The investment-led approach to climate only works if you actually do it

More clean energy abundance, less appliance regulation

The centerpiece of the Democratic Party’s Biden-era legislative agenda was climate change — specifically, the investment-led approach to emissions reduction in the energy titles of the Inflation Reduction Act. In other words, instead of trying to pass a law that would raise the price of fossil fuels or restrict people’s ability to use them, they passed a law that allocated hundreds of billions of dollars across different tax credit programs to try to accelerate the development and deployment of clean energy technologies.

This obviously did not end up working out as well as its boosters hoped. Kamala Harris lost the 2024 presidential election, and the ensuing Republican trifecta has repealed the majority of the IRA energy spending. The investment-led approach was meant to address the political failings of the prior pricing-centric approach featured in the Waxman-Markey cap and trade plan of 2009-2010. But the results of the new approach were sufficiently disappointing that reasonable people will ask whether it too failed and we should look to big new ideas.

I want to mount a qualified defense of the IRA strategy.

The idea that we were going to kickstart a “green vortex” that made all the climate movement’s dreams come true proved wrong, but this is a case of overly optimistic thinking, the kind that would lead to disappointment on almost any policy.

When big partisan legislation passes, backlash almost always follows. And one thing I’ll say on behalf of the IRA strategy is it really did not generate much backlash, which is a noteworthy achievement. The broad idea of universal health insurance coverage is very popular, but it notably became temporarily unpopular when Barack Obama was pushing the Affordable Care Act. With climate and the IRA, we did not see a Tea Party-like mobilization against these policies, and I don’t think anyone believes that Biden’s energy tax credit policies played a major role in Harris’ defeat.

With appropriate expectations set, this is a significant achievement of policy design.

The actual central failing of Biden-era climate and energy policy is that having won the prioritization war and successfully convinced Democrats to put a huge sum of money into clean energy rather than deficit reduction, poverty reduction, or health care, the climate movement completely refused to actually embrace the investment-led strategy. They pocketed enormous amounts of spending, then pushed Democrats to use every regulatory means at their disposal to curtail fossil fuel use and fossil fuel production. At the same time, they refused to embrace the kind of regulatory changes that would complement the IRA’s spending priorities.

Those choices did generate political backlash.

You heard many more complaints about semi-fake (but not entirely fake) efforts to ban gas stoves and quite real efforts to ban gas cars than you did about anything in the IRA.

And the Biden administration continually triangulated itself into a totally incoherent attitude toward the international dimensions of the fossil fuel industry. Clearly, Democrats also suffered from a number of political problems that had nothing to do with climate and energy policy. But all factions of the party tend to think about climate policy as somehow hermetically sealed off from “populism” or “pocketbook issues” or “abundance” or “focusing on costs.” And I think it’s worth harping on the fact that energy is much too important to the economy to stovepipe like that.

The case for an investment-led approach to climate policy makes sense, but if you’re going to do it, you need to actually commit.

Climate policy after pricing

Back in 2008, I reviewed the Breakthrough Institute founders’ book, “Break Through,” for The New York Times.

At the time, the conventional wisdom was that climate change should be addressed through cap and trade or a carbon tax. The book argued, essentially, that this kind of “politics of limits” was inherently linked to degrowth environmentalism and ought to be abandoned. In my review, I said they made a lot of good points, but at the end of the day, the investment-led approach they championed as an alternative required money, and carbon pricing seemed like a great complementary way to raise the money. The Obama administration basically agreed with my take and came close to enacting a cap and trade bill that would match that vision, but it died in the Senate. Over the next few years, everyone came around to the view that carbon pricing was an unpopular political fiasco.

But, critically, the new anti-pricing consensus actually included supporters from two different camps:

1. Those with the Breakthrough view that we shouldn’t be trying to make dirty energy more expensive, just focus on science and technology

2. Those with the progressive view that emissions pricing is a permission structure for continued fossil fuel use and we should shut the industry down by regulatory fiat

And the whole story of post-Obama Democratic Party climate policy is basically politicians focusing on the shallow consensus (pricing is unpopular) without noting the deeper divergence. Essentially, one group felt that pricing was too much of a stick-oriented approach, an unrealistic call for short-term local sacrifices for long-term global benefits. And another felt that pricing was too little stick, telling people that they could keep burning as much gasoline as they wanted, as long as they were willing to pay a modest fee.

But the virtue of pricing is precisely that it bridges the divide between these camps.

It acknowledges that climate pollution is genuinely harmful, and should be curtailed wherever this can be achieved at low cost. And it also acknowledges that net zero will be achieved if the technology exists to sustain high living standards, and not simply by fiat from the government. But instead of sticking with pricing, Democrats opted to pursue both non-pricing strategies simultaneously.

Joe Biden’s non-choice

With the IRA, the Biden administration made an investment-led approach to climate change the centerpiece of their policy agenda. But they treated this — in both their external engagement with environmental groups and, to an extent, in their internal deliberations — as a concession they had to make to Joe Manchin, rather than a policy decision they believed in.

It’s easy to forget, but while Build Back Better was transforming into the IRA, progressives kept insisting that Manchin was negotiating in “bad faith” and that the White House should cut off talks with him and focus on an implementing an aggressive regulatory agenda to curtail fossil fuels.

The White House could have done that, but they chose not to, instead eventually opting to address Manchin’s stated concerns and get a visionary piece of energy policy enacted.

But they never really owned their own choice.

I know Biden administration veterans hate it when anyone harps on their decision to “pause” approvals of new liquified natural gas (LNG) export terminals, because they feel that this policy never had any real-world impact. But I still think it’s an important symbolic decision. The logic of the investment-led approach is that you are not trying to reduce emissions by raising the global cost of fossil fuels. If you’re not trying to raise the global cost of fossil fuels, then of course you do things like approve the Willow project in Alaska. Biden’s team, though, never wanted to defend their decision to approve Willow. They claimed it was a forced move under existing law, not something they had discretion over, and certainly not something they wanted to talk about. And having made that move, they told themselves that they needed to deliver a “win” to climate activists — thus the splashy move on LNG exports.

Less dramatically, but more substantively, Biden also raised the fees for drilling on public lands and, as a lame duck, tried to severely curtail offshore drilling.

On one level, you can tell that Team Biden didn’t really believe in the idea of using supply side policy to reduce emissions by raising global oil prices. They made smart use of the Strategic Petroleum Reserve to mitigate price fluctuations, US oil and gas output reached record high levels, and most tellingly, when thinking about sanctions on Russia, Iran, and Venezuela, they always displayed concern about the economic downsides of fossil fuel scarcity. But this also reflected an incoherence and siloing of policy decisions. A different group of people sat in the meetings about public lands management than sat in the meetings about sanctions enforcement, so they reached decisions based on inconsistent premises. The president never got these groups aligned.

Similarly, having promised Manchin a bipartisan deal on permitting reform to get the IRA done, the White House never really championed permitting reform. They always represented to me that they were eager to see a deal happen and happy to sign one, but they knew that’s what I wanted to hear. People who worked on this on the Hill told me the administration was not very helpful, and in practice, the administration seemed divided and paralyzed. If a deal happened, I’m pretty sure they would have signed it, but they weren’t going to make anything happen.

The upshot of all this was that Democrats couldn’t and wouldn’t explain their energy policy to the voters. Biden didn’t tout record oil production. Harris knew she had to flip-flop on fracking to be competitive in Pennsylvania, but she couldn’t defend the position on the merits. At a time when voters wanted to see laser focus on the cost of living, Democrats were trapped by the taboos and hangups of the environmental movement.

The appliance wars

The Biden administration policies that really did face meaningful public backlash, in a way that the IRA’s tax credits did not, were the regulation of appliances.

While plenty of people are, of course, eager to buy energy efficient or otherwise environmentally friendly appliances, few are eager to be forced to buy such appliances. Between Obama’s second term, Trump’s first term, Biden’s term, and now Trump’s second term, we keep ping-ponging over whether appliance makers should be allowed to manufacture faster dishwashers and laundry machines that use more water and energy. A Biden official (whose father was the head of the mine workers union) floated the idea of banning gas stoves, prompting significant backlash and federal legislation to block the Consumer Product Safety Commission from implementing a ban. A lot of Democrats who I know were annoyed about this classified it as misinformation, but New York State really did ban gas stoves in new construction, and San Francisco passed rules phasing out gas furnaces.

This reminds me of the wave of plastic straw bans that swept progressive jurisdictions. I never meet anyone who’s enthusiastic about banning plastic straws or thinks this is winning politics. But environmental groups hand out gold stars to politicians who vote to ban plastic straws, and a lot of safe seat politicians see it as in their interest to collect these gold stars.

More consequentially, after Trump won the election, environmental groups sunk a lot of political capital into pushing Democrats to defend California’s right to ban gasoline-powered cars, a cause where we can see very clear evidence of backlash growing over a period of years.

I’m not saying Kamala Harris lost the election because of gas stoves or plastic straws. Clearly, a lot of issues were in the mix.

But my point is this: In the Biden Era, an investment-led approach to emissions reduction won the lion’s share of new spending, spending that could have gone to other progressive causes or been put toward tax cuts or deficit reduction to pander to the electorate.

We’re not talking about a small amount of money here, but it was well-designed to minimize backlash. Under the circumstances, it was reckless to not actually embrace the strategy. Especially because the investment-led approach has real merits. If Harris had won the election, it would have had four more years to bear fruit and been less vulnerable to repeal, and even in its weakened state, a lot of important provisions survived the GOP Congress because investments in innovation and new technology have genuinely broad appeal. Nothing Biden did on the regulatory side is going to have any long-term impact at all. It was 100 percent political pain for zero substantive gain, featuring all the downsides of a pricing-based strategy without the upside of revenue.