American businesses hardly lack market incentives to make green tech. What they need is regulatory permission.
Here’s what will help.
W hat’s in a name? If the recently signed Inflation Reduction Act is any indication, a lot of hot air.
It’s no secret that the act fumbles on inflation. A recent UPenn-Wharton assessment reveals it will “very slightly increase inflation until 2024 and decrease inflation thereafter” at a rate “statistically indistinguishable from zero.” The final version, according to their model, will “slightly reduce GDP in the first decade while slightly increasing GDP by 2050.”
All in all, it’s a 30-year wash.
In fact, the act so spectacularly fails to reduce inflation that its staunchest supporters have pivoted to extolling its other policy objectives instead — notably, environmental justice and energy security. But there’s a problem there, too: The act’s climate measures fall even further afield of their mark. If the Inflation Reduction Act is neutral on inflation, it might be a net negative for the environment.
Senate Democrats insist that the act’s clean-energy investments will set the U.S. up for a 40 percent reduction in carbon emissions by 2030, largely through “targeted federal support” — i.e., subsidizing producers and purchasers of federally approved eco-friendly products. But the fine print tells a different story. True, the act promises tax credits and grants to buyers and makers of electric vehicles, solar panels, and other green tech. It also shunts $3 billion to the United States Postal Service for the “purchase of zero-emission delivery vehicles” and requisite charging infrastructure.
The problem is that key elements in our green tech — including electric-vehicle batteries and charging equipment, materials for solar panels, and even hand-held electronics — are sourced from China, a country not known for its friendliness to the environment (it is the world’s leading emitter of CO2) or the U.S.
American industries previously led the world in manufacturing and refining rare-earth alloys — metallic blends often found in the devices that power hybrid and electric engines, wind turbines, medical and military equipment, and other climate-friendly technologies. But in 1980, the U.S. Nuclear Regulatory Commission (NRC) revised its definition of nuclear-weapon source material, and heavy rare-earth byproducts got lumped into the mix. (Ned Mamula, writing for Capital Research Center, has an excellent series explaining why and how this occurred.)
The change, made in tandem with the International Atomic Energy Agency (IAEA), subjected rare earths to a bevy of regulatory and licensing barriers that all but extinguished rare-earth processing across the West. Barred from handling what could be lucrative waste rock containing what the NRC and IAEA now call source material, commercial mines could no longer extract the rare-earth minerals that are abundant in the thorium, uranium, and phosphate tailings produced by routine mining operations. The industry remains legal only for specialized entities — those that can navigate and afford the oversight, overhead, and liability risks that come with mining and refining the ores.
America and Europe’s failure to roll back the red tape tying their own industries’ hands means that the Chinese still mine and process most of the rare earths produced today. Xianbin Yao, lecturer of international studies at De LaSalle University Manila, writes: “Although it has only about one-third of the world’s rare earth reserves, China now accounts for 60 percent of global rare earth mined production, 85 percent of rare earth processing capacity, and over 90 percent of high-strength rare earth permanent magnets manufactured.” Even rare earths sourced elsewhere are often sent to China for processing. Just transporting the metals, says Ramon Jimenez, CEO of Spanish renewable energy company Extremadura New Energies, “creates a big carbon footprint and is not good for the environment.”
In other words, as long as we continue to outsource rare-earth processing to China — as we have effectively done over the past 40 years — our carbon footprint will remain tethered to theirs.
The United States has an opportunity to change that. And while some of the measures outlined in the Inflation Reduction Act make overtures toward bringing manufacturing of eco-friendly products back to eco-friendlier shores, those prospects are stymied by a regulatory regime four decades old.
For example, under the Inflation Reduction Act, starting in 2024, electric vehicles can qualify for a tax rebate, so long as none of those vehicles’ battery components are sourced from a “foreign entity of concern” like China.
The problem? No such vehicles exist — and the act makes no effort to address the regulations responsible for why. The subsidies it throws at domestic manufacturers are an ineffective treatment for the wrong diagnosis. American businesses hardly lack market incentives to make green tech. What they need is regulatory permission.
Revising NRC and IAEA codes would be a step in the right direction. But revamping exclusively rare-earth mining would take years. Fortunately, the U.S. already has rare earths at its disposal. Each year, American mines generate vast quantities of “tailings,” or byproducts, containing recoverable rare earths from commercial iron, titanium, and other mining operations. If we and our allies could process our existing rare-earth byproducts, rather than disposing of them, Mamula estimates that the recovered metals would compensate approximately 65 percent of worldwide rare-earth demand. That’s right now — without opening any new mines. Given the strength and scope of our demand, it’s doubtful state subsidies would need to enter the picture at all.
Allowing American industries to reacquire their footholds in the rare-earth market and rolling back our dependence on high-polluting global adversaries would reduce inflation — and our carbon footprint — simultaneously. All it takes is giving industries the freedom to create with what they’re currently being forced to bury. Conservatives and progressives alike should consider it.