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How Biden's Inflation Reduction Act changed the world | FT Film

Apr 06, 2024
The bill I am about to sign is not just about today. It's about tomorrow. It's about bringing progress and prosperity to American families. The Inflation Reduction Act was the largest clean energy investment in


history. The Inflation Reduction Act will rapidly accelerate our path to net zero. Broad legislation designed to decarbonize the US economy, reshoring supply chains and also breaking dependence on China. It levels the playing field for Western producers. It is the largest investment of any type in the history of the US solar industry. The so-called Paris Climate Agreement is a disaster, a death sentence.
how biden s inflation reduction act changed the world ft film
It is possible that Donald Trump will be re-elected in 2024. And at that point, I think all bets would be off. The big question is whether this ends up becoming a trade war. We thought we were in the era of free market globalization. And now we are not. The Inflation Reduction Act is actually a very misleading name because it has very little to do with reducing


, particularly in the short term. It is a piece of industrial policy. It is a part of climate policy. It is a part of trade policy. It is not an



how biden s inflation reduction act changed the world ft film

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how biden s inflation reduction act changed the world ft film...

It is full of tax credits designed to attract investment into the American economy. And it will all be funded by the federal government for the next 10 years. The IRA includes $370 billion in tax credits, loans and grants to incentivize domestic manufacturing. The Biden administration says, you know what? It's important for America to make things. It is important not only that we transition to a greener economy, but it is also important to be able to secure supply chains. This is a big change. This is a 50-year change in the way the economy will work. Will this really create long-term viable industries that are more competitive than the Chinese ones?
how biden s inflation reduction act changed the world ft film
We have to face the risk that it won't work. And when the subsidies stop, unless they are there forever, the program won't really have worked. And some of them can become white elephants. I'm John Podesta. I am overseeing the implementation of the clean energy provisions of the Inflation Reduction Act, the largest investment in clean energy and attacking the problem of climate change in the history of the


. The emissions impact of the IRA is expected to be reduced by around 40 percent by 2032 if all tax credits are used. At the heart of this was an economic theory.
how biden s inflation reduction act changed the world ft film
Invest in American technology and manufacturing, boost the economy, reduce the dependence that the United States had on single and unreliable suppliers of certain goods and materials. The Chips and Science Law was passed first. It is a much smaller industrial policy. It includes around $52 billion to incentivize semiconductor research and stimulate semiconductor production in the United States. It's really, in a way, a part of the legislation. It is also about relocalizing supply chains. According to a Financial Times investigation, the IRA and the Chip Act together have helped spur more than $220 billion in manufacturing, cleantech and semiconductors. This will create more than one hundred thousand jobs.
It is clearly designed to tell the world that the United States is once again a major player in global industry and in the climate fight. Sleepy old America is gone. We've already seen over $115 billion of investment in clean manufacturing, over $125 billion in utility-scale renewable energy. Then we have Arizona, which is sucking up money from the Inflation Reduction and Chip Act, Midwestern states like Ohio, Michigan and upstate New York are taking advantage of this. In the Southeast, Georgia, states that once resisted clean energy and so on for political reasons. I think what you're seeing in Georgia is a bipartisan acceptance of the opportunities and investments in advanced energy manufacturing and electric vehicle manufacturing that are being leveraged by these manufacturing and infrastructure policies.
We made the initial investment in the United States in 2018. And we are making a much larger expansion after the passage of the Inflation Reduction Act. This is an investment of 2.5 billion dollars. By the end of next year, we will collectively employ about 4,000 people directly across the state. It is the largest investment of any type in the history of the US solar industry. We have worked very closely with people in Georgia and Washington DC for the last five years. Solar manufacturing policies, along with this comprehensive manufacturing incentive package, are designed to make Georgia the national and global leader in advanced energy innovation and manufacturing.
Solar technology and solar products are strategic raw materials (polysilicon, ingots, wafers, cells), but have historically had significant dominance in the Chinese market. Our energy security, our energy independence, and our environmental future depend on our production of these component technologies in the United States. The solar panels we manufacture here in this factory are used for both commercial and residential use. Now you're going to see where the magic happens. I started my career in the manufacturing industry because I knew I wanted to follow in my parents' footsteps and dedicated myself to the textile sector: women's underwear. Georgia was not known for its advanced manufacturing.
Our facilities here have transformed the labor market. We will keep the students. When they get out of school and come to work, they buy houses here. We want to see the entire supply chain of our product here in Georgia. Products leaving this facility will contain cells, wafers and polysilicon that originated in the United States. A state like Georgia has a lot of land. Their labor is relatively cheap. Your governor has been very progressive in terms of offering subsidies in addition to those that come with the federal Inflation Reduction Act. And developers are reaching out to what is now called in the south the battery belt.
For example, Norway's FREYR announced a $2.6 billion factory in Georgia, which will create more than 700 jobs. Production tax credits in the IRA level the playing field for Western producers. The hope is that over the 10 years of the IRA program scale has developed and supply chains have been developed. Then Western producers will be able to compete one on one with Chinese producers from then on. That's why our initial project in Georgia, United States, is called Giga America. We have a location south of Atlanta. The investment amount will be approximately $2.5 to $3 billion, and could rise to $4.5 to $5 billion. Critics, especially outside the United States, have called the Inflation Reduction Act and the Chip Act a new form of protectionism, an extension of what Donald Trump was doing.
From this day on it will be just America First. The United States is undergoing a bipartisan shift, bringing to the United States industries in which China is or potentially will be dominant. Biden is doing it through subsidies. Trump did it through tariffs. Now we see companies like General Electric, an American company that absolutely embodied the idea that you could build things cheaper overseas and then sell them to Americans. He relocated everything he could. Now GE is building a new factory in Schenectady, New York. Schenectady, New York, represents much of General Electric's legacy. It's where Edison founded the company.
We are investing 50 million dollars. We are adding 200 union jobs to create what will be the largest land-based wind and cellular energy facility in the United States. I'd like to think you know they would have chosen Schenectady anyway. But probably not. I know the IRA has been a big part of it. We are in upstate New York. We're probably not the lowest labor rate in the world. It's a very good job for the skill set that we have and to bring in all this new blood that can then learn from people who have been building generators and turbines for 30 years.
General Electric is a major employer for the Schenectady area and, frankly, depending on which chapter, for the last 20 years, we have been cutting jobs, not adding jobs. I am actually a third generation GE Schenectady employee. My grandfather started here in 1952 and retired in the '70s. My father retired after 40 years of service in 2010. I worked down the hall with someone who goes back five generations. Most people here have a relative who worked at General Electric. If you're from Schenectady, you know someone who worked for GE at one time. Schenectady peaked, maybe back in the '60s and '70s, with 40,000 people here.
There are still more than 5,000 people on the Schenectady campus. This is by far the largest investment I have been a part of in my 26 years here. Factories like to know that they have their work cut out for them and that they will be here for a long time to be sustainable. And for the company to have enough confidence that Schenectady can do this, that we're the right place to do it, is just huge. Developers are listening. They understand that because of these tax credits, they can actually prosper in America. They can make profits there. It will have an impact on global trade.
It seems protectionist. It is clearly designed to move production from abroad to the United States. And that's ultimately what a lot of protection is designed to do. Some of the architects of globalization, for example, John Podesta, who is now President Biden's official in charge of the Inflation Reduction Act, was part of the Clinton administration, opening global markets, and then was part of the Obama administration that made the In the same way, 30 years of American economic policy are going in one direction. US policy now is to reindustrialize its core areas, even if that means cutting off cheap supply from elsewhere.
It's a fundamentally different approach. We are in talks with our allies, friends and trading partners and signed a critical minerals agreement with Japan. We have a free trade agreement with Canada and Mexico. We have a free trade agreement with Korea that allows them to take advantage of some of the provisions of the IRA. We are in deep conversation about the possibility of reaching an agreement on critical minerals with Europe. What the Inflation Reduction Act has shown countries around the world is that they too can be part of the solution. They can make those investments. The Inflation Reduction Act has


the world.
We truly are at an inflection point. We are moving from a world that has globalized, a world in which rich countries have essentially been offshoring and outsourcing production to emerging markets and developing countries. The IRA program is created to promote green nationalism. Ronald Reagan's attitude toward economic policy and his famous comment, "the nine most dangerous words in the English language are: I'm from the government and I'm here to help," that's just dead, and bipartisanship is dead. The Biden administration thought it was rejoining the climate fight. Everyone would appreciate American leadership. In fact, the reaction, especially in Europe, has been quite hostile.
It is clearly a violation of the WTO. You could say that at this point the WTO is moribund anyway. Who cares? But it's another nail in the coffin. The basic consensus was that governments create the rules, the framework within which companies operate. But governments are not really in the competitive arena with their money. Once you move into a world where they are, everything becomes very uncertain and unpredictable. And it makes cooperation much more difficult. And these were all the reasons why, after the 1930s, we tried to create something like the GATT-WTO. Therefore, it could be very bad for international relations and the international economy.
It received a lot of criticism from Europeans, which I found surprising because Europe - and many countries, for example - have complained for years that the United States should do more on climate. This bill marks a fundamental departure from the market-knows-best approach. We are going to say that climate change is a war that we have to win. Fighting for a clean energy future requires an industrial strategy. And that's not about the market. It's about the state being an actor in the economy and really driving changes that, frankly, the market hasn't made in the last three or four decades.
It will clearly encourage European companies to invest in the United States. In fact, it is already happening. It's making America lookmore attractive and more competitive. They are doing it with the fiscal power of a unified federal government. And the Europeans obviously have a very difficult time responding to that as a whole because they don't have federal tax power. The worry, of course, is that the response in Europe will generate a subsidy war within Europe. We have already started a subsidy where we have a kind of arms race that has started, a green arms race. Do we need subsidies or economic incentives to develop this industrialization?
Yes. By the way, there is a risk of a subsidy battle, even internally in the EU, because, of course, the level of development of the countries is different. This race to the bottom on domestic subsidies could fundamentally distort and even, I believe, threaten the single market. Everyone knows who will win this subsidy war. Germany will win it because its fiscal position is much stronger and it has a larger domestic market. What the IRA has allowed is for the United States to take a leadership position in the transition. I think that's something they're striving for. I don't think this will necessarily put the United States in a leadership position until scale is seen to be built.
What that means for Europe, I think, is a challenge for some of the European jurisdictions. It has been a wake-up call for Europe regarding industrialization policy, something that is not done at the European level. It is not a force of industrialization, just as it is not a force of foreign policy, due to the nature of the institution it is not the federation. Where is the competitiveness space for Europe? And in some cases, the Chinese have already won in the battery industry or the electric vehicle industry. Maybe we have space. But we have to define this. Can we do it together with the United States or independently?
I think that's a big question mark. What I hear from many European companies and also from European governments is that the United States is putting pressure on us. We need to act together. We want to see rapid deployment of clean technologies in Europe. That is for the benefit of the world. And that's why we're having conversations about things like trying to get an agreement on critical minerals. There is a good chance that at some point the EU and the US will agree on some shared way of sourcing minerals for the energy transition. But for now, tensions are at the forefront.
And they could get much worse. It will create commercial tension. It is already creating commercial tension. We know that no one can develop alone. And we need this balance between openness and national development. So these are very uncharted waters. It could be very dangerous. We are exactly in the format of the 1914s: more protectionism, more tension, more military investment. That doesn't bode well. One could imagine that retaliation on the one hand leads to counter-retaliation at the global level in the context in which there are already very bad relations between the Western powers and China, and leads to a very dangerous downward spiral in trade and international relations.
What this legislation aims to do is ensure that the United States maintains its commitment to climate. And it will have a very substantial benefit for the global economy. Make no mistake about it. Investments in the United States, which will drive down the price, will help global economies expand at scale. And it will be a huge challenge to get these factories built and running. Construction groups believe the sector needs to fill another 500,000 new jobs over the next year alone, more workers than the United States actually has available. It is unknown how the administration solves that problem. So what is the Biden administration doing?
Does it ease conditions for local labor and so on? Are you starting to turn a blind eye to the import of wafers from China for solar panels, for example? I think this obsession with reducing dependence on China can be understood, but it cannot be an objective in itself. At some point nationalism is blurring rational thought. China remains the world's factory. For all of these parts that will be critical in batteries and solar, China controls almost all of the anodes, the cathodes of the batteries. It controls almost all lithium processing. It builds almost all of the wafers used in solar panels.
China will remain a dominant supplier to the United States and the rest of the world in many essential areas. It is really impossible to remove it. And at some point, I think the Biden administration is going to have to come to an answer about whether they prioritize reducing emissions and doing all of this cheaply, which probably means more supplies from countries like China, or whether it's really about reindustrialization. and climate goals may be delayed. We cannot maintain the 1.5 global warming temperature target as a limit if we do not cooperate technologically. We need Chinese capacity. If we operate in a very fluid economic environment without this trade tension, we will reach the climate goal more quickly.
To create a transformation in the industrial system, markets must be distorted. One of the big challenges is that once you start doing it, you create political allies who want that distortion to continue. American solar panel producers are more expensive than their foreign competitors. That, along with a host of supply chain issues, means American solar buyers are paying more money than their overseas competitors. This, in the long term, is not good for the green transition because it makes a very promising technology more expensive. I think the Europeans were dependent on cheap fossil fuels or at least lower priced fossil fuels from Russia.
They regretted that at the end of the day Russia violated international law and invaded Ukraine. This idea that the cheapest is always the best opens the door to problems of economic security. In the next 20 to 30 years, we need to fully decarbonize. That will require guidance and market guidance from government and private investments to work. That's what we see happening now with the Inflation Reduction Act. China is now the world's largest emitter, almost twice the size of the United States. The United States remains the largest historical emitter in the world. We both have to do more. Competition can also be healthy in this sector.
It can reduce costs. It can lead to innovation. I think it's also important to realize that it was approved after the pandemic, where supply chains around the world were completely strained. Our supply chains, here in the United States, will be as low carbon as possible because we source our polysilicon from a facility in Washington State that has a high degree of hydropower powering its grid, which means the will reduce carbon in the products we produce here. There are big questions about how the IRA will affect the Global South. The understandable complaint from emerging markets is: hey, Western world, you've had your fun.
You had 100 years of polluting. And now you want to change everything. And we have to pay the price even if we do not achieve the same level of development. And that is a very legitimate criticism. There are countries like Chile, which was a leader in green hydrogen or was about to become a leader in green hydrogen. Chile cannot afford the subsidies that the United States has. Therefore, its natural advantage of abundant renewable energy has been eliminated. The United States, like Europe and others, has to buy many critical materials that for the moment are largely controlled by China.
It is not possible to consider only the national interest and not the need for developing countries, in some way, to develop their own industry, and not a new model that we have to invent. Otherwise, we will have a lot of tension, a lot of blockage and a lot of competition from China or others. And I don't think we'll necessarily win this competition. You could imagine the United States and Europe leading countries in Africa and Latin America into a new trade paradigm where they say, hey, we'll help finance part of the clean transition in exchange for guarantees of critical minerals.
That's what the IRA does. It basically says that we are going to need some politics, some statecraft, as part of the climate transition. And we're not going to be able to simply set a price on carbon and expect the Global South to pay for it. The climate crisis doesn't care if you're in a red or blue state. It is an existential threat. One of the other really fascinating features of the investment that we're seeing since the passage of the Inflation Reduction Act and the Chip Act is that 80 percent of the money is going to Republican districts.
It is very ironic that Republicans did not support the IRA and few Republicans supported the Chips Act. Maybe it's not so good news for Democrats if they can't take credit for creating those jobs. The so-called Paris Climate Agreement is a disaster, a death sentence. It is possible that Donald Trump will be re-elected in 2024. And at that point, I think all bets would be off. One of the really important features of the Inflation Reduction Act, according to the sponsors and their lawyers when they look at the fine print, is that the tax credits are built into the legislation for 10 years.
How a future Republican administration might undo them remains to be seen. Will everything stay? Probably not. Will there be a major effort by a second Trump administration to roll back many regulations and appoint judges who don't want the administrative state to have so much power? Absolutely. Then there will be a lot of chaos. But the president is the president. And if you saw someone like Trump come in and just use all the tools of the executive office to make it very difficult to get things done, then yeah, I think that would be a real headwind. When the Affordable Care Act was originally passed, it was unpopular.
When people realized that Obamacare was really working, it became popular. And I think that will happen with respect to these investments when jobs are created, when the steel is in the ground. The Inflation Reduction Law has put a limit on a post-neoliberal policy in which the market does not always know what is best. There comes a time when government has a role to play in ensuring public goods, such as dealing with global warming. There are great challenges. I won't joke with you. We have permitting challenges. We have supply chain challenges, interest rate challenges. We are investing in this country, we are building things again that will address the environmental consequences of generations of over-reliance on fossil fuels.
It will not come close to reaching net zero globally. Many of the other things that are needed are going to be much more politically difficult than this. There is no one operating in the clean energy sector or the semiconductor sector who thinks that the United States can do it alone. Nobody. The United States does not have all the means to control all supply chains for the clean energy revolution, period. It will be considered revolutionary in the general vision we have of what the Western world considers to be the correct way to do economic policy. The Americans, true defenders of the free market and free trade, have said that we are going to do it differently.
I don't think that can happen in America without changing everything. The United States has been the model and shaper of world order since World War II. We thought we were in the era of free market globalization. And now we are not.

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