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Op-Ed: Inflation Reduction Act won’t
reduce inflation or sell more electric vehicles
By H. Sterling Burnett | Heartland Institute
Indeed, despite Biden’s rhetoric about the need to shore up domestic
supplies of critical minerals, his administration has imposed new
climate regulations on infrastructure development that are likely to
make getting federal permits for mining and for industrial facilities
even more difficult. |
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 The corporate media has effusively praised the
grossly misnamed Inflation Reduction Act (IRA). As history attests, and the past
two years of profligate federal spending confirmed once again, runaway
government spending increases inflation instead of reducing it.
The claims being made about the IRA’s effect on greenhouse gas emissions are
even more laughable. The media parrots claims by Senate Democrats and the White
House that this bill will reduce U.S. carbon dioxide emissions by 40 percent by
2030, less than seven-and-a-half years from now, referring to the bill as a
“breakthrough,” “astonishing,” and the “[b]iggest US Climate Legislation Ever.”
To hit the 40 percent reduction target, for the first time in history, Congress
will have to have written a bill that functions perfectly as designed, with no
human error, no state or local resistance, no lobbying undercutting the bill’s
effect, no delays in construction, and no unintended costs or consequences. No
perfection means no 40 percent reduction.
The inducements the government is giving people to encourage us to buy electric
vehicles (EVs), for example, are obviously unlikely to work. EVs are
substantially more expensive than more-capable vehicles powered by internal
combustion engines (which are also far less prone to combust spontaneously).
Research shows the average annual household income for those purchasing electric
vehicles is more than $200,000. Ninety percent of the federal tax credit money
for electric vehicles thus far has gone to Americans in the top 20 percent of
income earners.
Until now, the Democrats’ EV tax credits have been nothing more than a giant
transfer of wealth from low- and middle-income working people to the wealthy.
Democratic shills say things will be different this time, citing provisions that
limit the tax credits to the purchase of lower-cost EVs and by setting income
limits on the households that can claim the credits.
That doesn’t solve the fundamental problem. EV prices are rising faster than
those of gasoline and diesel powered vehicles because of inflation and supply
chain problems. If a low- or middle-income family, in the range of $30,000 to
$50,000 annual household income, couldn’t afford an EV that cost $10,000 to
$15,000 more than a comparable fossil fuel powered model under the old subsidy
scheme, they certainly won’t be able to afford the even-higher-priced EV now.
The $7,500 EV credit hasn’t changed.
The news gets even worse. The auto industry is warning that the bill is likely
to end up reducing the supply of EVs, overall.
The bill requires EVs to contain a battery pack and other parts built in North
America with minerals mined or recycled on the continent. Right now,
approximately 70 percent of hydrogen or plug-in hybrid models sold in the United
States don’t meet the IRA’s requirements, and because the requirements get
stricter over time, soon, no EV’s will qualify for the tax credits.
Of course, as the Associated Press notes, “the idea behind the requirement is to
incentivize domestic manufacturing … and lessen the industry's dependence on
overseas supply chains that could be subject to disruptions.”
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These are laudable goals that I have long endorsed. The critical minerals and
rare earths necessary to make EVs are also critical for other technologies
throughout modern society. Those supplies, however, are controlled by
often-hostile economic and geopolitical rivals, primarily China and corrupt
regimes such as those in Myanmar and the Democratic Republic of Congo. Their
production is tied to horrible human rights abuses such as child and slave
labor, and their mining and refining processes cause massive environmental
destruction and harm to human health.
But, cost is not the primary factor limiting the production of the materials and
finished products such as batteries and other EV parts in the United States –
regulations are to blame. And the Biden administration is making regulations
more stringent, not less.
It is nearly impossible to open a new mine in the United States, especially one
that will involve the kind of environmental disruption necessary to tease out
small particles of rare earths and critical minerals from the massive amount of
overburden containing them. Even when the federal government grants all
necessary permits and approves a mine, each mine faces dozens of lawsuits from
environmental radicals and locals hoping to get it stopped. This delays mine
projects for years and adds to the cost. To hit the IRA’s targets, the mines
need to be open and operating now, not 10 years from now.
Environmental regulations also make it almost impossible to open a plant to
refine rare minerals, even if they are mined here. Rare minerals mined outside
of China almost always end up in China for refining. A July 2022 report from the
Brookings Institution makes clear China dominates global mineral processing, and
nothing the Biden administration is doing is likely to change that situation for
the foreseeable future.
Indeed, despite Biden’s rhetoric about the need to shore up domestic supplies of
critical minerals, his administration has imposed new climate regulations on
infrastructure development that are likely to make getting federal permits for
mining and for industrial facilities even more difficult. Former President
Donald Trump set hard limits on the time agencies had to process permits and
limited the scope of environmental reviews to direct impacts. Biden has
rescinded these changes. Nothing contained in in the Schumer-Manchin monstrosity
will allow domestic mines and factories to overcome these regulatory hurdles,
much less start production in time to hit the 2030 emission reduction targets.
Those are the complications impeding just one small portion of the IRA’s
numerous provisions that must be successful if the bill is to reduce greenhouse
gas emissions by 40 percent by 2030 as advertised. For similar reasons, the
other provisions are likely to produce subpar outcomes as well. Despite the
mainstream media hype and the Democrats talking points, the idea that the IRA
will measurably reduce inflation or carbon dioxide emissions is pure green
fantasy.
H. Sterling Burnett, Ph.D. (hburnett@heartland.org) is the
director of the Arthur B. Robinson Center on Climate and Environmental Policy at
The Heartland Institute, a nonpartisan, nonprofit research center headquartered
in Arlington Heights, Illinois.
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