Low-Energy Fridays: Why the Biden Administration Wants to Tax Clean Energy
Does anyone really care about climate change? Politicians say it is critically important, yet their actions often belie their words. Take, as an example, the president of the United States. President Joe Biden has referred to climate change as “an emergency” and stated that when it comes to fighting the issue, he “will not take no for an answer.” The Biden administration has laid out ambitious goals, aiming to cut U.S. carbon emissions in half by 2030 from a 2005 baseline. It also wants to convert America’s vehicle fleet to electric vehicles (EVs). New rules from the Environmental Protection Agency would require EVs to make up more than half of new car sales by 2032.
Yet, as with voters, the administration’s commitment to reducing carbon emissions seems to evaporate when other issues are involved. Earlier this month, it announced tariffs on a number of items related to clean energy. Tariffs on solar panels imported from China will rise from 25 percent to 50 percent. Tariffs on imported EVs will increase from 25 percent to 100 percent, and tariffs on the lithium-ion batteries used in EVs are set to triple.
Tariffs are bad in general. A tariff is a tax, and, like all taxes, they tend to reduce consumption of the taxed item. Because tariffs apply only to imports, they encourage consumers to switch to domestically produced versions of the same product. But given that consumers generally don’t have a bias against goods made in America, if someone buys a foreign product, it is likely because the American version is either more expensive or of a lesser perceived quality. Even if consumers buy the American version instead, they will likely end up paying more for the same quality item.
Tariffs also tend to be politically corrupting. When success depends on government policy rather than market appeal, businesses will shift their focus from delivering high-quality products at the cheapest possible price to lobbying politicians for more favors.
If these tariffs were to help achieve the administration’s climate goals, perhaps it could claim they were worth the economic (and other) costs involved. But by making solar and EVs more expensive, the tariffs actually make it harder for the administration to meet its own goals.
The administration has justified the new tariffs as necessary to protect America’s domestic manufacturers. Yet the need to remake policy to favor domestic companies contrasts with the often hostile stance it has taken with respect to Tesla, America’s largest and most successful EV manufacturer. Nakedly political considerations, including election-year appeals to voters in the auto-heavy swing state of Michigan, may also play a motivating role.
It might be too much to expect consistency from the government. For a long time, it tried to discourage smoking cigarettes (through bans on advertising and anti-smoking public-service announcements) while simultaneously encouraging it by paying agricultural subsidies to tobacco farmers. Something similar could be going on here. In any event, the Biden administration needs to decide what its priorities really are. If the climate goals are more than just for show, the administration needs to start acting like it.