Since August last year, the combined announced investment in clean energy manufacturing and semiconductors has totalled $204bn (71k jobs). This amounts to ~6% of non-residential private fixed investment.
The multipliers for renewable energy investment are between 1.1–1.7, over double that of fossil fuel energy investment 0.4–0.7. Given that the US is operating well below its NAIRU, each additional dollar of investment, will be inflationary, at the margin. There are growing labour shortages for construction workers and electricians.
The IRA and CHIPS acts will spur more aggressive responses from both the EU and China. This synchronised competition, evidenced by a race to the bottom in green energy subsidies, will stimulate investment concurrently, and contribute to higher deficits.
There is a bigger role for the State in promoting its social agenda. The conditions attached to the CHIPS act are noteworthy. Chipmakers should ensure “affordable, accessible, reliable and high-quality child care” for their staff, in a nod to the tight labour market. Applicants are also “strongly encouraged” to sign collective bargaining deals with unions ahead of building new plants. The military aims of the US are inextricably tied to the CHIPS act too, which has been framed as a national security initiative.
