industry in the U.S. that can replace and compete with global wind, solar, and battery supply chains will be especially challenging in the IRA’s timeframe. Many of the content requirements contained in tax credits take effect almost immediately. But developing domestic production capacity and opening new mines can take years, not months.

If U.S. supply chains for solar, wind and batteries take longer than expected, clean energy products will not be able to qualify for government support, which in turn could slow deployment. Climate policy is now clearly framed as an economic policy issue that depends on the success of economic policy in a way that could complicate efforts to reduce US carbon emissions.

This can be particularly problematic because the use of so-called local retention requirements and other industrial policy tools in IRAs, including loans for retooling and construction of manufacturing plants, is unprecedented in the United States. And even if meeting supply chain targets turns out to be unexpectedly difficult, it will be difficult to adjust and adjust the score. Narrow political fields in the House and Senate offer little prospect for fixing the industrial policy goals and incentives contained in the IRA, even as they threaten to undermine the bill’s climate goals.

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