WORKINGPAPER

23-1Industrialpolicyforelectric

vehiclesupplychainsandtheUS-EU

fightovertheInflationReductionAct

ChadP.Bown

May2023

ABSTRACT

TheInflationReductionAct(IRA)of2022provokedatransatlantictrade

spat.Afterthelawwaspassed,theBidenadministrationaddressedsomeoftheconcernsraisedbytheEuropeanUnionbywritingcontroversialrulestoimplementthelegislation.Theseregulationsareexpectedtohavecomplexeffectsthat,insomeinstances,mayoffsettheintendedimpactofotherprovisionsintheoriginallegislation.Thispaperexamineshowthelaw,itsimplementingregulations,policydecisionsonleasing,aswellaspotentialcriticalmineralsagreementsallhavethepotentialtoaffecttheelectricvehicle(EV)supplychain.TheEVcasestudyshowcasesthepolitical-economiccomplicationsinvolvedinUSandEUattemptstocooperateovercleanenergytransitionpolicytoaddresstheglobalexternalityofcarbondioxideemissions.EVsarebutoneexampleofthechallengefacingpartnerswithintegratedsupplychainsandsimilarlevelsofeconomicdevelopmentthatshareconcernsaboutclimatechange,risinginequality,workers,othersocialissues,anddemocracyitself.TheEVconflictlaidbarethedifferingUSandEUprioritizationoftheseissuesrelativetoeconomicefficiency,WorldTradeOrganizationrules,theapproachtononmarketeconomies,andnationalsecurityvulnerabilitiesthatarisefromdependingonanauthoritarianregimesuchasChinaforimportsourcingofcriticalinputs.

JELCodes:L52,F13

Keywords:Electricvehicles,industrialpolicy,supplychains,climate,US,EU

ChadP.Bown

istheReginald

JonesSeniorFellowat

thePetersonInstitutefor

InternationalEconomics.

Author’sNote:Arevised

versionofthispaperwillbe

publishedinDrivingEurope’s

greenindustrialrevolution:

Aninnovativeindustrial

policyfornet-zero,growth

andresilience,editedby

SimoneTagliapietraand

ReinhildeVeugelers.Thanks

toOlivierBlanchard,Kim

Clausing,KristinDziczek,

RobertLawrence,Marcus

Noland,andBradSetser

forhelpfulcomments

anddiscussionsandto

BarbaraKarniforeditorial

assistance.YilinWangand

JulietaContrerasprovided

outstandingresearch

assistance.NiaKitchin,

MelinaKolb,andOliverWard

assistedwithgraphics.All

remainingerrorsaremyown.

1750MassachusettsAvenue,NW|Washington,DC20036-1903USA|+1.202.328.9000|

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INTRODUCTION

InAugust2022,PresidentJoeBidensignedtheInflationReductionAct(IRA)intolaw.Thelate-breakingdealbetweenSenateMajorityLeaderChuckSchumerandSenatorJoeManchinofWestVirginia—theproductofadeadlockedSenaterequiringthateveryDemocraticsenatorbeonboard—surprisedevenWashingtoninsiders.

LesspleasantlysurprisedwastheEuropeanUnion(EU).ItcelebratedthefactthattheUnitedStatesfinallyhadanaggressiveclimatepolicy,applaudingtheadministration’scommitmenttoreduceemissionsfrom2005levelsby50–52percentby2030.1ButitfoundfaultwithanumberoftheIRA’sdetails.

Oneofitsmostimportantcomplaintswasthelaw’sdiscriminatory“BuyAmerican”(localcontent)incentives.Thelegislation’snewtaxcreditforelectricvehicles(EVs),forexample,initiallyseemedtodeemeligibleonlycarsassembledinNorthAmerica.Ifso,thisrulewouldshutoutaVolkswagenimportedfromGermanybutnotonemanufacturedinTennessee.Overthenextfewmonths,theTreasuryDepartmentwroteimplementingregulationsthattweakedkey

IRAprovisionsonEVsinwaysthataccommodatedsomeoftheEU’sconcerns.Doingsothroughimplementingregulation,however,ratherthanreformofthestatute,comeswithitsownconsequences.Andsomeofthetradingpartners’morefundamentalconcernswiththeIRAcouldnotbefixedthroughimplementingregulations.

Thispapershowcasesthepolitical-economiccomplexityofUSandEUattemptstocooperateovercleanenergytransitionpolicytoaddressaglobalexternality.EVsarebutoneexampleofthechallengefacingpartnerswithintegratedsupplychains;similarlevelsofeconomicdevelopment;andsharedworriesoverclimateandotherenvironmentalproblems,risinginequality,workers,socialissues,anddemocracyitself.TheEVconflictlaidbarethedifferentwaysinwhichtheUnitedStatesandtheEuropeanUnionprioritizedeconomicefficiency,WorldTradeOrganization(WTO)rules,theapproachtononmarketeconomies,andnationalsecurityvulnerabilitiesthatarisefromdependingonanauthoritarianregimesuchasChinaforimportsourcingofcriticalinputs.

ThedetailsmatterforhowtheIRAanditsimplementingregulationsaffectincentivesforinternationaltradeinEVsandtheirkeyinputs.Thepaperexploresthosedetails,includingthepotentiallytransformativedecisionthatleasedvehiclescouldqualifyforconsumertaxcreditsunderaseparateandindependenttrackoftheIRAthatdidnothavethosediscriminatorylocalcontentincentives.Italsoexaminesnumerousotherpolicies—includingtheconsiderabledifferencesinUSandEUimporttariffsonEVstowardeachotherandtowardthirdcountries,suchasChina—thatarealsolikelytoaffectEVtradepatternsinwaysthatoffsetsomeeffectsoftheIRA.Inthepre-IRApolicylandscape,forexample,EUimportsofEVswereincreasinglydominatedbysourcingfromChina,whichhadlargelydisplacedUSexports.Furthermore,theUnitedStatescontinuedtoimportlargenumbersofEVsfromEuropeevenafterimplementingtheIRA.Whetherthistrendcontinues,ofcourse,remainsanopenquestion.

1ModelestimatesfromBistline,Mehrotra,andWolfram(2023)suggestthattheIRAcouldhelptheUnitedStatesreduceemissionsfrom2005levelsby32–42percentby2030,a6–11percentagepointimprovementrelativetothebusinessasusual(non–IRA)projections.

EVsarebutoneexampleofthechallengefacingpartnerswithintegratedsupplychains;similarlevelsofeconomicdevelopment;andsharedworries

overclimateandotherenvironmentalproblems,risinginequality,workers,socialissues,anddemocracyitself.

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Mostimportantly,thispaperexplainswhattheUnitedStatesdidinpassingtheIRA,aswellasitsimplementingregulations,andwhyitdidit.Alongthewayitattemptstoidentifyinefficiencies,tradeoffs,inconsistencies,andpotentialunintendedconsequencesoftheUSpolicyapproach,especiallyasmanifestintheimplementingregulationsannouncedintheeightmonthsfollowingtheIRApassageinAugust2022.

Theanalyticalframingisdrivenlargelybyeconomics.Becausetheanalysisoperatesinasettingmotivatedbybothenormousenvironmentalexternalities(climate)andgrowingexternalitiesassociatedwithnationalsecurityconcerns,itislimitedtoidentifyingchannelsandclarifyingtradeoffs.Withoutanexplicitmodelordata,suchanapproachisadmittedlymodest.Thegoalistoprovideadetailedexplanationofthepolicytoprovideabuildingblockformoreformalmodelingthatcangenerateinformednormativerecommendationsforenhancedpolicycooperationinlightofcontinuallyshiftingrealworldpolitical-economicconstraints.

THEUSPOLICYOBJECTIVESFORITSELECTRICVEHICLETAXCREDITS

Reducinggreenhousegasemissions,includingcarbondioxide(CO2),is

criticaltomeetingtheParisAgreementobjectivesoflimitingtheriseinglobaltemperatures.ThismassiveenvironmentalexternalityprovidesaclearmotivationfortheUSfederalgovernmenttointervenewithpolicy.

Intheclimatecrisis,theeconomicallyefficient,first-bestpolicyisaPigouviantaxequaltothesocialcostofcarbon.ThecurrentUSfederalestimateofthatcostis$51pertonofCO2emissions,thoughrecentestimatesindicatethatanupdatedmeasurewouldbeintherangeof$185–$200perton(Rennertetal.2022;EPA2022).TheUSfederalgovernmenthasneverintroducedacarbonpriceoraneconomicallyequivalentcapandtradescheme.2Ithaslargelyturnedinsteadtoregulationsmandatingcertaincleanenergystandards.

Giventheconstrainedpolicyenvironmentinwhichitoperated,theBidenadministrationalsofocusedonsecond-bestpolicies,includingsubsidies,intheIRA,whichwassignedintolawonAugust16,2022(table1).Ingeneral,subsidiesforthetake-upofcleanenergyareasecond-bestsolutionbecausetheyencourageexcessiveconsumptionofenergyoverall.3

ThispaperexplainswhattheUnitedStatesdidinpassingtheIRA,aswellasitsimplementingregulations,andwhyitdidit.

2Atthesub-federallevel,stateslikeCaliforniahaveintroducedcarbonpricingprograms(ClausingandWolfram,forthcoming).OECD(2022)estimatesthat32percentofgreenhousegasemissionsintheUnitedStatesin2021weresubjecttosome“positiveneteffectcarbonrate”policyinstrument.

3Intheabsenceofamarketfailureforcleanenergy,asubsidywillleadtoexcessequilibriumproductionandconsumptionofcleanenergyrelativetothesocialoptimum,evenifthesubsidyinternalizesthenegativeexternalityinthedirtyenergymarket(byreducingdemandfordirtyenergy,assumingcleananddirtyenergyaresubstitutesinconsumption).Onepotentialmarketfailureforcleanenergycouldresultfromlearning-by-doing(increasingreturnstoscale).Bistline,Mehrotra,andWolfram(2023)findthatthelearning-by-doingexternalitywouldneedtobesizableforasubsidytobeequivalenttothefirst-bestcarbontax.

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Table1

Keyeventsaffecting

USpolicyonelectricvehicles

Date

Event

November15,2021

PresidentBidensignsintolawtheInfrastructureInvestmentandJobsAct(House:228–206;Senate69–30).Thebipartisanlegislationincludesfundingofupto$7.5billionforEVchargingstations.

November19,2021

TheUSHouseofRepresentativespassestheBuildBackBetterAct(220–213),whichincludestaxcreditsforEVs.ThebillneverpassestheSenate.

July27,2022

SenatorJoeManchinandSenateMajorityLeaderChuckSchumerannounceanagreementtoallowavoteontheInflationReductionAct(IRA)of2022.ItsubsequentlypassesboththeSenate(51–50)andHouse(220–207).

August16,2022

PresidentBidensignstheIRAintolaw.TheNorthAmericanassemblyrequirementinIRASection30Dgoesintoeffectimmediately.

September7,2022

TheCongressionalBudgetOfficereleasesrevisedestimatesofthebudgetaryeffectsofIRAover2022–31.

December1,2022

InresponsetoEuropeancomplaints,duringthestatevisitofFrenchPresidentEmmanuelMacron,Bidensayshisadministrationwillmake“tweaks”totheIRA.

December19,2022

TheTreasuryDepartmentdelaysproposedregulationoncriticalmineralsandbatterycomponentsrequirementsforSection30DtaxcreditsintheIRAuntilMarch2023.

December29,2022

Treasury(InternalRevenueService)clarifiesthattheIRA’scommercialcleanvehicletaxcredits(Section45W)areavailabletoconsumerswholeasevehicles.TreasuryalsoreleasesaSection30DWhitePaperanticipatingthedirectionofproposedguidanceoncriticalmineralandbatterycomponentvaluecalculations.

February3,2023

Treasuryreclassifiescertainvehicles,makingmoremodelseligiblefortheSection30Dconsumertaxcredit.

March10,2023

PresidentBidenandEuropeanCommissionPresidentUrsulavanderLeyenlaunchnegotiationsonatargetedcriticalmineralsagreementthatwouldenablerelevantcriticalmineralsextractedorprocessedintheEuropeanUniontocounttowardrequirementsforcleanvehiclesintheIRA’sSection30D.

March28,2023

TheUnitedStatesandJapansignaCriticalMineralsAgreementthatqualifiesJapanasa“freetradeagreement”partnerfortheIRA’sSection30Dcriticalmineralscontentrequirements.

March31,2023

TreasuryproposesaruleforcontentrequirementsintheIRA’sSection30D,includinggeneralcriteriafor“freetradeagreement”partnersthatwillgointoeffectApril18.

April12,2023

TheEnvironmentalProtectionAgencyproposesnewregulationsforvehicleemissionstoensurethattwo-thirdsofnewpassengercarswillbeall-electricby2032.

April18,2023

ThecontentrequirementsofIRASection30DannouncedonMarch31,2023,gointoeffect.

TheEnvironmentalPolicyObjectivesofUSTaxCreditsonElectricVehicles

Transportationaccountedfor38percentofUScarbonemissionsin2021—the

largestsinglecontributortoemissions(CBO2022a).Ofthisfigure,83percent

camefrompersonalvehicles(58percent)andcommercialtrucksandbuses(25

percent);airtransportmadeupanother10percent.IftheUnitedStatesisto

reachitsoverallgoal,CO2emissionsfromtransportationwillhavetofall.

Historically,USconsumershavebeenrelativelyslowtoswitchfromcarswith

internalcombustionengines(ICEs)toEVs.In2021,forexample,only5percent

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ofnewvehiclessoldintheUnitedStateswereEVs—amuchsmallersharethenin

China(16percent)ortheEuropeanUnion(18percent)(figure1).

Figure1

TheUSlagstheEUandChinainelectricvehicleadoption

Notes:Electricvehiclesincludebatteryelectricvehiclesandplug-inhybrids.Figuresarebasedon

numberofvehicles,nottheirvalue.

Source:InternationalEnergyAgency.

SeveralfactorsexplainwhytheshareissmallintheUnitedStates.Oneis

EVcost,relativetocomparablyperformingICEvehicles,especiallysincethe

gasolineusedtopowerICEvehicleshasbeeninexpensiverelativetomanyother

countries.Anotherisconsumertastes.ManyAmericanspreferlargevehiclesthat

candrivelongdistances,whichinitialEVscouldnoteasilydo,especiallygiven

thelackofcharginginfrastructureinthegeographicallyexpansiveUnitedStates.4

ThisconstraintonconsumerEVtake-upisoftenreferredtoas“rangeanxiety.”

Atthefederallevel,theUnitedStateshadprovidedconsumertaxcreditsfor

EVsofupto$7,500datingbacktotheAmericanRecoveryandReinvestmentAct

(ARRA)of2009.Theywerephasedoutonceamanufacturer’sUSsalesreached

200,000units.Bythesummerof2022,NissanandFordweregettingcloseto

reachingthecap,andTesla,GeneralMotors(GM),andToyotahadexceededit

andwerenolongerreceivingsubsidies.5

ToincentivizebuyerstoswitchfromICEvehiclestoEVs,theIRAmodified

existingfederalconsumertaxcredits.Itremovedthe200,000cap,makingthe

4ThebipartisanInfrastructureInvestmentandJobsActthatwassignedintolawinNovember

2021provided$7.5billionoffundingtoaddresspartofthischallenge(USDepartmentof

Transportation,“

PresidentBiden,USDepartmentofTransportationReleasesToolkittoHelp

RuralCommunitiesBuildOutElectricVehicleChargingInfrastructur

e,”Pressrelease,February

2,2022).

5JonLinkov,“

ToyotaBecomes3rdAutomakertoReachElectricVehicleTaxCreditLimit

,”ConsumerReports,July7,2002.

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taxcreditsavailableagaintoTesla,GM,andToyota.Theuncappedcreditswould

beavailablefor10years.

InanattempttoencourageautomakerstobuildoutafleetofEVmodels

forthemassmarket,theIRAinitiallylimitedthetaxcredittolower-priced

TheUS

perceptionofthepre–IRAequilibriumwasthatitwasdominatedbyChina,whichsubsidizedEVs.

EVsaswellasindividualsorhouseholdswithlowerearnings.Theseprovisions

wereaddedoutofconcernthatmostofthelimitedEVtake-up—andsubsidies

paidoutbyUSpolicyunderearliertaxcredits—hadgonetohigher-income

consumerswhopurchasedexpensivemodels,suchasearlyTeslas.Totheextent

thatthesepurchaseswouldhavebeenmadewithoutthetaxcredits,theywere

bothcostlytotaxpayersandhadinsufficientimpactonachievingUSclimate

policyobjectives.6

AdditionalPolicyObjectivesoftheTaxCredits

TheIRAincludesmorethanjustconsumertaxcredits,asitalsoattemptsto

achieveotherobjectives.Understandingthemrequirescomingtogripswith

whattheUSgovernmentperceivedastheinitial,pre–IRAeconomicandpolicy

equilibrium,aswellasthedomesticpolitical-economicforcesthatwouldmake

thegreenenergytransitionpolicysustainableandnotsubjecttoapolitical

reversalofthesortthattookplacein2017,whenPresidentDonaldTrumppulled

theUnitedStatesoutoftheParisAgreement.

TheUnitedStateshasalarge,legacyICEautomobileindustry.AsICE

vehiclesandEVsinvolvesomedifferentcorporateplayers,aswellasdifferent

inputsintheirsupplychains,atransitionfromonetotheotherputshundreds

ofthousandsofjobsatrisk(KlierandRubenstein2022;Hanson2023).Many

oftheseat-riskjobsareinpoliticallyimportantswingstates,suchasMichigan

andOhio,wheretheyaffectcommunitiesthatsuffereddisproportionatelylarge

economiclossessince2001—aperiodthatcoincideswiththe“Chinashock”

(Autor,Dorn,andHanson2021).Whateverthesourceoftheshock,thefailureof

workersandcommunitiestoadjustcontinuestoplayanoutsizedroleinpolicy

discussions—unsurprisingly,giventheeffectivenesswithwhichDonaldTrump

weaponizeditduringthe2016presidentialcampaignandwhileinoffice.

TheUSperceptionofthepre–IRAequilibriumwasthatitwasdominated

byChina,whichsubsidizedEVs.Beijinghadprioritizedthesectoraspartofits

highlycontroversial“MadeinChina2025”industrialpolicyprogramannouncedin

2015.China’ssupply-sidepoliciesforbatterieswerealsoallegedtodiscriminate

infavorofindigenousfirms.7Finally,itsimporttariffswerehigh,providingfirms

thatproducedlocallyprotectionfromforeigncompetition.(Ingame-theoretic

terms,iftherivalryweremodeledasaprisoner’sdilemma,Chinawasalready

playingnoncooperatively;ifitwereaStackelberggame,Chinaalreadyhada

first-moveradvantage.)

Asaresult,by2022China’sEVexportstotheworldwerebooming,

especiallyinvolumeterms(figure2,panelb),asChineseexportstendedtobein

lower-pricedmodels.USexportsofEVslaggedconsiderably.

6Forareviewoftheliterature,seeSheldon(2022).

7SeeTreforMoss,“

China’sRoadtoElectric-CarDominationIsDriveninPartbyBatteries

,”WallStreetJournal,October21,2017;TreforMoss,“

PowerPlay:HowChina-OwnedVolvoAvoids

Beijing’sBatteryRules

,”WallStreetJournal,May17,2018.

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Figure2

USelectricvehicleexportsarealsotrailingChinaandtheEU

Notes:Figuresshowbatteryandfuelcellelectricvehiclesonly.TradevaluesinpanelafortheEUare

convertedtoUSdollarsfromeurosusingend-of-monthUSD/eurospotexchangeratesfromFederal

ReserveEconomicData(DEXUSEU).FortheEU,theCombinedNomenclature(CN)codesare87038010

and87038090in2017–23and87039010in2016.FortheUS,theScheduleBcodeis8703800000.For

China,theHarmonizedSystem(HS)codeis87038000.ThecodeforboththeUSandChinawascreated

in2017anddidnotexistforelectricvehiclespriorto2017.

Sources:USInternationalTradeCommissionDataweb,Eurostat,ChinaCustoms.

Intheory,theUnitedStatescouldhaveconfrontedChinaoverconcernswith

itsnonmarketeconomyandsystemofsubsidies,negotiatingrulestojointly

limitsuchsubsidiestocooperativeandgloballyefficientlevels.8Itcouldhave

8TheUnitedStatesdidconfrontChinaunilaterallyoveranumberofChinesepolicyissues

relatedtotrade;theTrumpadministration’stradewartariffsultimatelycoveredtwo-thirdof

USimportsfromChina.However,theapproachwasanineffectivewaytoaddressthesubsidies

issue(Bown2018).Itwasthusunsurprisingthatthe“PhaseOne”agreementthatPresident

TrumpsignedwithChinainJanuary2021containednothingthatwouldaddressChina’s

subsidies(Bown2021).

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workedjointlywithothermajorexporters—suchastheEuropeanUnionandJapan—toaddressChinatogether.However,thecontemporarypoliticalrealityofUS–Chinatensionshadtakenthatcooperativeequilibriumoffthetable.FromtheUSgovernment’sperspective,failuretointerveneintheEVmarketriskedanother,automobileindustry–specific“Chinashock,”withpotentiallydevastatingdomesticpoliticalconsequences.

AnotherimportantpolicyobjectiveoftheIRAistoimprovetheresilienceoftheEVbatterysupplychainbydevelopinginputsourcingforbatteriesoutsideofChina,whichdominatesthesupplychainforbatterycomponents,aswellaslithium,cobalt,graphite,nickel,andothercriticalmaterials(Leruthetal.2022).Multipleconcernsmotivatethisgoal.Oneiseconomiccompetitiveness.

Chinahaslongusedavarietyofexport-restrictionsoninputs—includingsomecriticalminerals—totakeadvantageofitssupply-sidemarketpower,therebysupportingitsdownstream,usingindustriesrelativetotheirforeigncompetitors(OECD2023).

Asecondisnationalsecurity.AsBidenadministrationNationalSecurityAdvisorJakeSullivanwouldlaterstateinamajorspeechinApril2023,9“Morethan80percentofcriticalmineralsareprocessedbyonecountry,China.Clean-energysupplychainsareatriskofbeingweaponizedinthesamewayasoilinthe1970s,ornaturalgasinEuropein2022.SothroughtheinvestmentsintheInflationReductionActandBipartisanInfrastructureLaw,we’retakingaction.”WithUS–Chinageopoliticaltensionsworsening,theUnitedStateswasunwillingtoexposeitselftothesamesortoflong-runenergydependenciesthatresultedintheOPEC–ledsupplyshocksofthe1970s,whichtriggeredbackupsatgaspumps;rationing;andultimatelyinflation,recession,andpoliticalupheavalathome.Russia’sweaponizationofenergysuppliestothedetrimentoftheEuropeanUnionprovidedevenmoreammunitiontopolicymakersworriedaboutamilitaryconflictwithChinadoingsomethingsimilarinthefuturetorestrictthesupplyofEVsortheabilitytomanufacturethemdomestically.

Thefinalpolicyobjective—andtheonecreatingthebiggestnegativereactionfromEurope—wastoeasetheUSlabormarkettransitionfromICEvehiclestoEVs.TheIRAseekstodosoinseveralways.First,consumptionsubsidiesappearedinitiallylimitedtoEVsassembledinNorthAmerica.Thisfeatureofthelawtransformedtheconsumptionsubsidyintoasubsidytoproduction,asitispaidonlyaslongastheEVisbothmanufacturedandsolddomestically.10

Second,thelawincludesaseparateproductiontaxcreditforbatteriesandtheirinputs(aswellasothersourcesofcleanenergy),whichalsoaffectsthecompetitivenessoftheEVsupplychainintheUnitedStates.

Clean-energysupplychainsareatriskofbeingweaponizedinthesamewayasoilinthe1970s,ornaturalgasinEuropein2022.

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AdvocatesforthelocalassemblyprovisionsarguedthatthegreentransitionwouldbesustainableinademocracyliketheUnitedStatesonlyifapoliticalconstituencyofworkersanddomesticfirmswerecreatedtosupportit.Consumerinterestswouldnevermobilizepoliticallyinsufficientenoughnumberstosupportthelowerpricesthatmightarisethroughimportcompetition.

ArelatedargumentisthatpoliticalsupportfortheUnitedStatesremainingopenatallremainstenuous.(Thenationalpsycheremainsscarredbythe“Chinashock”thatPresidentTrumpsomasterfullyexploitedpolitically.)PoliciesliketheIRA—evenifdiscriminatoryandinefficient—areneededtomaintainabroaderpolicyoftradeopennesselsewhereacrosstheeconomy.

NumerousconcernswiththeIRA’sobjectivesemerged.Anoverarchingworryisthatusingasinglepolicyinstrumenttotargetmultipleobjectivesreducesthechancethatanyoneobjectivewillbemet.

Onesetofconcernsaredomestic.TheIRAisapoorlytargetedlabormarketandcommunityadjustmentpolicy.AlthoughthegeographyoftheNorthAmericanEVsupplychainmayendupdrivenbythesameforcesastheICEsupplychainthatemergedbythelate20thcentury(KlierandRubenstein2022),theplantsandjobsareunlikelytoendupinexactlythesamecommunitiesastheICEplantsandjobsbeingwounddown.AlthoughtheremaybeapoliticalconstituencyofworkersintheEVsupplychainyearsfromnowtosupportacleanerautomobilesector,workersandcommunitiesthatarelosingoutasICEsupplychainplantsarenolongerneededmaybenearlyasunhappyabouttheirjobsbeingreplacedbyEVjobstwoorthreestatesawayasEVjobsoverseas.11

AsecondimportantdomesticconcernwiththeIRAisitsfiscalimplications.Targetingtheclimateexternalitywithsubsidiesrequiresraisingtaxeselsewhere,whichwillgenerateadditionalinefficiencies.(Acarbontaxdoesnot.)

Evenwithoutthoseinefficiencies,theIRAisexpensivefortaxpayers,especiallyiftake-upfarexceedsinitialestimatesbytheCongressionalBudgetOffice(CBO2022b;CreditSuisse2022;Bistline,MehrotraandWolfram2023;GoldmanSachs2023).IftaxpayersendupunwillingtosupporttheIRAfiscallyoverthelongterm,Congresscouldterminatetheprogramearly,reducingthe