US government will spend to make national green industry – 02/08/2023 – Vinicius Torres Freire

Last year, the US approved two major laws to encourage domestic industry, research and the training of skilled labor. It’s about “CHIPS and Science” and the Inflation Reduction Act (“IRA”, a fancy name, because the big package deals with something else).

Among other government incentives, the law foresees expenses or tax rebates of US$ 280 billion (in five years) to stimulate the production of semiconductors (“chips”) and research in energy, nuclear physics, etc.; at least $400 billion (over ten years) to fund clean energy industries and initiatives.

In the case of the green package, as many tax incentives are not limited, the money could reach US$ 800 billion, in the estimation of Credit Suisse (the total depends on the amount of investment and consumption “green”).

Around here, we don’t care about this huge subject. The European Union is worried (fears losing business to the US). If the green plan succeeds, the cost of clean energy will drop a lot in the US and equipment production will increase, as well as investment in renovations and construction of facilities suitable for the new energy standard.

It’s the old industrial policy: incentives for the development of economic sectors via regulation, tax money in the vein of companies and consumers or requirement of “domestic content” (production and consumption receive incentives only if so much of the product is made in the USA) .

It is also an attempt to undermine companies from “problem” countries (China and Russia). Several of the rules in the IRA law may violate World Trade Organization rules.

The IRA law is an offspring of the “Build Back Better” bills, Joe Biden’s much more ambitious package, including social benefits, which pissed in the Senate in 2021. But it’s big. It is also about raising corporate taxes, the price of medicine, health insurance, public deficit, etc.

The bulk of the IRA deals with incentives for the production and use of clean energy, carbon capture, fuel hydrogen, electric vehicles, solar panels, wind turbines, efficient use of water and land, purchase from local suppliers (of steel, iron, raw materials batteries and more).

If the expenditure estimates (or revenue foregone) are right, the money is small, in relative terms: initially, about 0.4% per year of a GDP of US$ 26 trillion. It should help the US reach the ambitious goal of halving greenhouse gas emissions by 2030. If successful, it will change the energy business worldwide.

This is a tiny introductory note to a huge subject. Immediately, there are some lessons.

First, industrial policy is not dead, at least for those who can, have money, intervene “lightly”, intelligently and have a functional and flexible market economy, which can effectively take advantage of incentives.

Second, the Covid pandemic, the War in Ukraine and the intensification of the conflict between China and the US are stimuli for “deglobalization”, local production of certain goods and the search for “reliable” suppliers, close countries and/or “friends”. . It’s a business opportunity.

It is necessary to think about how to make industrial policy, despite our limitations, such as a government without money, a dysfunctional market economy, unskilled labor and a history of catastrophic mistakes.

Instead of idle talk about interest rates and spending, the country should be thinking about how to find a niche in this more “deglobalized” world or, at a huge risk, how not to be left behind and commercially isolated because of “dirty” production (in agriculture , mining and more) or technologically obsolete.

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