After acknowledging that the Inflation Reduction Act will have little effect on inflation or climate change in her piece at Slate Kate Aronoff proposes another objective for the IRA—it’s about industrial policy:
While it’s been hailed as a historic piece of climate legislation, the Inflation Reduction Act is less a climate bill, per se, than a piece of industrial policy focused on building out domestic supply chains for clean energy that will benefit the climate. That’s a big deal. By international standards, though, the United States is still catching up and relying mainly on the kinds of demand-side incentives that have long speckled the U.S. tax code.
Sadly, I doubt it will have much impact on U. S. industrial policy, either. As others more learned than myself have pointed out, for that short term fixes are insufficient. You need permanent or at least long term reforms. Additionally, regardless of the incentives you can’t create something out of nothing. No matter how much domestic cobalt production is incentivized, we’ll still be using more cobalt than we have domestic reserves. And environmental regulations are a major impediment to the production of rare earths domestically. In the absence not only of lightening the restrictions on that but of long term confidence that they will be able to continue operations, IMO that’s pretty unlikely.
“You need permanent or at least long term reforms.”
You don’t, or only rarely, commit significant amounts of capital based upon short term issues. You can make money on pet rocks if the margins are astronomical. You won’t get real investment in physical or human capital for fads.