The U.S. Supreme Court on Thursday ruled to effectively bar the Environmental Protection Agency from regulating carbon pollution emitted by power plants, a decision that dims prospects of quick action on climate change in the world’s largest economy.
As if that wasn’t depressing enough, the move also kneecaps American competitiveness at a time when the world is lurching toward an energy transition destined to relegate fossil fuels to history’s dustbin.
The U.S. doesn’t have anything that resembles a rational national energy policy, partly a result of its federal structure and polarized politics. Rather, it has a hodgepodge of policy carrots and sticks that have been influenced by myriad actors and woven into a complex web of regulations and incentives overseen by a range of states and regulatory agencies.
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The ill-fated Clean Power Plan and whatever succeeded it could have formed the basis of a policy that would have put the U.S. on competitive footing with other countries that are racing toward an electrified future. With the Supreme Court decision, that possibility is gone.
As a result, the U.S. has fallen behind other countries in many key sectors that factor heavily into the transition away from fossil fuels, which promises to be a new industrial revolution. We still have one shot at turning things around, but it’s a long one.
Lagging leading indicators
The U.S. heavily lags other countries in the production of solar panels, wind turbines and batteries. Some 85% of solar panels are imported from China and Southeast Asia, according to a report from Deloitte. Parts for wind turbines mostly come from elsewhere, too. The market for battery materials, including cathodes, anodes, electrolytes and separators, is dominated by China, with Japan and South Korea close behind.
The U.S. isn’t bad at creating the technologies currently underpinning the global energy transition; it just has a hard time seeing them through to production. If the U.S. were a startup, investors would be asking about its go-to-market strategy. Is it going to become overly reliant on outsourcing? How will it handle supply chain snags? Is the real plan just to license IP? Honestly, it would probably be an acquisition target by now.
It’s true that the U.S. tends to be strong on the R&D side, which nets its companies, universities and research labs valuable intellectual property. In some cases, IP can be just what’s needed — the U.S. has a strong field of solid-state battery startups, for example. But IP isn’t everything.
Take Intel, for instance. The company may not be part of the climate tech sector, but it represents a sort of cautionary tale for U.S. industrial policy. It’s a strong company with a long history of manufacturing prowess and a valuable slate of IP related to chip design and manufacturing. It came to dominate its field, but over the last decade, it lost its crown to TSMC, a foundry that doesn’t design its own chips and only makes them for other companies. Despite not owning that valuable IP, TSMC’s market cap is nearly three times Intel’s.
TSMC was the product of Taiwan’s hyperfocused industrial policy, which fostered the development of a world-class set of semiconductor manufacturers. The Taiwanese foundry spent decades honing its manufacturing technique and business model, consistently upping its game from one generation of chips to the next.
Without a similarly focused industrial policy and the benefits that domestic R&D and production bring, the U.S. risks falling behind in climate tech, too.
The U.S. is slipping on the demand side, as well. EV registrations, while up significantly in the last year, still lagged behind the European Union and China, where strong and consistent incentives have propelled manufacturers and consumers faster than if the market were left to itself.
As a result, both the EU and China have a head start in battery and electric vehicle production, and that’s unlikely to change anytime soon. By 2030, IHS Markit forecasts China will make 14.9 million EVs and Europe will make 11.6 million. The U.S., meanwhile, will be making 5.8 million. The U.S. is in danger of becoming a second-tier market in an industry it has long dominated.
The energy transition is gathering pace elsewhere, too. In 2020, the European Commission approved the European Green Deal, which promises to boost spending on climate initiatives across the bloc by at least $500 billion. Countries like Germany and the United Kingdom are taking measures that stack on top of that.
For years, China has sensed an opening with the impending energy transition. It is pouring money into batteries and renewable energy, knowing that early leads can be difficult for competitors to surmount, even as it sinks billions into fossil fuel development. For China at this point in time, the energy transition is perhaps less about taking action on climate change and more about winning the future.
That’s not to say other countries have the right approach, but the status quo in the U.S. leaves plenty to be desired.
Failing the modern marshmallow test
Over the last few decades, fossil fuels have become our society’s marshmallow test for the modern era. Once we began to learn the reality of the Faustian bargain we struck — allowing fossil fuels to lift standards of living in exchange for a risky and potentially dangerous future climate — we found it hard to wean ourselves off the instant gratification they offered.
Rather than invest in renewables and electrification several decades ago, we decided to take the marshmallow in front of us rather than double our returns in the future.
Now, the Supreme Court has undercut the Clean Air Act, a possible get-out-of-jail-free card that could have supported a key plank of U.S. climate-industrial policy — the development of renewable power sources both invented and made domestically. Instead, the Supreme Court has decided that climate change, of all the issues under its consideration, is subject to the “major questions doctrine,” and thus if anything is to be done about it, Congress has to go back to the drawing board. It’s possible that Congress could be spurred into action, but given recent history, that’s unlikely to happen.
Which, in the U.S. at least, leaves the private sector. Can it save us? I’m hopeful but skeptical. Climate change is the result of a spectacular failure of the free market, which couldn’t adequately account for the harms of carbon pollution before it was too late. Those failures have brought the world to a tipping point, and now the same system that helped bring about this mess is being relied upon to save us.
At the same time, I’m not sure we have much choice. Other governments, despite some recent action, are similarly paralyzed by conflict or indecision, or both, unsure if they should risk disruption today or disruption tomorrow.
It’s possible that people will rally, pushing for changes that finally tackle one of our era’s greatest threats. But no one knows whether that will happen, and if it does, what shape it will take. There’s no guarantee that those fixes will be kind to the market. At the same time, there isn’t any guarantee that the market can survive the geopolitical and ecological realities of climate change unscathed.
In other words, if the market can’t rally behind the energy transition, it risks being ripped apart by the planet-altering forces it helped unleash.