Abstract: The Biden administration introduced the Inflation Reduction Act in August 2022, allocating nearly $400 billion in expenditure in climate energy over the next decade, sparking widespread debate. Similar to the chip policies, U.S. industrial policies for climate change mitigation also focus on subsidizing production and investment for clean energy, alongside numerous clauses to promote local production. Overall, unlimited tax credits combined with a surge in private sector investment could push government spending up to $0.8-1.2 trillion over the next decade.
The significant subsidies could lead to the following impacts: 1) aiding partial achievement of the emission reduction goal of "cutting U.S. emissions by at least 50% below 2005 levels by 2030," 2) significantly impacting specific industries like electricity but negligibly affecting overall U.S. output, 3) promoting the production and use of EVs in the U.S., yet potentially falling short in improving the EV supply chain, 4) generating numerous job opportunities while accompanying major shifts in employment structure, 5) relying solely on massive subsidies proves inefficient and may incite a "subsidy race," 6) the severe implications for the international trade system from requirements on local content. Furthermore, U.S. climate change industry policies noticeably favor low-income areas.
Drawing from the experiences with U.S. industrial policies and considering the controversies surrounding current industrial policies, this report proposes several considerations. First, effective climate policies cannot rely solely on subsidies. Second, it is not undesirable to initiate a "subsidy race" that violates WTO rules; cooperation is key to addressing global climate challenges. Third, the effectiveness of place-based policies requires further observation. Fourth, addressing climate change and energy transition necessitates employment structure adjustments, prompting further consideration on alleviating negative impacts in fossil fuel-intensive industrial regions.
