China utilized “Industrial Policies” to transform itself over the past 30 years from an agrarian communist state to an economic powerhouse that dominates global industries. It has brought hundreds of millions of its citizens out of poverty with a heavily subsidized export economy supplying discounted consumer goods and industrial products to wealthy western nations. While a huge and cheap labor pool and tolerance for damaging air and water pollution factor in, it wouldn’t have happened without intentionally targeted government cash infusions to build factories, buy capital equipment, pay production credits to enhance profitability, provide cheap government loans, land grants, education, infrastructure and so on. As a result, China has leading positions in textiles, apparel, consumer goods, electronics, building materials, steelmaking, mining, shipbuilding, etc. Until now, China has also been leading on the Clean Energy Transition industries: solar, wind, batteries, and vehicles.
What have we been doing while China eats our lunch? Largely nothing. We watched as companies moved factories and operations offshore and fired US workers. They were happy because their costs declined and their profits and stock prices increased. U.S. politicians didn’t respond in kind because they regarded “industrial policy” akin to planned communist economies and a no-go politically. Eventually, we started complaining in trade negotiations and then started imposing duties on subsidized goods. But that has mainly increased U.S. consumer prices and doesn’t bring back US jobs. Global commerce and wealth shifted and continues to shift from the West to China, which uses that wealth to build a bigger military.
It was, therefore, a great pleasure last week to attend the Reuters Energy Transition North America Conference in Houston, Texas and learn about the rapidly changing playing field in an interview with Susan Nickey, a key Hannon Armstrong Sustainable Infrastructure (HASI) executive.
HASI is the first U.S. publicly-traded company solely dedicated to investments in climate solutions, providing capital to companies building assets in energy efficiency, renewable energy, and the like. With more than $9 billion in managed assets, their core purpose is to make climate positive investments with superior risk-adjusted returns.
Her top-of-mind comment: “America finally has an industrial policy and it’s a game changer. We got three new laws that provide huge incentives over ten years to allow investors and operators to invest, build and manufacture with predictable long-term returns.”
The Bipartisan Infrastructure Law enacted in late 2021 provides $550 Billion over 5 years to rebuild America’s roads, bridges and rails, insure clean drinking water, spread high-speed internet, tackle the climate crisis, advance environmental justice, and invest in communities that have been left behind.
The CHIPS and Science Act of 2022 provides $280 billion over ten years to subsidize semiconductor manufacturing and to jump-start R&D and commercialization of leading-edge technologies, such as quantum computing, AI, clean energy, and nanotechnology.
Most importantly, the climate provisions of the Inflation Reduction Act of 2022 provide an estimated $370 billion over ten years in clean energy incentives and tax credits to spur manufacturing and deployment of wind and solar power, electric vehicles, energy storage, efficiency upgrades, and cutting-edge technologies like green hydrogen and carbon capture.
IRA extends the Investment Tax Credit, at the 30% level for renewable projects, and extends the credit to power storage investments. It also extends the Production Tax Credit, which provides a credit for each kilowatt-hour produced. Consumers now get another 10 years of credits for residential solar and efficiency upgrades that help them save on their utility bills.
While these laws let us play catch up to China’s lead on solar, wind and battery manufacturing and enables emission reduction goals, it also provides support for the nascent hydrogen and carbon capture industries. Imagine the U.S. not only re-asserting its leadership in mature and fast-growing renewable technologies, but also identifying industries of the future and jump-starting them.
