Skanda Amarnath, Melanie Brusseler, Daniela Gabor, Chirag Lala, and JW Mason in Polycrisis:
In recent years, the debate over climate policy has moved away from the earlier consensus in favor of carbon pricing and towards an investment-focused approach, illustrated by the passage of the Inflation Reduction Act (IRA), along with other similar measures in the US and, to an extent, in Europe.
There are good reasons to welcome this shift, both as a more promising response to the challenge of climate change and as a turn away from the neoliberal consensus of previous decades. Industrial policy is better able than carbon pricing to address the real requirements and constraints of decarbonization. It offers the possibility of a more robust political coalition in support of aggressive climate policy, and a way to overcome the long-standing problem of chronically weak demand in the advanced economies.
At the same time, the specific approach to industrial policy embodied in measures like the IRA raises a number of concerns. Do these policies target the right constraints and the most important barriers to rapid decarbonization? Do the subsidies and incentives impose sufficient discipline on private business to meaningfully redirect investment? Will the direct-pay provisions meaningfully increase the role of public and nonprofit enterprises, or will the IRA further entrench the dominance of for-profit businesses in energy and other sectors—ultimately undermining both climate and broader economic objectives? Does the industrial policy approach risk a zero-sum competition between national governments, and will it exacerbate tensions between the US and China?
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