One would think that if “climate change” (after “global warming,” the preceding hole in the ozone layer, and the population bomb of the 1960s) represented a major challenge for mankind in the minds of the reigning angelic statocrats, and if time were of the essence, petty considerations of domestic protectionism would play an infinitesimally small role in policy decisions. But apparently not. The Financial Times notes (“The Problem with Biden’s EV Subsidy: Hardly Any Cars Will Qualify,” August 23, 2022):
The law signed by President Joe Biden last week immediately requires that any EV sold in the US must be assembled in North America to qualify for the credit. The requirements grow stricter in 2024, when eligible EVs must have battery components not made or assembled “by a foreign entity of concern”, which includes China, the dominant battery producer.
In 2025 those batteries must exclude “critical minerals” extracted, processed or recycled from the same foreign countries. An increasing share would need to be from North America or selected trade partners.
The basic economics is simple: If foreign competition were not restricted, the supply of EVs would be higher for any amount of subsidization by the US government. (Even if the federal government subsidized each North-American-made EV by a very large amount, say $100,000, foreign competition would at worst leave supply unchanged.) So, if we believe the official line, carbon emissions would be reduced, and mankind would live.
READER COMMENTS
Scott Sumner
Aug 24 2022 at 3:55pm
I agree that this was a really bad policy, but in fairness the climate advocates did not favor this protectionism. They needed Joe Manchin’s vote to pass the bill and he insisted it be added.
As for “the preceding hole in the ozone layer” the problem was fixed by environmentalists.
The biggest problem today is environmentalists no longer align with climate advocates. One group wants lots of construction of nuclear, solar, wind, hydro, etc., and the other group opposes building anything.
Thomas Lee Hutcheson
Aug 24 2022 at 9:52pm
The even bigger problem is that even environmentalists that realize the need for investment in zero or negative CO2 emissions technology, do nor resize that it will not happen at suffuent scale without a tax on net CO2 emissions.
Craig
Aug 25 2022 at 8:24am
You could be correct, but I would suggest that technology might be making the choice easier.
https://en.wikipedia.org/wiki/Economics_of_nuclear_power_plants#/media/File:3-Learning-curves-for-electricity-prices.png
This shows the cost of solar and onshore wind as being below coal. As I write this I am in TN on a computer consuming hydroelectric power and hydro is very cheap.
Thomas Lee Hutcheson
Aug 27 2022 at 6:39pm
Of course technology is making the choice easier. A discovery tomorrow could reduce the optimal taxon net CO2 emissions to zero. But I’ll point out that the value of that discovery to the discoverer/implementer would be higher if there is a tax on net CO2 emissions than if there is none and on general principles of a upward sloping supply curve, more such discoveries are likely with a tax.
Pierre Lemieux
Aug 25 2022 at 3:34pm
Scott: Question: How was the hole in the ozone layer solved by environmentalists?
Michael Rulle
Aug 26 2022 at 7:33am
Traditional environmentalists usually made sense. They’re could be differences of opinion but at least the topics were real.
Particulate pollutants, River dumps by large companies needed to be addressed and by and large were. The ozone “hole” was at least real well. I have no opinion on how it was addressed but I would never call it fake. And, yes, whether we addressed all these issues optimally is debatable ——but debatable is a good thing.
Climate change is bizarre. It did start out with an interesting idea of creating renewables —-but they seemed compelled to not focus on what worked in favor of what did not work (economically and effectively).
As I mentioned elsewhere I do not understand the motivations. Corruption is core—-but why this? The right wing narrative is it is a back door into authoritarianism. Perhaps. But where is the link? Eventually all the people will not be fooled.
I don’t understand the cause, but I understand to solution. Get people in power who will get rid of this—-which means change public opinion. That requires smart persuaders—-Lonborg is a prototype—-but he is not a pol. Where are the pols?
Thomas Lee Hutcheson
Aug 27 2022 at 6:45pm
There are environmentalists and “environmentalists.” The good ones want to optimize the CO2 content of the atmosphere at the point where the discounted costs of the increase and the discounted cost of preventing increase are equal.
Craig
Aug 24 2022 at 5:16pm
The trade dispute is coming.
Richard A.
Aug 24 2022 at 5:17pm
We here in the US are not allowed to buy solar cells and panels at the world price as a result of trade restrictions. If we were allowed to buy solar at the world price, we would be solarizing at a faster rate (law of demand).
Pierre Lemieux
Aug 24 2022 at 11:35pm
Indeed, Richard, that’s another good example. Moreover, Biden renewed the Trump tariffs, but in a slightly attenuated form. I mention this in my forthcoming Regulation article (Fall issue) on “Biden’s Protectionism: Trumpism with a Human Face.”
Craig
Aug 25 2022 at 9:21am
Googling up a Biden waiver with respect to 4 nations in SE Asia notably excluding China in June 2022.
Thomas Hutcheson
Aug 24 2022 at 10:13pm
One need not be an angel* to support taxation to internalize the external effects of net CO emissions; being a mortal neoliberal is enough. 🙂
[I think even a society of non-omniscient angels would require Pigou taxation to deal with externalities.]
robc
Aug 25 2022 at 8:47am
Coase might have a word or six to say about that.
Pierre Lemieux
Aug 25 2022 at 11:56am
Thomas: So why don’t these “societies” actually do that? Why don’t you have to pay a Pigou tax on nearly everything you do?
Michael Rulle
Aug 26 2022 at 7:18am
It has always been obvious that few pols and businesses really believe in the dangers of global warming. That is the good news. The bad news, of course, is pols and bureaucrats try to negatively optimize their pseudo beliefs through policies like Biden’s.
This is not controversial to me. What is controversial is why do governments engage in this kind of activity? Who wins? Supposedly mankind. But that’s not true. It is disappointing not much outside of superficial analysis is written about this.
But corruption is likely at the heart of it.
Pierre Lemieux
Aug 26 2022 at 2:04pm
Michael: I submit that the useful way to look at this is simply to assume that individuals retain the same self-interest motivations when they move from the market (voluntary sector) to government and, using the analytical tools of public choice, analyze what will be the likely political consequences. Illegal “corruption” is possible, but in most cases the explanation of government behavior does not need to invoke it.
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