The Policy Priority Muddle

Eakinomics: The Policy Priority Muddle The Biden Administration has made climate change policy a top priority. The Biden Administration has made unionizing the labor force a top priority. The Biden Administration has made domestic production replacing imports from China a top priority. But what is the top priority?  If the top priority is climate, then the emphasis must be on making the transition to a cleaner energy portfolio as inexpensive, innovative, and rapid as possible. But that is at odds with retaining the Trump-era tariff wall against China, which raises production costs. It is also at odds with widespread unionization, which will mean greater costs (higher wages, expensive benefits), a less flexible labor market, increased barriers to entry by new businesses, and less innovation and competitive pressure. The administration can’t have it all ways simultaneously. A good example of the muddle is the president’s recent decision to extend President Trump’s tariffs against solar panels. According to The New York Times, “The decision will impose a tariff of between 14 percent and 15 percent for the next four years on imported crystalline silicon solar products that are used to convert sunlight to energy. But the Biden administration also moved to double the amount of solar cells that can come into the country without facing tariffs, and it said it would begin talks with Canada and Mexico to allow them to export their products to the United States duty-free. The administration also said it would exempt a certain type of two-sided panel, called bifacial panels, from the levies to help ensure that solar deployment in the United States continues at the pace and scale needed to meet the president’s clean energy targets.” So, what have we here? Exempting bifacial panels is good climate policy. President Biden has a goal of an emissions-free grid by 2035. A recent study by the University of California, Berkeley showed that achieving even a 90 percent emissions-free grid by 2035 would, among other things, mean 25 percent of power generated by solar, or an increase by 70 gigawatts each year. In order to meet the goal, there must be a massive rise in the use of solar panels at electric utilities. Inexpensive bifacial panels are at the heart of this.  But remember, the administration would like those installations done by union labor and those utilities fully unionized. That’s not good climate policy. And the imposition of the tariffs on panels above the quota is an undisguised swipe at China. Perhaps it's good for that goal, but it makes climate policy goals less feasible. Also, the tariffs invite other countries to raise tariff barriers on solar panels as well; this hurts global sales of whatever domestic manufacturing industry does develop. That is not a good outcome for either clean energy or domestic manufacturing. The Times reported that “A senior administration official pushed back on those claims on Friday, arguing that the decision would help create jobs, reduce American dependence on foreign suppliers and meet ambitious clean energy goals.” Right. And I’m 6’4”, a Nobel Prize winner, and just landed a Hollywood movie contract. The risk the Biden Administration runs is teaching voters that any climate policy will simultaneously be economically costly, a handout to special interests, and unsuccessful. That need not be the lesson, but getting it right requires making some real choices.