The American Paradox as Reflected in the Inflation Reduction Act
International Business News – Investment in decarbonization-related industries is accelerating after the Biden administration passed the Massive Fiscal Spending and Revenue Act (Inflation Reduction Act) in August. According to Bloomberg, the amount of investment reached at least $16.2 billion. One after another, companies have announced the installation of photovoltaic panels and onboard battery factories in the United States.
U.S. photovoltaic panel maker First Solar announced on Nov. 16 that it was investing $1.1 billion to build a factory in Alabama. The new plant is scheduled to be put into operation in 2025, with a capacity of 3.5 million kilowatts per year. Italy’s large power company Italy’s national power also announced on the same day, 2023 in the United States to start construction of an annual capacity of 3 million kilowatts of photovoltaic panels factory.
The U.S. “Inflation Reduction Act” has significantly expanded the tax incentive system when building PV panel plants. At the same time, low-cost Chinese-made PV panels are sweeping the market, and the Biden administration hopes to encourage domestic production by imposing tariffs on Chinese-made panels, which is fueling investment.
Investment in pure electric vehicles (EVs) and onboard batteries has also expanded, with companies now reportedly announcing investments of more than $13 billion. The largest investment is in South Korea’s Hyundai Motor. The company plans to invest $5.5 billion in an EV and onboard battery production plant in Georgia, which will go into operation in 2025.
Honda will partner with South Korea’s LG Energy Solutions to invest $3.5 billion to start producing batteries in 2025. In addition, companies such as Toyota, Panasonic and Volkswagen of Germany are planning to invest as well. The Inflation Reduction Act also sets up incentives in EVs and batteries, making it easier for companies to invest.
On the other hand, as companies announce big investments in the U.S., resentment is building in Europe and Japan over what they see as excessive U.S. preferences for their own products. In terms of product sales, the U.S. has also introduced a mechanism that violates free trade by giving preferential treatment only to cars produced in North America.
The main purpose of the Inflation Reduction Act was supposed to be an energy policy to promote decarbonization, but the industrial policy of job creation became overtoned. The regime promoting domestic investment has placed too much emphasis on securing jobs, which also risks undermining the achievement of decarbonization goals.
For example, the rapid decline in the cost of photovoltaic power generation over the past decade has been attributed to the dramatic reduction in the international price of photovoltaic panels. If photovoltaic panels are manufactured at high domestic labor costs and prices in the United States over the long term, U.S. consumers and businesses may not be able to enjoy cheap photovoltaic power 10 years from now. The Inflation Reduction Act also serves as a mirror to the increasingly self-conscious status quo of the United States.