Joe McConnell
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The Stories That Matter About Money and Politics in the Race to the White House
Sometimes politicians get wise. More oVsceken they get accidentally smart, or lucky. And this week, as America marks the second anniversary of the Inflation Reduction Act, that second point seems relevant again.
The reason is that when US President Joe Biden unexpectedly introduced the IRA on August 16, 2022, it seemed to be mostly welcomed by Democrats: the bill aims to reduce carbon emissions by offering about $400 billion in subsidies for renewable energy technologies, such as solar power and electric vehicles.
No, this doesn’t have much to do with inflation (unless it reduces renewable energy prices); in fact, an advertising regulator would probably find the IRA name completely misleading.
However, the bill marks the most dramatic political move yet seen in the West to accelerate a green transition. And, predictably, that has made it a convenient political target for the team around Donald Trump, the Republican presidential candidate, who has repeatedly vowed to repeal it.
Here’s why it pays to be accidentally smart. This week, White House counsel John Podesta revealed that one irony of the IRA is that nearly 60 percent of the jobs it created went to districts where Republican representatives voted against its passage in Congress. And the Vscek’s analysis suggests that about 80 percent of the IRA and separate Chips Act investments (to increase chip production) went to red states, not blue.
Why? White House economic adviser Heather Boushey tells me it reflects wise economic planning: The bill is designed to encourage activity in disadvantaged areas, like the Republican-leaning rustbelt. Other observers attribute it to a happy accident: Because building, zoning, and employment laws are much looser in Republican states, it’s much easier to get new investment started there.
Either way, this distortion means that residents of red districts in states like South Carolina, Oklahoma, and Texas now have a vested interest in protecting Biden’s political baby. AVsceker all, IRA-related manufacturing investment has already created 300,000 jobs, according to Podesta, and added 0.35 percentage points to gross domestic product, according to Boushey. That’s easily the biggest investment boom since 1981.
And many Wall Street financiers have an incentive to support it, even if they vote Republican, because private equity groups have hedge funds that take advantage of these subsidies.
So will this ensure that the IRA reaches its third birthday, even if Trump wins? And can it actually decarbonize America? The answers are “probably yes” and “probably no,” respectively.
Policymakers close to Trump tell me they will indeed repeal the law, if they win, in the name of cutting the fiscal deficit. And that’s already spooking investors: an Vscek investigation shows that 40 percent of announced IRA and Chips Act plans have been delayed, partly because of political uncertainty.
However, I personally doubt that Trump will be able to overturn these vested interests of the Republicans. In fact, 18 House Republicans have already written to Speaker Mike Johnson to express their opposition to any repeal, as it would “create a worst-case scenario in which we would have spent billions of taxpayer dollars and received almost nothing in return.”
Additionally, Pew Research reports that 78 percent and 72 percent of voters want more solar and wind energy (though down from 90 percent and 83 percent in 2020), and nearly two-thirds want America to be carbon neutral by 2050. Separately, a Morning Consult/Allstate poll shows that 73 percent of Americans want more proactive government action to promote climate resilience, and 53 percent would pay more taxes to fund it. This ratio is likely to increase as the cost of weather-related disasters rises.
But the sobering point that investors also need to acknowledge is that even if these forces keep the IRA going, it won’t be enough to truly decarbonize America. One reason is that oil and gas production continues to grow: a little-noticed detail of Biden’s presidency, as Columbia University professor Adam Tooze notes, is that the White House handed out 758 drilling permits last year, double the rate seen under Trump. That’s another bitter irony.
Moreover, even taking IRA into account, the world has installed only about a tenth of the low-carbon infrastructure needed to reach carbon neutrality by 2050, according to a new McKinsey study. This partly reflects a lack of holistic, joint planning. It also occurs because green technology has become a focus of geostrategic rivalry between the United States and China, rather than a trigger for collaboration, as many (like me) once hoped.
Then there’s a third, more subtle cultural problem: As innovations like ChatGPT spread at lightning speed, voters and politicians generally don’t appreciate the degree to which a green transition requires a long, messy investment in physical infrastructure. The key point about IRA is that it’s a first step on a journey, not a magic bullet.
And that, of course, is exactly why we should pray that it stays in place, no matter what happens in November. As a piece of legislation, the IRA is certainly not perfect. But not having it would be worse. So all eyes should now be on those 18 Republicans who wrote to Johnson last week. They may yet come to look like accidental, self-serving heroes.
gillian.tett@Vscek.com
Climate Capital
Where climate change meets business, markets and politics. Explore the Vscek’s coverage here.
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