TILclimate Podcast Live Show: Today I Learned About America's Big Year of Climate Action
We're very excited to get started with TILclimate's first live show. And I want you to welcome your host, Laur Hesse Fisher. [APPLAUSE] [MUSIC PLAYING] Hello, everyone. And welcome to Today I Learned Climate.
I'm your host, Laur Hesse Fisher, from the MIT Environmental Solutions Initiative. And this is our first live show. Woo! [APPLAUSE] I'm joined here with a live audience. And we're in the beautiful MIT Museum. Isn't this a lovely, lovely space, in the Phil Sharp room, as we have just discussed.
I want to give a big shoutout to the MIT Climate Nucleus, which is a faculty committee in charge of overseeing the implementation of MIT'S climate action plan for the decade, called Fast Forward. They supported this event as part of MIT'S Earth Month series. I encourage you to go online to climate.mit.edu/events. There are events happening tonight and tomorrow, the rest of this week and next week, all centered around Earth and the environment.
With that being said, let's jump in. You probably know by now that last year the US passed a very big piece of legislation, the Inflation Reduction Act, or the IRA as we'll be referring to it today. And it included the United States' largest investments in slowing climate change, well, ever. That bill was one of three that together mark America's biggest swing at tackling climate change.
So today we're going to look at those three bills as a set, and try to understand well, what's the strategy here? And collectively, what do they achieve and how do they plan to go about it? And then, what's next? Which brings me to the very special guest that I am pleased to be sharing the stage here with. Could you please share your name, your title, and MIT affiliation, and what you've been up to the last couple of years? Sure. My name is Liz Reynolds. I'm a lecturer in MIT'S Department of Urban Studies and Planning. I'm also a partner in the investment firm Unless, which is focused on industrial transformation. I think most important for this conversation, until last fall, I was Special Assistant to the President for Manufacturing and Economic Development at the National Economic Council at the White House.
In that job, I can say it began and ended focused on supply-chain challenges. But in between we had a lot of great work on national manufacturing strategy, R&D strategy, and our broader industrial strategy, which we'll be talking about today. Yes, great. Well, Dr. Reynolds, thank you and welcome to you Today I Learned Climate.
Thank you. It's a real pleasure to be here. I already mentioned the IRA. What are the other two bills that we're talking about today? Well, I think the first that we should focus on is the bipartisan infrastructure bill, which was passed in November of 2021. So it's been around for just over a year.
And while of course that is a significant investment in our physical infrastructure, whether that's roads, bridges, airports, ports, or rail, all of what you might think of as physical infrastructure, water, broadband as well. It also, I think for a lot of people, it's not well understood that it actually had a lot of investment for our energy infrastructure. Or close to $100 billion. Focused on things like the demonstrating technologies at scale, creating a green banks, providing basically, a power grid, an electrical grid, infrastructure investment. A significant amount of funding that, along with the IRA, is supporting our energy agenda.
Great. There's another one too, that we're talking about? Of course, the next one that was passed last summer was also the CHIPS and Science Act. Folks probably are familiar with the CHIPS part of that, which is a focus on investing close to $52 billion in our semiconductor production capabilities in this country. Semiconductors are behind almost every tool and every gear, every appliance, everything we use today. The CHIPS Act was really a focus to say during the pandemic, what we saw was a real vulnerability in our ability to obtain semiconductor chips.
To the point where about a third of inflation in 2022 was driven by constraints on the auto industry. Because they couldn't get semiconductor chips. So this is an effort to try and build some capacity in the country for that, in both advanced and legacy chips. The important part of that also, I think to this broader conversation, is the Science Act part, of the CHIPS and Science Act. Which was an authorization of close to $200 billion on building and investing in our R&D capabilities in the US.
MIT had a lot to do in shaping that, shaping that act. It focuses on investments in particular technologies. We actually, for the first time, have named 10-plus technologies that really we think are critical to the country's future. Those include from artificial intelligence to advance manufacturing.
And to this conversation, advanced energy efficiency as well in material science. It also involves investments in regional specialization, so regional tech hubs. How can we develop tech hubs outside of Boston, San Francisco, et cetera, to build our regional capabilities? It basically is a way of also moving the US, from just not just R&D, but also into later stage demonstration and deployment with the creation of a new directorate at the NSF. So that we understand that we have always had strong R&D. How do we pull some of that R&D and think about the partnerships and what happens on the ground that helps us transition, for example, to a clean energy economy? All right. Great.
We'll be talking about many of those elements in more detail throughout today's event. We didn't really cover the IRA, though, I'm realizing. Right.
Can you give us a quick overview of the IRA? The IRA is an extraordinary piece of legislation and as you said, the most significant investment the country has made in fighting what is essentially an existential threat to our country, but to the world, in terms of addressing climate change. It's about $380 billion, represented in mostly tax credits. 3/4 of that is through tax credits, which are about trying to incent the private sector to invest in the technologies and the adoption of technologies that will help us meet our climate goals over time.
So while it has that largely a significant amount around tax credits, it also includes significant investment in loans, to the loan program office, where we're investing long-term loans for companies that are trying to scale their technologies in the country, and build out facilities. It also involves funding for a green bank and regional green bank support. Green banks, of course, have existed in this country. They certainly exist in Europe, but we haven't really-- What are green banks? Essentially, you can think of it as a development bank focused on climate. OK. What's a development bank? A development bank would be a bank that is not looking for perhaps the highest market return on its investment.
It's looking for a return, for sure. But it's taking into account social goals, not just private goals. We have a goal, as a country, to try and invest in and grow our renewable energy infrastructure. These are banks, and there's certainly one in Connecticut, and elsewhere.
These are banks that are going to provide sometimes the long-term funding that regular projects wouldn't be able to get if they were trying to get the highest market return. Got it. So there are certain things that fall under the category of green that these banks focus on investing in. That's right. Then, what is the IRA? How does it support the development? It's providing funding to support a network of these banks, or a network of funding that will help regions. Our whole energy system is based on regional grids of sorts.
We rely on hydro, and others rely on other sources of energy. This is a way in which often energy systems are built from the region up. This is how we organize our energy grids, if you will. So a regional approach to this makes sense, because different regions are going to have different strategies for building out their renewable energy capacity.
We talked about the IRA, how it 3/4 of it is around tax credits, to incentivize the private sector. The green banks, the loans for businesses. Anything else that is important to mention as part of the IRA? I guess I would say, more broadly, I would like to make the point, and whether it's in the IRA or coming out of the infrastructure bill, that along with investments for private sector and along with grants and other ways in which we're pushing money out into the field for public-private partnerships, there's also an institutional element to this. So there's a new Office of Demonstration at the Department of Energy that is, again, with $20-plus billion, focused on taking technologies that have moved beyond, out of the lab.
They're perhaps in pilot production, but really need to be demonstrated at scale. So we'll have a whole new office in funding that's focused on that. There's a new office of Energy and Transportation. Because we know transportation is so critical to our goals in reducing greenhouse gases, that we now have an office between Energy and Transportation, who are working collaboratively on that topic. DOE also has set up a Manufacturing and Energy Supply Chain Office. Because we know also that we are building out in many ways supply chains for the first time in this country.
We have had supply chain constraints. I can speak from personal experience on that, over the last couple of years. We've experienced it. How are we going to build out those supply chains? What is the strategy? What can we be doing, again, from a public-private perspective to doing that? I think there's all these dimensions in which we're really, I think, building this. Not only providing a wind at our backs through these tax credits and funding, but also building an institutional infrastructure for taking this forward over the next decade.
OK. We covered a lot. You mentioned a lot of different things that are included in all these bills. Why are we talking about them as a set? How do they relate to each other? Was that intentional? Can you just give us the big picture, look at these three bills? They each have their own particular history. We've been talking about an infrastructure bill for a long time in this country. In and of itself, you might just stop there and say, pat yourself on the back and say, we got that.
Again, passed with bipartisan support. But I think what they all are speaking to is a reinvestment in the country's industrial infrastructure. We have to rebuild a lot of what has sort of deteriorated over the decades. Physical infrastructure is one of those things. But even to think about decarbonizing our economy, you have to re-industrialize.
That is your transportation system. That's your manufacturing capacity. Chips, and to build semiconductors here, and to rebuild our capacity to make semiconductors here. I just want to say on that front, every company was making a rational decision to make their semiconductors elsewhere. Largely in Asia. We, as a country, used to make 40% of our semiconductors in the country.
We now make about 12%. Companies go offshore. But when everyone's doing that, you look around and you say collectively, 92% of the country's semiconductors are made by one company in one country.
We have to say this is a problem for the country, so you have to rebuild that capability here. What does that take? That takes manufacturing. It takes supply chains. It takes construction capacity. It takes talent.
All of those, as a piece, if we look at infrastructure, semiconductors, clean tech, all of that is talking about rebuilding capabilities in the country that are going to position us for the 21st century. To compete globally and also, I think, to prosper as a country. When we were preparing for this conversation, the phrase industrial policy came up a lot. That's something that you're an expert on. You're an expert in industrial policy. That's why you're here today.
That's why we're having this conversation. What is industrial policy? I think in the simplest terms, industrial policy is the use of tools by the public sector to incent investment by the private sector in particular technologies, or industries that we deem as important for the country's national and economic security. So the federal government has made a decision that these are the kinds of technologies or approaches that we need as a country, for our national security and for economic development. Then they incentivize private companies to invest in the development and deployment of those technologies. Did I get that right? That's right.
Also, I should say that this happens at the state level too. It's not just a federal one. But when you're doing at the federal level, you can really talk about national priorities in a way that we don't at the state level. I think that what we've seen-- again, take semiconductors and cleantech as examples-- is often that the private sector alone, the market, the private market, ends up under-investing in key areas of the economy that we know have strategic and economic significance for the country. If 92% of your chips are being made by one company in one country in which there are geopolitical tensions, you might decide that we should come up with a broader strategy for the country. Our strategy, to be clear, is not to make all the chips in the US.
Our dependence on Taiwan and TSMC will move from 92% to I think, about 87%. This is not a radical change. Our strategy very much relies on partnering with allies and others to build out capacity. I think that exists across all of the strategies for our industrial policy.
But it is the case that again, bipartisan support, that we needed to shore up a vulnerability for the country. That is something that I think in many ways, industrial policy has always existed. Perhaps it's been indirect or implicit. The Biden administration has been quite explicit about saying this is something that we have bipartisan support for. And it's really time, after decades of disinvestment in the country, which have left us vulnerable in many ways.
Could you help us understand how we got to this point a little bit? This is not one of the questions I sent you beforehand, so sorry about that. That's fine, I love it. Yeah. I'm wondering, why did that disinvestment happen? It seems a little bit like this industrial policy is a way of correcting, or maybe not correcting, but having the market lean in a certain direction.
Economic activity concentrated in certain industries, and toward certain goals. Why did that correction need to happen? If you look at our economy, and look over the last 40 years, we've had good growth. Not fantastic growth. But it's been a globalization of the economy. A lot of our firms have successfully globalized.
Through that process we've built out supply chains and opportunities in other economies. As a result, companies are going to move assets and invest elsewhere. I think the problem for us has been that a lot of the incentives have, in our system, particularly if you're a public company that's being judged on quarterly results, it's led to basically a short-term viewing of what's good for the company, but maybe not good for the country as a whole.
If you look at the hollowing out of our manufacturing base, a lot of investment and manufacturing has gone offshore. Companies have prioritized efficiency, which is what you find when you go to lower-cost locations, where labor costs are lower, et cetera. Environmental costs are lower? Environmental costs, there may not be environmental regulations. All sorts of reasons that one might do that.
We've also had, I think as a result of that, increasing inequality. As we just highlighted in our book, the book I will shamelessly promote, The Work of the Future, Building Better Jobs in an Age of Intelligent Machines, which was the result of the work of the Task Force on the Work of the Future, here at MIT. And this is a book I co-authored with David Autor and David Mindell. What we have seen is that while there's been growth for the country in productivity growth, that the benefits of that growth haven't been shared with everyone in the country. So the typical worker, starting in the 1980s, over several decades, basically has had relatively flat wages and compensation. That is also part of what's happened over the last 40 years.
We say, how did we get here? Well, we saw both moving of offshore of middle-class jobs like manufacturing. But we've also seen lots of policies that eventually weakened labor market institutions, et cetera. Here we are 40 years later, we have very global companies. We have global supply chains, a lot of emphasis on efficiency.
What happens? We get hit by a global pandemic, which completely disrupts our supply chains. We start to understand how dependent we are. It's one thing to be dependent on multiple countries and multiple areas for things, but to be dependent on particular countries and particular areas. We have environmental threats. We've seen now, in the last two years, 20-plus events, if you will, flooding, forests, et cetera, that are at least $1,000,000,000 each in cost for the economy.
Then we've seen geopolitical crises. I can say that when we were working in the White House on the ports challenge, as you might all recall, lots and lots of ships hoping to get into LA Long Beach, and waiting for a while. We finally, Christmas arrived, the gifts came through. Hallelujah. Supply chains were working. At least, better than we had been anticipated.
Then we had the Russian invasion of Ukraine, and all of a sudden, a whole other set of supply chain issues. We have the tensions that have arisen between the US and China, right now. Around Taiwan, and other things. All of these have basically exposed our vulnerabilities to being without some capacity in the country around, whether it's PPE or semiconductors, areas in which we need some capacity in the country.
Frankly, I think we were in a place not only where there's bipartisan support, but we're also in a moment of technological innovation, where we actually can make some of these products and develop capabilities in a way that even 10 years ago you'd say would be very hard for us to do. So it is a real moment and an opportunity. It sounds like around economic resilience. Resilience is the key word, excellent. Yes. Basically, what we've been trying to do.
We didn't plan that, by the way. No, exactly. But if you were to look at White House reports, you'd see how do we incent? Again, how do we move the private sector to invest in resilience as much as they invest in efficiency? Often companies have seen those as a trade-off. What we really know is both are important. But resilience costs money.
So you do have to figure out how are you going to create buffers in your supply chain? How are you going to create redundancy? Part of that strategy, as we've seen already, this is not just anecdote, but I think has really been tracked, is that companies are deciding to invest locally, and reinvest in the US. Sometimes re-shoring. Invest locally, in terms of moving things from Asia to Mexico. So that is actually something that's happening, and building resilience for the long term. Yeah, that's really interesting. Let's bring it back to the climate change topic.
We're a climate podcast, we might as well do that. Yes. How do these bills relate to climate change, broadly? Then another big question, that maybe I need to break these two up, but I'm just going to go for both of them and you answer them the way that you want to. What is this approach for dealing with climate change? How do these three bills try to tackle that? Then, how is that different to how policymakers have tried to tackle climate change in the past, before these three bills? I think that first and foremost, the thing to say about how are these different? Is just the scale. I mean, we are talking about-- Different, these are different than-- Than the past.
Stuff in the past? Yeah. Than in the past, sorry, is the scale. We're talking about close to half a trillion dollars, whether it's in tax credits or in spending, that's addressing this topic.
That is unprecedented. And that is bringing a whole of government approach to this topic. The second one, I think, is the variety of tools and approaches to this. This is not a one-size-fits-all approach. This has got multiple ways in which we're addressing the challenges that we have here. Some of this is, as I say, sort of supply push if you will, providing funding.
Whether it's in the green banks or through a loan program, so that companies are able to find resources to help build and grow their new technology, or adopt new technologies. The other part is the demand part, is all those tax incentives that are going to send you, as a consumer, to buy your EV. Or you, as a generator of energy, to a generate more of that renewable energy. Or you, as a manufacturer of parts in a solar or wind farms, to also make those investments. That demand pull is almost as important as the supply pushes is the part that's helping people make that investment. And I think in the past, we've had both, but we haven't had perhaps the demand pull at the same scale.
Also, we have to recognize that in the last decade, we have really made enormous strides in our renewable energy capabilities. What you want to see is the development of these new technologies. The IRA is agnostic as to which technology you're going to get that tax credit for.
If you can prove zero emissions, you're going to get that tax credit. Sometimes markets aren't ready for this. We have to develop the market. What we've done, you see what's happened with solar and wind.
We've developed the technology. The price has gone down, adoption is going up. That's what we want to see over time, across all of these different technology types. The tax credits help you pull that. I think that that's a whole new area.
The third thing I would say is that we have been very strong. Certainly the DOE has been a real powerhouse on the R&D side for renewable technologies. Very clear efforts across, particularly with infrastructure and IRA funding, to move not just from R&D, but into what the other Ds, demonstration and deployment.
That's where we have an Office of Demonstration. We're going to try and provide significant funding, which it takes to demonstrate some of these technologies at scale. For example, we have these incentives for consumers to buy electric vehicles.
Are you going to buy an electric vehicle if you aren't sure that you've got chargers along the route to get you from one place to the other? The funding, we've got billions of dollars going out to states to build out that electric vehicle charging. It's about the deployment as well. It's about helping build the infrastructure that can help us actually make the transition in a lot of these key areas. There's so much that you just talked about that I want to touch on.
I'll start off by saying other kinds of climate policy that have been proposed in the past have been like carbon pricing, or regulations on the tailpipe emissions. This is very different from that. It's trying to solve for a number of different issues at once.
One, we're trying to solve for the issue of manufacturing in the United States. And as you said, there was a hollowing out of manufacturing and we're trying to replenish that and build for resiliency, and things like that. Then also, there are certain technologies, low-carbon technologies, that have not scaled in the way that solar has successfully scaled, that now we're trying to invest and encourage that happening. And these bills are attempting to tackle it in all different sides. Build the market, but then also incentivize it.
I'm just trying to get my head around this a little bit. The question that I have is, I wonder if solar is a good example of this? Because you talked about how solar was invented here, in the US. I think we talked about that in one of the pre-interview? Yes. Yes.
I don't know if it was me, but with somebody you did, I've spoken to that. OK. Was invented here. But then, it's not manufactured here anymore. But then there was a success story in how it was able to scale and become the price that it is now.
Do you see that as being a good example of a success story that now we're trying to replicate in the other technological areas? I think solar is an example for a number of reasons, of how this is a complicated market. This has been a challenge for the US, invent it here, make it elsewhere. Again, for cost purposes. If we look, global competition, there are numbers, particularly China has spent enormous amounts of money to basically flood the market with their products and wipe out competition.
As a result, the US and Germany have had challenges I think, in the solar area. What's happened now is, again, through these investments that we've made and what we're doing here now is, as you said, we've always been very strong at building the technology. Now we're trying to both build and shape markets here in this country.
We know that if we can shape the markets that we're interested in developing and provide these incentives, that actually we can build a market for our companies here in the US. Not just our companies, but for companies globally. This has been obviously a strategy for international investors as well. It's not just that we are trying to put dollars down that will build out particular type of technology with a particular goal. It's that we are now incenting investors and creating a market that makes it worthwhile for those investors.
Solar is in one place. Hydrogen is not there. We believe that we can actually build, over time, a capability and a marketplace for that, but it takes certain incentives. We've got so much private capital on the sidelines, that I think with the right context, is really excited to invest here. These incentives are going to help those companies invest.
Before you use the term technology agnostic, what does that mean? It means that these tax credits are not putting a thumb on the scale for certain technologies. Meaning solar or wind or hydrogen? Wind or geothermal, or hydrogen. That if you can prove that you're generating clean energy with zero emissions, you have access to these tax credits.
It's trying to say give everyone-- nuclear, let's make sure we mention nuclear as well-- an opportunity to build into their development timelines and their forecasting, et cetera, use of these tax credits over the next decade in that process. It doesn't mean there aren't programs that specifically are geared towards particular technology. There is a program on hydrogen hubs, about $8 billion that's been put out in a competitive process for regions around the country to compete for about $1,000,000,000 to become hydrogen hub in the country. Where you have your universities, your companies, et cetera, to try and build those specializations, build those capacity, that capacity in the country.
Obviously, we're taking a bet on hydrogen there, and we have a lot of interest in that. But in general, the idea here is let's support all forms of renewable energy and help them get along that path. It's a long path for us.
Solar and wind are ready today. Nuclear, hopefully ready in the next couple decades. Hydrogen as well. But we have to take the long view, given our climate goals. We have other episodes on hydrogen and nuclear, if you're interested in learning more about those technologies. Can I just do a quick time check? I don't have my-- what time is it? 20 minutes.
Oh, jeez. That's why we schedule our interviews for an hour and a half, because we just, there's so much richness that we need to. Yeah, I know. OK. When you're trying to change behavior, one could offer a carrot or a stick, right? A carbon price could be said to be a stick.
You pay extra for emitting carbon dioxide into the air. Are these all carrots? The tax rebates, that's a savings. Is that what's included in all of these bills? It is absolutely the case that these bills are very much leaning into more carrots than sticks.
I think if you take carbon tax as an example, and put aside the fact that was politically challenging to get across the finish line, we have to look at the challenge of climate as a global challenge. Right? Whatever we do in the state, in the US, is good for the US. But it doesn't necessarily address climate as a whole. When you think about a climate tax-- sorry, carbon tax, what you're doing is saying you're reducing your emissions in these particular fossil fuel areas. Somehow you're going to increase your investment in the renewable side. What happens of course is then, in theory, our demand for oil and gas goes down.
And somebody else in the world market could buy it at a cheaper price. Does that really help us globally reduce our carbon emissions? Not really. I think with the way that the tax incentives are structured right now, we're actually saying yes to renewables.
Lean into this. Which helps our country, for sure. But also helps globally.
Because what we hope to do is invest more in these new technologies. Invest in the innovation, which we're very strong at. Invest in the deployment and the adoption. And in that process, we actually reduce their cost. We make them more accessible.
Hopefully not just in this country, but around the world, and they start to have a positive spillover effect for Carbon emissions around the world. I think that the argument for the carrots, rather than sticks, I think, has been proven to be quite successful and encouraging. That's interesting. We're six months out from the passage of the IRA, and almost a little bit over a year out from some of the other ones. Is there evidence that this approach to climate policy is working? I think there is. I think the most important evidence is really in the announcements that have been made by the private sector, about investments in the US, and whether it's in EV, electric vehicles, batteries, solar.
Whether it's in manufacturing, advanced manufacturing areas. Chips, of course. We've seen commitments made there. I think overall, the White House has identified over $400 billion of commitments made by the private sector for new investments in the country, across this range of priorities. That's really, I think, the telltale sign-on, in terms of is it working or do we see a path forward on this? Because the federal government cannot do this on its own.
It's absolutely not going to happen. It's really about incenting the private sector and private sector investment. You see that is the most direct way to measure this. Obviously we're going to want to track exactly what's happening at state, city, and local communities.
Because in the end, we want to see a climate transformation that is actually bringing everybody along and supporting communities across the country. I want to talk about that a little bit, because we're talking a lot about consumers. There's the EV tax credits and for different technologies in your home.
Then you were talking about companies and incentivizing some of their actions. You also talked about how regions can compete to be a regional hydrogen hub. What are the opportunities for states or particular regions or cities, inside of this? How can these bills affect them? Or how can it help enhance their capabilities? It's really important for us to focus on exactly how this is going to translate on the ground. That is actually where all of this starts to make a difference. Of course in the infrastructure bill, 80% of that funding goes right to departments of transportation.
Broadband. Like state departments? Yes, states. States. To the states. Then that goes, that flows in ways that have historically are well understood.
The rest of the money, if it's not in tax credits as well, companies will be going and investing in places that they think where they can find the labor, where they can find the suppliers, to build out all of these EV batteries, et cetera. But I think in terms of how communities and regions are going to be accessing this, it's very much, in some ways, some of these things are competitive. So we have regional partnerships that are pulled together, in which the federal government says we need to make sure that all communities are at the table, that you've got your labor force plan. That you've got all sorts of ways in which you, as a hydrogen hub, are actually going to win this money. Or we have things that are accessible to all communities that apply.
So EPA has a Climate Pollution Grant. It's got a certain set of money. Any community can apply for that grant, and will be given that money and will be awarded the funding. Then it's put in a pool for larger funding.
It changes between the types of policies and what their intent is. But the point here is to very much try and get particularly into communities that have been left behind, or that have been affected negatively by climate-related events and pollution. There's a number of ways in which that's been built into a lot of these efforts. For example, if you're going to apply for money from the DOE, you have to provide a community benefits plan.
How is the broader community going to benefit from your award of this funding? As part of my work at MIT, I've done some engagement in different coal countries, in the United States, or former coal countries, transitioning out of coal, just because it's not a viable economic product for the community anymore. Yes. They're looking at applying for some of this funding. The question that comes to my mind is are these communities equipped to apply for some of this funding? Do they have the resources or the time to create a community benefits plan? Or are these other things that are required? Yeah. No, I think that's a real challenge. And that's always been a challenge, is how do we actually make sure that the places that need it the most get the assistance? I mean, I think the good news is, for example, in coal communities or fossil-fuel-dependent communities is that there's particular funding geared towards those communities.
They have been a focal point for the administration. Interestingly, there's also tax credits. The tax credits here are kind of stacked. There's a basic tax credit in the IRA for production, or for your generation, but you get an extra 10% if you use prevailing wages. You get an extra 10% if you create an apprenticeship program.
And you get an extra 10% if you're actually investing in coal communities, and other places like that. There's an incentive system for them, and there's funding that actually provides planning funding for planning. So how can they? Can they hire consultants? That's such an important part of the process.
It is such an important part of the process. And it's one that you always feel like there should be more. More capacity, more. One thing we're trying to do, we're talking about at MIT, is how can we bring MIT students out into the field to be supportive and help with these communities? Every community is resource constrained, I think it's fair to say, on a lot of this, in a lot of these cities and states. So what can we do, as an institution with a lot of well-trained and smart students, to get them out in the field? Super passionate about making a real difference in the world. Super passionate and want to learn how to do it.
Now is the time, it's happening now. Yeah. I just have an infinite number of questions. But we will open up to Q&A soon. So start thinking about what kinds of questions you might have for Dr. Reynolds. If you don't I have some, but hopefully you do.
Let's talk a little bit before going into the Q&A about the politics and the enabling environment for these. These investments were not passed in one big bill. There were three different bills. I mean, is it a coincidence that these all came out at around the same time? Were they ever thought of together? It's interesting, we were talking about this before. That in fact, so infrastructure has been something we've talked about as a country, trying to get that across the finish line for a long time. That was certainly one area.
The other two have also been the other two areas of science and technology, chips as well as IRA, all have constituents that have been pushing for them. Two of them were passed in bipartisan, with bipartisan support, the CHIPS and Science Act, and the Infrastructure Act. Then IRA was done through what we call reconciliation, which was a straight vote by the Democrats. There were visions at the beginning of the Biden administration that some of these would be connected. But as it turned out, it was much better to separate them out in different ways. We should mention that the IRA is not just a climate bill, It's got a lot more to it.
But that's the way we focus on. Well, I guess none of these are climate bills, really. That's right. IRA is not technically a climate bill. That's right. What I would say is that it is the case that in any new administration, they see the first two years of the administration as the time that you set your agenda and you really try to look for getting legislative wins.
That is what the Biden administration has done. That was done. Whether that was going to be done in one bill, two bill, or three, I can attest was not clear at the beginning of 2021.
That's part of the art of politics, is to run and get across the finish line what you can, when you can. Certainly, I think the fact that two of these had bipartisan support is a sign that they had been in the works for a while. Parts of them had been in the works and people really wanted to see them across the finish line. I know that you're not a politician and you're not a political advisor in this way, but I just have to ask some questions about the politics of it. Because the first two were passed with bipartisan support and the third wasn't.
The IRA wasn't. A minority still, but a strong minority of Republicans, support the first two bills but not the second one-- or sorry, not the third one, not the IRA. Yeah. Well, infrastructure, we talked about, that's had bipartisan support for a long time. The country desperately needed investment in infrastructure. And CHIPS and Science, the primary unifying area there I think is the concern about China, and the rise of China, in terms of their technological capabilities and economic power.
So from Left and Right, there has been an interest in trying to shore up us R&D as well as capacity, in a geopolitically-fraught environment, which is what we see right now with China, vis-a-vis Taiwan. On IRA, I don't think it's a surprise to anyone that it was hard to get bipartisan support. The Republican Party hasn't been a huge supporter, at least in Congress, of climate legislation. So that was going to be harder.
We knew right from the beginning, was going to be harder. It also, by the way, included prescription medicine provisions and other things. But I mean, I personally believe that if you were to look at the last three to five years and what we've seen, in terms of climate disaster and challenges for this country and for the world, that there is a growing consensus that we need to do something. Whether that was going to result in getting Republican votes on the IRA is a separate question. As it turns out, it was remarkably successful politics. Joe Manchin came to the table and negotiated a deal, which we should all be very proud of.
I think we could have a whole other episode on the politics of climate policy, and conservative action on climate change, and things like that. Yes, and I would not participate in that conversation. I won't ask you to today, anymore. This will switch to another set of questions in our remaining few minutes we have before Q&A. I
want to look at the even bigger picture here, beyond the US. Let's start with the US, and then think beyond the US. I've seen estimates that this legislation could cut us emissions by up to 40% by 2030. Which is close to, but not quite the pace that we would need to be on to be on track for the Paris Agreement commitments.
That's just the US. To truly really deal with climate change, we need the whole world to be on board. So does this legislation do anything to achieve that and affect the global approach to climate change? The legislation, in many ways, what it does is it perhaps provides a pathway forward for other countries to follow. In some ways it throws a gauntlet down and challenges other areas.
If you look at Europe, Europe was not happy, nor were some of our other allies, with some of the Made in America provisions around electric vehicles and batteries. Because we wouldn't be buying from them as much? Because it's got some provisions about Made in America. The point is on that one, the challenge is so enormous and the work is so great, that whatever we're doing in the US, there's plenty of room for Europe to do what it needs to do. Then there are plenty of positive spillover effects for both economies, and hopefully for the world.
Again, technologies that we develop and deploy here help advance those technologies, reduce the costs. And those are shared. Those are benefits that are shared elsewhere. I think independently of that, there is a large interest by the US, obviously, to be a leader in climate policy globally, and ways in which we're trying to work with partners and allies to prioritize this and find funding, whether it's through aid projects, whether it's through investment projects, in which we're actually working with other countries to advance their clean energy agenda. But in many ways, I think the US is now back being a leader on this agenda, and is looking for ways to work with allies and partners to advance, advance us.
If you look, we did a trade agreement with Europe on decarbonized steel. We're looking at supply chain provisions, which are going to call to task the countries that are not following environmental regulations, or that are not adhering to our standards in terms of labor. Those are setting standards and setting the bar for how we believe we should move forward, in terms of decarbonization. Is it true that the European Union has come up with something that has a similar approach, like industrial policy approach? Yes, that's true. Similar approach.
Since these bills have come out. That's right, they've come out with their own version of this. I guess I would say the private sector has not responded, perhaps, as positively as they wanted. The European private sector. The European private sector finds it a little bit cumbersome.
Maybe that's the word to use. But again, this is an iterative process. This is a great thing that they're discussing it. They're moving forward with their own plans. The work ahead of us is so great that I think we will, over time, be making this transition. And then, hopefully all prospering in a decarbonized economy.
One statistic that I wanted to emphasize this idea of what's ahead of us, that the US, to meet some of our climate goals, the US must build out 100 gigawatts of wind and solar alone annually through 2030, to hit our climate targets. In 2021, we produce 28 gigawatts. So we need 100. We have to do 3x every year for the next whatever years, and then continue on.
Wow. That's just in wind and solar. So this challenge ahead is significant. I think we've put a great wind at our backs right now, to ramp up our effort in this country. Hopefully that will have positive spillover effects in other countries.
We talked about some things that are successes from these three bills, things that are working well, that have shown to have some movement already. When I speak with other non-profit organizations in the climate space, something that they're really thinking about is how do we implement the IRA? How do we make sure the money gets out there? That it's making this kind of difference? You were talking about how we need to deploy more wind and solar. I hear a lot about permitting issues with deploying wind and sort of that's actually holding back some of the implementation. What are some of the challenges that still exists given this legislation that we have? What are the challenges that still exist for us to reach the highest aspirations of these bills? Right. Well, that's exactly right.
What we've done is the first step, which is actually provided the strategy and the funding and the incentives to get the country on track. But now we have to land the plane and figure out exactly how do we do this on the ground? A lot of warranted criticism has come to what happens at the city and state level, to try and get new projects approved. All the friction that exists in terms of building new infrastructure, right? We've got NIMBYism.
We have this in housing. What's NIMBYism? Oh, sorry. Not in my backyard. That's a real thing. It's a very real thing.
People will know this, certainly in housing. We have a housing crisis too, that is also challenged here. I think, and people have pointed this out, the White House is trying to provide leadership as well, on how can we improve our systems this way? For good reasons we have built-in precautions. We don't want favoritism. We don't want corporate welfare. Favoritism to different technologies or companies? To companies in terms of processes for we want to protect environment.
We want to make sure that things are done right when they are built. But it also can make a process quite laborious. We're talking time. Time is essential here. We're talking within a decade, we really need to make some transformations.
You can't wait a decade for some of these projects to happen. So I think people are experimenting, can you fast track things? Can we find ways to improve processes while still respecting some of the concerns we've had over time? It's a process that I think we're going to find, I suspect we're going to see, where are the coalitions of the willing? Given the amount of investment people are willing to make, given again, the wind at our backs, I am hopeful that we're going to see cities and states find ways to really improve our systems. Because it's a systems challenge. Can you just say another couple of sentences about the systems challenge? How is trying to reduce the emissions and prepare for climate change a systems challenge? It's a big question.
I love it. This is MIT. We think in terms of systems. What do we mean by this? What we mean is that while we have created a system for incenting investment in particular technologies or products that are going to help reduce our emissions, what that looks like, for a city or a state or a consumer, has to be translated on the ground. It doesn't happen overnight. You want to build a new EV battery factory, you're going to have to go through certain permitting processes.
And you're going to have to go through a sort of environmental provisions that states have. This takes time. The urgency of the moment may not be felt in the local governments and planning departments, or whatever it is. This is the nature of democracy and our kind of laboratories. But what I think is possible is that those laboratories are going to have lots of incentives to actually improve the process.
So I think we'll start to see cities and states figuring out how do we accelerate investment in new areas? You think about hydrogen. Hydrogen, again, we're talking decades down the road. We don't have the pipes right now, to actually transfer hydrogen. We have it for natural gas.
We don't have it. That's going to require a whole new system of investment. Hopefully our infrastructure teams, and our states and our cities, are going to figure out ways that we do this. But we're at the beginning of that journey. Everybody's quite aware of the challenges.
We're going to get a lot, as I said, a coalition of the willing behind how we do this. That's why there's such an emphasis on deployment, right? That's right. A new office of deployments, it's not just about incentivizing and letting things happen. But really, trying to push some of these.
Actually, it's an Office of Demonstration. Demonstration, OK. The point is that all of what we're trying to do is actually lead toward deployment. So that's exactly right, is that we need to deploy in this country. We have now, as I said, the incentives and the wind at our backs. We have the technology at our backs.
We have a global landscape that is making it clear. We need to be doing this. Right now, we have to figure out how we're going to do this on the ground and how we can learn from each other about doing this in the most efficient and resilient way. Thank you, Dr. Reynolds. Typically, when we do podcast episodes in the studio I have we go around my team and they ask their questions. But today you're my team, so you get to ask questions.
Aaron, how are we going to do this? We Have A microphone stand in the aisle there. I'd love you to just line up and ask your questions, one by one, for Dr. Reynolds, and maybe for Laur, as well. If you have any, go ahead for it. Thank you, Tom. OK.
Thanks for what has been a great, great discussion. As someone who's been hoping that the country would do something big on climate action and something big on industrial strategy, to see it come together like this has been just amazing over the last year. I think the question, Liz, and you touched on this, I think, a little bit very, very early in your remarks. I was just wondering if you could tell us a bit more about it? Which is, how should we understand the benefits of-- I don't know if co-locating is the right word, but of having manufacturing and R&D in the same place? Is there a feedback? Does it does it make a difference? Do we get better at R&D because we have manufacturing back in the country? Could you also explain what R&D is? Sure. That is a great question, and one that actually MIT has taken on in great depth more recently, in its production in the innovation economy project. Research and development is often thought of as something that happens in a lab with scientists at a bench, or in a facility with folks in white lab coats, et cetera.
Then manufacturing, somehow, is over there. Is something you develop, you're a small prototype, and then you're going to figure out how you're going to make it someplace else. In fact, what we for complex products particularly, is that actually it's a very iterative process and it's not particularly linear. So you may be inventing in the lab, but you're also iterating in the manufacturing. You're learning by doing in the manufacturing.
When you cut out the manufacturing and maybe send that someplace else, you often lose that learning by doing, and what we often call is tacit knowledge in the process of iterating on a product. People would say that that's exactly what's happened in semiconductors. Is that when we said we're not going to manufacture these-- and by the way, fabs, semiconductor fabs cost billions of dollars. What are semiconductor fabs? Semiconductor fabs are where we make the wafers that go that are of semiconductors. They're made in very large labs that are working 24/7. They cost billions of dollars.
Often, where these fabrication centers have been in places where the country, the government, is willing to put in a fair share of the money to actually build that capability. When you lose that, you lose, then, the iterations on that product. Manufacturing is you've got innovation not just in products, but also in process. We have seen in other areas too, in cleantech, where we innovate.
Then somehow, the incentive system as well here, it takes time and money to build products, to build them at scale, and to build innovative, complex products. Historically, we've had an investment world that has said we're going to leave that to the rest of the world. We'll focus on the design part.
We'll let others manufacture. In fact, that comes back to bite us. Because we lose our capacity to innovate.
I would look, for example, in the bio space. In biopharma, we have a capacity to manufacture here. We have lost some of it. But there's in the vaccine work, in cell and gene therapy work, you want manufacturing nearby because you're innovating around that. What's exciting is to see new types of manufacturing, robotics, 3D printing, which are using AI, which are now able to be manufactured and scaled here in this country because we have advanced technologies that make us competitive to do that.
Anybody else. Could I answer that question better? Should I do a second round on it? Yeah, please. Yeah, go for it. I don't want to bore these guys, but I'm just thinking that Tom, did that hit the points? Or do you think we could clarify? No, I think it hit it, yeah. It hit it for me, yeah.
You're OK? But yeah, if you have something, other way that you want to frame it? I was just trying to make it really straightforward. Was it straightforward enough? Yeah. What I heard from what you were saying is that you lose a lot of the learning by doing. I'm just using your words back at you, but by separating those two parts of the system. So you can become more efficient, you can become smarter, you can create better products, you can do it faster, if you link those two parts of the process together. That's right.
OK. Good. Yeah. No, I totally got that. I've got a question over here.
Aaron always has great questions. Go for it. You talked about how some of the tax credits managed to be technology agnostic by just saying produce the energy we need, at 0 emissions you get your tax credit. For technologies that are still in the research and development and maybe demonstration phases, that are not particularly close to actually earning those tax credits, is there any way to be technology agnostic about supporting those technologies that might be really important in the future? Or do we have to pick and choose and go here's some money for building out hydrogen, here's some for clean aviation fuels or geothermal, or whatever. Do we have to pick and choose? That is a very interesting question.
If there's a way you can give us an example of what technologies that might fall in that category? I'm trying to think how. Because what you're saying is, do we place our thumb in the R&D phase on these technologies? And I think the answer is yes. Let me see how to answer that. I think that it's fair to say with R&D, which comes at an earlier stage in the process, that we are investing in research and development in areas that we think are promising down the road. There is some intentionality there. We are going to say, well, we've had a program in hydrogen for 25 years, which has been really important.
It funded research centers and DOE national labs, et cetera. We do pick and choose technologies. We're really in an exploratory phase, in which there's significant miles to go before we get to the other D's. I think that those are clearly set by priorities and agendas that are perhaps not agnostic in the same way that a tax credit could be applied.
I think that's OK. I don't think there's anything problematic there. I think we, based on developments in public sector R&D and private sector R&D, we start to see opportunities, and we start to invest. I should mention, I think in terms of R&D, I'm not sure I mentioned that part of what the Science, the CHIPS and Science Act, the Science Act part does is re-up our public sector investment in R&D. If you look at the percentage of research, both public and private, as a percentage of GDP in the US, it has fallen behind Germany, behind South Korea, behind Japan.
These are research grants from the federal government? Not research. It's the percentage we spend as a country, both public and private, as a percentage of GDP, what we spend on research. That's inside of private companies. That's in federal labs. In government, exactly.
That's in universities. While our private sector has really held its own, the public sector part of that has actually diminished over time. What this CHIPS and Science Act does is re-up that investment. To your question, the fact is, in the R&D piece, we have programs. We have programs in nano.
We have programs in hydrogen. We have programs where we believe we should be investing. But we also have broad-based technologies where we want to make investments.
That's what the Science Act did, which was pick, for example, advanced energy efficiency and materials science as areas that we, as a country, need to advance. How we do that, where we do that, how we incent that, becomes part of our national strategy. Great.
I have another question. Yeah, you have another question. You have a question. It's still too high for me. This is actually from Barry, who's running AV for MIT Video Productions. He asks, any advice for students that are interested in pursuing climate policy? Oh my gosh.
Great question. I came out of the White House in the fall, and I slept for about three months. And then I was back on MIT campus. I thought, one of my goals is that every student at MIT would get out in the field and work on this broader agenda. Faculty members too.
That we can't bring enough resources right now to actually implementing this new legislation and doing it successfully. So I hope every student at MIT is going to, when they graduate, get a job or do a summer internship. And ther