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05 December 2023 / Quick Take
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Copy LinkThe Inflation Reduction Act provides up to $384 billion for climate and energy, including $271 billion in tax credits.
The best use of tax credits is to promote more rapid adoption of clean energy technologies and increase their market share to drive economies of scale, lower costs, and further innovation in a virtuous cycle.
Neither tax credits nor industrial policy at the scale of these incentives is sustainable in the long term. Instead, they must fund new ideas that could lead to significant innovation. At the same time, the use of credits must avoid the danger that they push private investment and research toward current technologies rather than to future technologies that may be better, cheaper, and more efficient. If the US invests all its funds in technologies that are available today—instead of spending some, learning, and then spending more later on improved technology—the US will overspend and underdeliver.
Federal investments should therefore be a catalyst for further innovation by the private sector to drive reductions in GHG emissions. Government should collaborate with business leaders to encourage bold ideas but recognize when programs have not succeeded and pivot research funding appropriately.
At the same time, government can encourage investments that reduce the most GHG emissions per dollar spent. For instance, more effective insulation of buildings reduces the amount of energy needed in the building.
Making the right investments now will enable the rapid reductions necessary in the subsequent two decades to achieve net zero.
Read the Solutions Brief: An Energy Transition Road Map to Net Zero 2050.
The Inflation Reduction Act provides up to $384 billion for climate and energy, including $271 billion in tax credits.
The best use of tax credits is to promote more rapid adoption of clean energy technologies and increase their market share to drive economies of scale, lower costs, and further innovation in a virtuous cycle.
Neither tax credits nor industrial policy at the scale of these incentives is sustainable in the long term. Instead, they must fund new ideas that could lead to significant innovation. At the same time, the use of credits must avoid the danger that they push private investment and research toward current technologies rather than to future technologies that may be better, cheaper, and more efficient. If the US invests all its funds in technologies that are available today—instead of spending some, learning, and then spending more later on improved technology—the US will overspend and underdeliver.
Federal investments should therefore be a catalyst for further innovation by the private sector to drive reductions in GHG emissions. Government should collaborate with business leaders to encourage bold ideas but recognize when programs have not succeeded and pivot research funding appropriately.
At the same time, government can encourage investments that reduce the most GHG emissions per dollar spent. For instance, more effective insulation of buildings reduces the amount of energy needed in the building.
Making the right investments now will enable the rapid reductions necessary in the subsequent two decades to achieve net zero.
Read the Solutions Brief: An Energy Transition Road Map to Net Zero 2050.
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Vice President, Public Policy
Committee for Economic Development, the public policy center of The Conference Board (CED)
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