Biden’s carrot patch: The whole (energy) world loves the Inflation Reduction Act

The catalyst for clean energy investment has always been a mix of regulatory “sticks” and industrial policy “carrots.” For now, industrial policy is on the ascent. Last week U.S. Secretary of Energy Jennifer Granholm walked into S&P Global’s CERAWeek (an 8,000-delegate conference sometimes called the “Davos of Energy”) advertising a big, fat, juicy bag of carrots — courtesy of the Inflation Reduction Act (IRA). “[That’s] 10 years of IRA carrots you can take to the bank,” she proclaimed. Indeed, sometimes CERAWeek looked like an industry stampede toward a Biden administration carrot patch — a stampede that promises to unleash an avalanche of investment and innovation in the years to come. 

CERAWeek convenes annually in Houston, Texas. And despite the city’s oil and gas bona fides, it draws a diverse audience, including African oil ministers, utility execs, academics and policymakers, as well as an increasingly important coterie of players in the battery, wind and solar industries. The conference’s founder and patron saint, Pulitzer Prize Winner Daniel Yergin summed up this year’s vibe in a conversation with the CEOs of two major oil companies, Hess and ConocoPhillips. “The big discussion this week,” he said, “is the Inflation Reduction Act.” The reason is simple: The IRA has shifted the calculus of global energy markets. 

The importance of this recalibration cannot be overestimated. America has traditionally been the developed world’s most free-market economy. For many decades, America’s light-touch approach has allowed energy players to shuffle capital, squeeze workers, buy back shares, offshore investments and environmental problems while onshoring profits. But to profit from the IRA companies will have to do just the opposite: onshore supply chains, pay prevailing wages, invest handsomely in U.S. manufacturing communities, as well as adhere to strict environmental and labor standards. 

The IRA is a grab bag of policy goals. On the one hand, it’s an effort to onshore sensitive manufacturing and supply chains from economic competitors like China. But it’s also America’s largest ever foray into addressing climate change. It subsidizes a wide swath of clean energy tech and goes one step further by providing rich incentives for carbon capture and sequestration efforts. The IRA is also an effort to harvest the fruits of lavish government spending on white coat innovation and distribute them to blue collar workers in the form of quality manufacturing jobs. America has been the world’s largest investor in research and development (R&D) for as long as anyone can remember, with the federal government as the largest investor in basic R&D. But in sectors ranging from computer chips, to solar panels, to flat screen TVs and electric cars, other countries have captured large market shares through policy incentives for manufacturing and deployment. In comparison, America has been relatively stingy in its efforts to plow government capital into manufacturing and strategic sunrise industries. 

Nowhere is this more true than electric vehicles (EVs) — where despite Tesla’s success, America lags a distant third behind China and Europe in both production and sales. China hosts more than 80 percent of the world’s fast publicly available EV charging stations, while the U.S. hosts nearly 4 percent, as of 2021. And China and Europe are racing ahead in next-generation technologies like battery swapping — with thousands of swapping stations that can repower an EV in minutes. 

But the IRA is bound to change that.

In hindsight, the celebrated Obama administration era clean energy programs were modest and paled in comparison to the scope of the economic transition required to address climate change. Their implementation was also chaotic. IRA incentives are much larger — a commonly accepted number is an estimated $370 billion — and, thus far, the Biden administration’s clean energy spend appears to be better designed and more self-assured in implementation. 

Surprisingly, judging from the conversations at CERAWeek, the traditionally right-wing energy industry and many of America’s economic rivals are all about it.

The Department of Energy (DOE) Loan Programs Office, led by Jigar Shah, arrived in force with a small army of staff attending meetings with companies hungry to borrow money at subsidized interest rates. Energy Department officials fanned out among the dozens of concurrent sessions, preaching the IRA gospel to ecstatic congregants. 

Then on Wednesday, the IRA’s drumbeat reached a fever pitch when Secretary of Energy Jennifer Granholm stood before thousands and braggadociously proclaimed that the IRA had made investment in the United States “irresistible.” She had the numbers to back it up, too — touting over 100 announcements by battery manufacturers to expand or establish manufacturing projects in the U.S. 

Some of the enthusiasm from the CEOs of ExxonMobile, BP, Hess and ConocoPhillips was, without doubt, greenwashing in my view. This was vividly pointed out by a very vocal protestor who snuck her way into the main hallway of CERAWeek’s executive conference disrupting the proceedings. But much of it is real. The fact that America’s industrial juggernaut is finally coming around toward climate progress is beyond dispute. And the IRA is stoking the engines. And in a deeply divided country, that’s what we call progress.

Levi Tillemann is a former member of the Obama administration Department of Energy, senior adviser to Valence Strategic and joined Ample from the World Economic Forum where he was leading an initiative on decarbonizing manufacturing, use-phase and end of life emissions of the automobility ecosystem. Tillemann is also the author of “The Great Race: The Global Quest for the car of the Future” (Simon and Schuster 2015).