Given the growing global consensus on the importance of taking action to mitigate the impact of climate change, environmental policy will be a critical issue for the party that wins the US presidential election. It’s an issue that is very real for many Americans as residents of North Carolina, Florida, and other states rebuild after recent, catastrophic hurricanes.
How candidates balance climate action with economic growth and entrepreneurship is an important factor that voters consider. China currently dominates the solar panel and battery markets, with both seen as valuable renewables solutions and contributors to our economic future. Should we embrace cheaper foreign technology to advance renewable energy options or impose tariffs to protect our own manufacturing sector? The business community is already taking a pragmatic approach to this issue. Ford Motor Company recently decided to license Chinese technology and build a battery plant in the United States. Whichever party wins the election will set the tone for the potential trade-offs between environmental protection and domestic economic growth.
Another matter for voters to consider is how the parties address the transition from coal and gas to renewables in the electricity sector, which is highly regulated in much of the United States. Managing energy transitions in highly regulated markets will require political leaders to balance multiple policy goals, such as environmental protection, economic growth, and job creation.
Regulation has affected the pace of energy transitions. My research with colleagues has shown that while natural gas has replaced coal as the main fuel for US electricity generation, coal retirement has been slower and coal usage has been more inefficient in states that regulate electric utilities relative to other states.
Voters will also need to consider subsidies and how they factor into the new administration’s future plans. Subsidies play a critical role in shaping energy markets. However, the design and implementation of subsidies can be complex. The Inflation Reduction Act, for example, set aside $1 trillion in subsidies for environmental spending, but implementation has been challenging, impacting the growth of the manufacturing jobs the law intends to create. One reason is the complexity of choosing the targets for these subsidies. Should it be battery storage? Solar panels? EV charging infrastructure?
The design of these subsidies is not trivial because it chooses winners and losers. As I have found in another research project with colleagues, a 30 percent capital-cost subsidy for large-scale battery storage, such as the one in the Inflation Reduction Act, would have been predicted to achieve 5,000 MWh of battery capacity by 2024. This level of investment is similar to what California’s storage mandate requires.
As a result, voters may want to consider how the parties weigh the use of subsidies versus other policies, like taxation. Should we be subsidizing companies that reduce greenhouse gas pollution or taxing those that pollute? How will we balance the goals of subsidies with other important competing goals? How large should incentives to combat climate change be? The party that wins the election will have to address these issues.
Then there is the matter of how much involvement the government should have in the ongoing implementation of energy policy. Research has found that energy policy is often more effective when it is based on broad incentives rather than micromanagement. Decentralized, market-tilting policies, like investment tax credits for wind power, have historically proved more effective than subsidies to particular companies. When government has to step in directly, it is more challenging for its policies to succeed.
Leaders will also need to take into account that there are limits to what governments can do effectively. The Opportunity Zone policy, part of the Tax Cuts and Jobs Act, has revitalized big portions of some urban areas but has been less effective in their most blighted sections. In these areas, it will be important to find other solutions.
Climate change is a complex issue and one that is increasingly important to voters. Many will be looking closely at how parties balance economic concerns with environmental ones, giving the candidate who can find the ideal, but elusive, middle ground — and articulate it clearly — an important advantage.
Gautam Gowrisankaran is Professor of Economics at Columbia University and also a Research Fellow of the National Bureau of Economic Research and the Centre for Economic Policy Research. He researches and teaches on industrial organization, energy and environmental economics, and healthcare economics. In addition, he has served as an expert witness on antitrust cases, including testifying for the U.S. Department of Justice in their challenge against the proposed JetBlue / Spirit merger.