The Biden administration’s Inflation Reduction Act is already causing a new green energy gold rush in the United States. The Inflation Reduction Act does essentially nothing to reduce inflation, but it does include massive and unprecedented provisions to kickstart a green energy revolution in the United States and nudge the country closer to a trajectory in which it could conceivably reduce emissions enough to make good on its climate pledges.
For well over a decade, the United States has been falling behind in the clean energy race, and in its current state the domestic renewable energy sector is far from competitive on the global stage. Correcting decades of neglect in one presidential term is going to inevitably cause whiplash in markets and in the energy sector overall, however. For as many environmentalists that are celebrating and investors that are excited to cash in on the massive subsidies on offer, there are just as many skeptics about the scale and timeline of the sectoral shift.
For one thing, there simply aren’t enough workers to staff the green energy transition. The Inflation Reduction Act will also create 537,000 jobs a year for a decade, which is both great and problematic. We’re currently experiencing a historically tight labor market, and solar companies have been pulling out all the stops to attract workers, to little avail. However, economists are predicting a coming recession, which would greatly change these circumstances.
Another issue is that the Inflation Reduction Act could harm the United States’ relationship with Europe. The Act, which focuses on U.S. industry and has a distinctly “America First” flavor to it, has upset the country’s allies in the European Union who have decried the measure as protectionist. Now, just this week, the European Union has fired back with its own version of the Act. While global investment in green energy infrastructure and production capacity is undoubtedly a good thing, there are also major and legitimate concerns about these new protectionist trends in policymaking, which fly in the face of free trade and free markets.
And then there are the political divisions within the country itself, which have cleaved along traditional party lines in response to the Inflation Reduction Act and the Biden administration’s overall agenda. Large scale build-outs of wind and solar energy will require massive amounts of land, which poses a major hurdle both logistically and politically. Large enough land tracts for renewable expansion are mostly only found in deeply red rural areas where the locals don’t take kindly to such industrial intrusions – particularly those that are so symbolically left-leaning.
As investors and developers start to ink deals for big new solar and wind farms, discontent and skepticism is rising in the states where those plans are being laid. In Georgia, South Korean solar giant Hanwha Qcells has just announced plans to build a $2.5 billion plant to take advantage of the generous Inflation Reduction Act subsidies – the largest single clean energy investment in U.S. history.
Seeing the writing on the wall, pundits in nearby southern states have started decrying similar expansions into their own markets. A recent article from Real Clear Policy claimed that “solar subsidies will incentivize irrational energy decisions in Mississippi,” arguing that investment in solar will ultimately raise energy prices for locals, as Mississippi is not an ideal location for solar farms. Mississippi has just 111 sunny days a year, on average. The article notes that other resources, such as nuclear, would have a far higher energy yield. However, the harsh critique posed to the variability of solar power ignores important advances in energy storage technologies which are designed to mitigate these issues.
If there is any lesson to be learned from the current global energy crisis and the associated runaway inflation in the United States, it’s that depending too much on any one form of energy production or any one source of energy imports is a very dangerous game. Energy security and resilience depends on diversity and redundancy. It’s true that no state should depend on solar alone for its energy mix, but that doesn’t mean that solar investments are an inherent evil.
At the end of the day, Mississippi, and the world at large, have far more to lose – economically and otherwise – from climate change than they do from rising energy prices. The clean energy transition won’t be easy, but it also isn’t optional. Policy instruments like the Inflation Reduction Act are necessary, but it’s true that there will be hiccups along the way, and as always the poorest residents will suffer the most from energy price volatility. Solar is needed in Mississippi, but so too are other forms of energy production, as policy tools that protect consumers from market shocks.
By Haley Zaremba for Oilprice.com
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