Deflating expectations

Aug 09, 2022 View in browser   By Debra Kahn THE BIG IDEA EVs are expensive, but can they also reduce inflation? | David Zalubowski/AP Photo THE NEW GREENFLATIONISM — OK, sure, the Inflation Reduction Act's tax hikes and drug-price curbs actually would help reduce inflation (by a tiny bit or a lot , depending on which analysis you favor). But the spending part can also lower inflation? Really? That's what Columbia Business School climate economist Gernot Wagner is arguing. He acknowledges the bill's $369 billion in incentives and tax breaks for renewable energy and electric vehicles will drive up demand for those things, but he says they will ultimately help free us from dependence on fluctuating fossil fuel prices. It's "anti-inflationary in the sense that it cuts our dependence on fossil fuels, and hence in the medium run will cut energy prices, will cut inflation," Wagner said. Wagner is taking his cue from Europe. European Central Bank board member Isabel Schnabel warned in January that transitioning to renewables could cause inflation. Then, after Russia's invasion of Ukraine, she said that was OK , because fossil fuels are causing inflation right now, and climate change is also going to increase costs, so some short-term "greenflation" is acceptable. The idea is like a jump pool shot — cause some inflation now in order to cut it longer-term. Resources for the Future backs Wagner's view with an analysis that finds the bill's tax credits for wind and solar will boost generation enough to insulate people from natural gas price swings over the next decade. Others still think it's a contorted argument. Dave Rapson, a Federal Reserve economist and professor at the University of California, Davis, says: "[I]f the goal is to reduce inflation in the next 6-12 months, other approaches would likely be more effective than climate spending." On top of that, the bill's rebates for electric vehicles will only increase demand that's already outstripping supply. "Hopes that subsidizing EVs will somehow reduce inflation anytime soon aren't supported by basic economics," he said. But as we wrote back in October, it's about the long view — even if it's a much worse time to spend than it was last year. "If America feels good about this, they may not even call it inflation," Kevin Book, managing director of ClearView Energy Partners, an analytics firm in Washington, said then. Turns out, they're calling it "inflation reduction." SUPPLY CHAINS EV CREDIT KNEECAPPED — Sen. Joe Manchin's (D-W.Va.) insistence on restricting the Inflation Reduction Act's EV rebates effectively to vehicles with non-Chinese supply chains could "backfire," experts say, by severely limiting the number of cars that can qualify, Jael Holzman of POLITICO's E&E News reports . But China, in turn, is getting almost half of its critical minerals from Myanmar, which the AP describes today as a "sacrifice zone." From the AP: "It reminds me of the European colonial attitudes towards Africa," said an industry analyst, speaking on condition of anonymity to avoid damaging ties with the Chinese government. "You just can't be relying on third-world-type mining practices in a dictatorship like Myanmar. It's not sustainable."   INTRODUCING POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don't miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY .     CORPORATE PROMISES IRA SCORECARD — Salesforce Inc., Constellation Energy Corp., and Walmart Inc. Those are the companies that spoke up loudest — in news outlets and on LinkedIn and Twitter — for the Inflation Reduction Act, according to a tally by the nonprofit groups ClimateVoice and InfluenceMap. Other big corporations chimed in, too: BP PLC, Shell PLC, Ford Motor Co., Unilever PLC and more than 30 others put out a statement Friday in support of the bill. And power companies quietly put pressure on Manchin, as our Zack Colman, Josh Siegel and Kelsey Tamborrino reported . Did that offset the pushback from the big industry groups like Business Roundtable, Chamber of Commerce and National Association of Manufacturers? ClimateVoice says it did. "The scuttlebutt I've heard from D.C. insiders is that the business voice really mattered here," said Bill Weihl , ClimateVoice's founder and executive director. "The problem in the past has been that by far the loudest business voice has been saying no on climate policy. Having big companies speak for climate policy helps shift that a lot. It's no longer 'business hates this.'" BUILDING BLOCKS RED TO GREENLINING — Federal banking regulators are trying to help underserved communities get loans to adapt to climate change. Environmentalists and community development groups want them to go further. In public comments on proposed changes to the Community Reinvestment Act, a law aimed at combating racism in lending, groups are pushing the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. to expand the list of climate-related activities that banks can get credit for supporting. In addition to credit for things like retrofitting affordable housing to withstand future disasters, promoting green space in poorer areas and financing cooling centers, the National Community Reinvestment Coalition wants community solar, microgrids, electrification and water efficiency for residential homes added to the list. The Sierra Club is asking for an expanded eligibility list, plus for regulators to use race as a factor in evaluating bank performance and to penalize bank investments that contribute to climate risk. Read more from POLITICO's E&E News' Avery Ellfeldt here . YOU TELL US  Welcome to the Long Game, your source for news on how companies and governments are shaping our future. Team Sustainability is editor Greg Mott , deputy editor Debra Kahn and reporters Lorraine Woellert and Jordan Wolman . Reach us all at gmott@politico.com , dkahn@politico.com , lwoellert@politico.com and jwolman@politico.com . Want more? Don't we all. Sign up for the Long Game . Four days a week and still free! WHAT WE'RE CLICKING — Mexican President Andres Manuel Lopez Obrador said beer producers should move out of drought-plagued Monterrey, Bloomberg reports . Heineken NV and Grupo Modelo didn't immediately comment. — Bioplastics are booming . The market for corn-, sugar- and other renewable-based plastics is predicted to nearly triple by 2028, the AP reports . — A judge blocked Ben & Jerry's attempt to sue Unilever PLC for enabling the sale of its ice cream in Israel, Bloomberg reports .   LISTEN TO POLITICO'S ENERGY PODCAST: Check out our daily five-minute brief on the latest energy and environmental politics and policy news. Don't miss out on the must-know stories, candid insights, and analysis from POLITICO's energy team. Listen today .       Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Lorraine Woellert @Woellert Jordan Wolman @jordanwolman   Follow us

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