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Investors are betting on gas to meet the U.S.’s growing electricity demand. Turbine manufacturers, however, have other plans.
All American cities are at risk.
In 2025, it’s time for stern resolve and bold maneuvers.
Five years from the emergence of the disease, the world — and the climate — is still grappling with its effects.
A cynical optimist’s take on the Inflation Reduction Act.
The optimistic case for the Inflation Reduction Act — even under a Trump presidency, even with a Republican trifecta in Washington — rests on a “public investment first” view of climate policy. Public investment in the clean energy economy is not merely a second-best policy option to carbon pricing or other punitive regulations, the argument goes, but instead the first-best option in the marathon of politically durable decarbonization.
I am an outspoken proponent of this view. Public investment provides and encourages investment to drive down the cost of clean energy technologies, make them more market-competitive, and thereby reduces emissions by permanently shifting demand away from fossil fuel-dependent ones. Public investment in clean energy technologies can also create the conditions for new constituencies to gain political clout and defend their role in the economy, and for further policy ambition in the future.
The first major sign that public investment under the IRA might prove durable came in August, when a group of 18 House Republicans wrote to Speaker Mike Johnson in support of the clean energy tax credits that are the cornerstone of the legislation, emphasizing the job creation benefits of the policy. Even the American Petroleum Institute and U.S. Chamber of Commerce said back in May that they would support the IRA under a Trump presidency. Driving down costs? Check. New constituencies? Check.
It’s tempting to see this glimmer of change in favor of clean energy incentives as the consequence of groundswell political support, as voters see benefits arrive in their communities. Journalist Kate Aronoff calls this “pool party politics," named after the New Deal’s high-visibility spending on public pools which curried popular favor in the 1930s. The IRA’s benefits do tilt heavily toward red districts, so it would be nice to imagine that Republican elected officials are hearing bottom-up support and dutifully reflecting constituent interest — democracy in action.
Let’s call that the optimist’s view. My view, which one might call the “cynical optimist’s,” is that politicians — red or blue — are often more responsive to the concentrated interests and influence of lobbyists and donors than the electorate. The IRA may have gained popularity in Congress, including among Republicans, as financial and corporate interests — “capital” — started becoming IRA fans. Tim Sahay of the Net Zero Policy Lab at Johns Hopkins has called the IRA’s tax credits a “bottomless mimosa bar” for the financial market, and bankers are swanning up to get smashed on unlimited tax incentives for clean energy investment.
I favor the cynical optimist’s view because I believe it to be a more accurate picture of why the IRA is good politics. The “cynical” part recognizes that capital exerts disproportionate influence over the political process; the “optimist” part celebrates that the IRA is a powerful vehicle to appeal to their economic values. Bottomless mimosa bars aren’t just booze giveaways — they work by bringing in new customers who then stay and pay for their meals. Reformulating the interests of capital through public investment is a pragmatic and necessary antidote to the inertia of the incumbent fossil fuel industry.
A great example of the IRA gaining new types of fans is its program of expanded, transferable clean energy tax credits. Not only do these tax credits redirect tax revenue toward clean energy investment, making more projects economically justifiable, they may also develop their own market momentum. I advise Basis Climate, a platform for clean energy tax credit transfers, and when I asked co-founder Erik Underwood to tell me who is actually buying these tax credits, he told me it has mostly been savvy business people focused on minimizing their tax payments. Many of these buyers have never or only marginally participated in renewable energy deployment previously.
The tax credit transfer market has grown to $20 billion to 25 billion in a mere 20 months. By comparison, voluntary carbon markets have for decades attempted to enable green projects by creating a market for tradeable credits, yet the market is expected to reach just $2 billionglobally in 2024.
In other words, the market for clean energy tax buyers has vastly expanded the base of corporates benefiting from and supporting clean energy projects, led by transactional people who want to avoid paying taxes. Now, there are tax-hating business types of all political colors, but one can already see that the politics of the IRA are shaping up differently than, say, a pollution tax that steadily gets harsher over time.
All that said, it is important not to overstate the case in favor of the IRA’s durability. Those 18 House Republicans are down to no more than 14 post-election, and the remainder may find that falling in line with the President politically safer were he to mount a full-scale attack on the IRA. They and corporate America may also love clean energy tax credits in the abstract but happily give them up to pay for a juicy tax cut for the wealthy.
Still, the most clearly durable part of the IRA are the $78 billion in public spending and whopping $493 billion in business and consumer energy investment that it has already catalyzed as of June 2024, an estimated 71% increase in private investment from the two years before the IRA. That investment won’t be undone with policy change, and it will radically change the economics of many clean energy technologies. It also lays the foundation for later policymaking, as distant as that possibility may now feel. By creating an expanded tent of clean economy interests, the “carrot” of public investment may also help future politicians and their constituencies find “stick” policies more feasible. Penalties on high-carbon products — from gas cars to steel — become much more palatable if they are merely driving substitution to other technologies that compete on price and quality, than if they’re just making the only serviceable option more expensive.
This more nuanced telling of the politics, though, means you don’t need a star-eyed, Mr. Smith Goes to Washington view of the American political process to see how the IRA is delivering political dividends. Whatever the fate of the IRA come January, the longer the benefits flow — to communities and to capitalists — the more difficult it will be to roll back the tide.
Who will benefit most from repealing the Inflation Reduction Act?
For decades now analysts of various stripes have been predicting the end of America’s reign as the dominant world power. Some thought the war on terror, in which the U.S. spent on the order of $6 trillion turning half the Middle East into a Stygian wasteland, would crack it. Others thought the financial crisis of 2008 would sour the world on America-centered financial capitalism.
Yet nothing of the sort happened. America is simply so rich that it absorbed the burden of 20 years of war without even raising taxes. There was and is simply no alternative to the U.S. dollar for settling international transactions. The 2008 crash caused a run towards dollars, not away from them, and the U.S. Federal Reserve became the lender of last resort for half the planet — a role it replayed during the initial panic of the pandemic.
And under the Biden administration, American preeminence seemed to have gotten another lease on life. Thanks to his stimulus and industrial policy, the U.S. economy has recovered much faster than any other rich nation. The European Union is stagnating, struggling to escape from its lack of a coherent fiscal system and its decision to depend heavily on imported Russian fossil gas. China’s growth model has crashed into the middle income trap, as it struggles to pivot from an investment-driven model to a consumption-driven one.
That all changes with the second election of Donald Trump to the presidency. Him winning again, this time even the popular vote, has thrown radical uncertainty into America’s international standing — particularly when it comes to climate change and the green economy. It’s a golden opportunity for China, if it cares to seize it.
It has been obvious for years now that renewable energy and green industry are going to be the growth engines of the world economy for the rest of this century at least. Every fossil fuel power plant must be replaced with some combination of wind, solar, batteries, geothermal, or nuclear, and every power grid must be overhauled and upgraded to deal with the intermittency of renewables. All carbon-based industry and agriculture must be modified or replaced with electric-powered versions, requiring a lot more generation capacity.
It will be a transformation on par in significance with the original Industrial Revolution, requiring trillions in investment per year. Indeed, it is already happening around the world and, given the price trends of renewable energy, it is practically inevitable at this point.
China already has manifold advantages in this area. It is already the workshop of the world, accounting for almost a third of global manufacturing. It produces more than half of the world’s steel and two-thirds of its aluminum. It is also far ahead of anyone else in most green industry. It produces 80% of global solar panels, 80% of lithium-ion batteries, about 60% of wind turbines, and 58% of EVs. It also has installed more solar and wind, both onshore and offshore, than any other country by far.
Frankly, China was already positioned to more or less dominate the green energy and industry space. But under Biden, America has belatedly attempted to stand up a competing green manufacturing base, and it is working. Solar and battery investment is skyrocketing, as is manufacturing.
Trump has promised to flush all that down the toilet. He has promised to repeal the Inflation Reduction Act, the keystone Biden climate law, and gut the entire environmental protection apparatus. It’s an open question whether or not he will go that far, but if markets are any judge, the stocks of many American renewable and green industry companies plunged on the news of his victory. If Republicans win the House (which is not yet counted at time of writing), then I suspect at least a partial repeal of Biden’s climate achievements. That is basically what Trump did during his last term.
It might not even take that much. As Robinson Meyer outlines, Trump already strangled an incipient transition to EVs among U.S. automakers during his first term simply with some regulatory adjustments. The ongoing transition has been rocky for some companies, particularly Ford, and it would not take much to tip them back towards traditional cars.
If that happens then China will not have even a potential peer competitor — it will own more or less the whole green economy going forward. European, Japanese, and Korean companies might carve out a modest niche, but Africa, Latin America, and much of Asia will by and large be decarbonized and powered by Chinese products.
China has an even bigger opportunity when it comes to diplomacy. The keystone of American dominance is its alliance system. Its relationships through NATO and with New Zealand, Australia, Taiwan, Vietnam, Japan, and so on provides a public good of security in which those countries feel less need to spend hugely on defense, in return to submitting to U.S. control of global financial pipelines and other international institutions.
Electing a madman as president back in 2016 led many to question whether America was not too politically rotten to be trusted as world hegemon, and sure enough Trump, with his arrogant, erratic, and supremely transactional diplomacy, deeply alienated much of the EU, the most important ally. Biden successfully patched up the relationship, but a second Trump election could be the final straw. One election could be a fluke, but two is a pattern, and in any case Trump has suggested he might unilaterally tear up NATO. Frankly you’d be a fool to trust American diplomatic promises of any kind from now on, and a huge military buildup among jittery American allies is all but certain. As French President Emanuel Macron recently said at an EU summit, “We cannot delegate our security to the Americans forever.”
This in turn threatens international financial pipelines, either owned or regulated by the U.S. government, like Fedwire, CHIPS, Nacha, and SWIFT, that the U.S. uses for power projection. Sanctions against Russia, for instance, rely on other nations complying with American rules and surveillance on these systems.
Many, many countries are not going to be happy about the prospect of Donald Trump being able to set the rules and conditions on their international transactions. It will be a ripe opportunity for China to step in with an alternative system, and thereby knock out another pillar of American global power.
Let me emphasize that none of this is going to happen automatically. China, with its opaque and autocratic regime, has many serious domestic problems. As noted above, its domestic economy is struggling to rebalance towards consumption, and its population is rapidly aging. That said, the government recently announced a major stimulus package, which should boost consumption to some degree.
If China wanted to replace the dollar as reserve currency, it would have to give up capital controls and currency management, which would require even more wrenching reforms. Similarly, if it wants a lot of uptake on an alternative payments system, it would be well advised to not give in to its usual habit of totalitarian police state surveillance.
But the opportunity still remains. America has been one of the luckiest countries in world history — blessed in its geographic position, resource base, and with a 160-year record of not suffering major wars on its territory. But with sufficient stupidity, even the largest advantages can be canceled out. Electing one of the worst people in the country to the presidency, again, might just do it.
