China Gets a Great Leap Forward From Congress

The Inflation Reduction Act’s damage to American energy and innovation is a gift to Xi Jinping

By Allysia Finley of The Wall Street Journal. Excerpts:

"Tax credits for U.S. green-energy manufacturing also won’t overcome China’s enormous cost advantage—a product of the country’s economies of scale, lower labor and energy costs, and government support. The U.S. has already tried—and failed—to beat China in a subsidy race to the bottom. President Obama’s 2009 stimulus also provided hefty government loans and grants to U.S. manufacturers of solar panels, lithium-ion batteries and other green technologies. Many recipients, such as Solyndra, A123 Systems, Abound Solar and Beacon Power, later ran into technical problems or were undercut by lower-cost Chinese competitors.

At the same time, the Inflation Reduction Act will set off a subsidy chase by renewable-energy developers that will raise U.S. electricity prices and make it even harder for American manufacturers to compete with China.

Look at Germany, whose industrial output has declined since 2017 amid rising electricity prices owing to the hundreds of billions of euros it has spent boosting renewables. These subsidies have led to an excessive build-out of solar and off-shore wind power, which must be backed up by coal and natural gas. Keeping fossil-fuel plants on idle to ramp up and down on demand is expensive—that’s why even before the Ukraine war Germany’s power prices were the second highest in Europe and about twice as high as those in the U.S. All this is making it harder for German manufacturers to compete globally, and some are planning to move production abroad.

Or consider California, which is further along in the green-energy transition than any state. Its electricity prices are double those in Arizona and Nevada and over the past year have grown twice as fast as the national average as grid operators have scrambled to procure fossil-fuel power at high cost to back up solar. California’s energy-efficiency standards and spending—another focus of the Inflation Reduction Act—have done little to help."