Council of Economic Advisers, The White House
Heather Boushey [00:00:03] We are making these huge investments in a clean energy economy. I think that there’s a lot of evidence that this will that these are the sectors that are going to be important for economic competitiveness, for our country, for the world in the coming decades. We’re making these investments now, and we’re doing that through pushing forward a set of tax ideas that is putting money to its best purpose, its best use.
Jason Bordoff [00:00:26] Industrial policy is back in vogue. The Inflation Reduction Act, passed last year aims to accelerate the clean energy transition and to do so for the benefit of American workers, communities and manufacturers. It does so by providing large amounts of funding to the domestic clean energy sector, paired with certain requirements for materials and technologies to be produced here in the United States. But accelerating climate action is a big task to say nothing of fostering economic fairness and opportunity along the way. How can the Biden administration move forward on all of these different priorities simultaneously? How will its domestic climate agenda impact the U.S. economy? And what’s the role of industrial policy in a world undergoing an energy transition? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs. I’m Jason Bordoff. Today on the show, Heather Boushey. Heather’s currently a member of the Council of Economic Advisers for the Biden administration in the White House and chief economist of the Biden administration’s Invest in America Cabinet. Heather works on domestic investment and implementation of infrastructure and clean energy laws. She previously co-founded the Washington Center for Equitable Growth, where she served as chief economist, president and CEO. She’s also held the position of chief economist for the Center for American Progress. I spoke with Heather about the nuances of the Biden administration’s domestic climate policy and how it fits into their broader economic plans. We also discussed what it means to use industrial policy in furtherance of the energy transition. I hope you enjoy the conversation. Heather Boushey. Welcome to Columbia Energy Exchange for the first time. It’s great to have you with us.
Heather Boushey [00:02:16] Thank you, Jason. It’s a pleasure to be here.
Jason Bordoff [00:02:19] We’re talking a couple of days before this will air, and there’s a lot of questions in the U.S. and global economy now about the health of the banking system and what the ripple effects might be for the economy more broadly. We’re going to spend our hour focused on climate change, but just tell us a little bit about what is going on more broadly, what you’re spending, I suspect a fair amount of your time on and how the Biden administration is responding.
Heather Boushey [00:02:44] Certainly. Well, any time there is a challenge in the banking system, this is something the government steps in and is very thoughtful about. That’s certainly what has happened here. And the president has made it very clear that people who have deposits in Silicon Valley Bank will be okay. They will be kept here. He’s also made it very clear that people will be held accountable and is taking the correct steps to to make sure that we do what we can to keep the financial sector up and running. So there’s been a lot of focus and attention on that. And Treasury and the Fed have been in the lead on that work.
Jason Bordoff [00:03:21] So there’s a lot a lot I’m interested in there, and maybe that’ll be the topic for a subsequent podcast, although there’s a lot of other conversations happening and administration officials being interviewed about that right now. As I said, we’re here to focus on the topic of what we do everyday energy and climate. But but as I listen to you, I’m wondering kind of what the role is for the Council of Economic Advisors in a when an issue like that comes up and then when you extend it to other issues, obviously the issue of climate and energy prices and what they mean for the economy, maybe just help everyone listening understand where you sit in the White House. There’s a CTA and then there’s an NSC, a National Economic Council, of course there’s a Treasury Department and there’s a Congressional Budget Office. There’s a lot of places working on different aspects of economic policy. Explain CTA to people.
Heather Boushey [00:04:10] Yeah, So the Council of Economic Advisors was actually established in statute in the 1946 Employment Act, and it is a Council of Economic advisors who give advice to the President on his economic policy and on the economic data that comes in on a regular basis. One of the things that we do is provide a brief on all of the new incoming economic data. We watch it very closely how the President and the public make sense of what that data means. So new inflation data or housing starts, job data, all of those sorts of things. And now that’s separate from what other White House components do. The National Economic Council that is responsible for directing process around economic policy across the government. We work, of course, very closely with them and our role really is to help people understand the economic agenda. I will note one of our flagship publications, which is going to come out next week, is the annual Economic report of the President that provides a comprehensive review of the biggest issues facing the economy, the challenges that the President is thinking about and the agenda that he is thinking about to address those challenges. So by the time this podcast airs, that’ll be out and hopefully people are excited about it.
Jason Bordoff [00:05:33] So it’s and it’s a lot of academics, right? Oftentimes people take leave from universities spend a year if they’re a tenured economist somewhere, but they don’t have to be an academic, but many are and sort of like a think tank on economics inside the administration. Is that right?
Heather Boushey [00:05:47] Exactly. So some of it’s come from the think tank community myself, Jared Bernstein, Many of the economists on staff are actually come from other parts of government, which is a wonderful opportunity to learn about, for example, what the antitrust division at the Department of Justice, how their economists think about market structure issues. So we have different details from different places, but that’s one that just opens up new opportunities for learning folks from the Census Bureau or other agencies, as well as academics who come and spend a year. Most of the team only spends a year here, and it’s an opportunity to connect. What is happening at the forefront of academia and across the agencies with the president’s economic agenda.
Jason Bordoff [00:06:34] I have no doubt a great example of that might be our own Dr. Noah Kaufman, who we sadly did without for 18 months while he was helping serve at CIA at the start of the Biden administration.
Heather Boushey [00:06:45] Noah was a delightful colleague. I hope he’s listening to this. But that is a perfect example of the kind of person who comes in, makes a very big difference and helps us on some key projects that I hope we can talk about today.
Jason Bordoff [00:06:56] Yes, exactly. So what will the you mention the ERP, the economic report of the president, and one of the most important publications the IEA puts out every year. It’ll, as you said, just be coming out when this podcast airs. Can you give us a preview on what it will discuss with climate and energy?
Heather Boushey [00:07:13] Well, I can tell you what we did last year, and I can also tell you about a white paper that we released this week. So let me talk about that. So last year in the economic report, the president, we had a chapter that focused on how you were going to build a creating a clean energy economy. What were some of the challenges about how we think about the industrial questions and the place based questions as we transition into this clean energy? What does it look like? What is government need to do to support those industries? That was actually Chapter seven. No, it helped on that and really helped to illustrate some of the economic theory the case of many of the president’s economic plans around clean energy, the kinds of ideas that we see in inflation reduction and the kind of industry focused tactic that the president has taken as opposed to just a price only focus just thinking about carbon prices, but instead thinking about what kinds of industries do we need to support? How can we create those demand signals and how can we make sure that we’re thinking about how this works across places was a key focus and has been a key focus of the administration more generally. Not to rebound too quickly from that, but I’m also very excited that this week we released a new white paper on our work integrating climate change and the clean energy economy into our macroeconomic forecasting toolkit. So the president released his budget about a week and a half ago, and as a part of that, with the long term budget outlook, it included some assessments of how climate change would affect the long term budget outlook through its effects on lowering GDP and what that would do to debt. But the paper that we released earlier this week focused on how we need to think about the challenges of climate change and building a clean energy economy in our forecasting tools themselves. So as we’re thinking about overall prices in the economy and inflation, what is the happening in the energy part of the economy that might affect those macroeconomic outcomes? As we think about, for example, the kinds of supply side shocks we’ve seen over the past year, year and a half as we’ve had this war in Ukraine. That, of course, has macroeconomic implications and that’s about energy. Is there something that we need to learn about that for our models moving forward so that we’re taking into account this significant shift that is happening? So it’s just one example of a couple of pieces of really exciting work that CIA has been focused on this year.
Jason Bordoff [00:09:58] So is that obviously whatever one’s prediction for oil prices will be or anything else will affect the outlook for for the economy, for GDP growth? Is this a question of how to do that more accurately or scenario planning to plan for unexpected shocks? There’s some assumption about energy price outlook, whether it’s from the Energy Information Administration or elsewhere, that I presume is baked in. Is this a question of how to plan for unexpected things around that?
Heather Boushey [00:10:25] Certainly. And what does it mean to be shifting to a new clean energy economy? We’re trying to stand up for new sectors. And if there’s just one rule of thumb and then going to sort of very small little thing that I think illustrates some of the challenges. When you talk to people in macro, one of the common sense rules of thumb is the people’s perception about where inflation is going to be is largely driven by gas prices, something that we see on a sign when you drop.
Jason Bordoff [00:10:54] Gasoline prices, you mean?
Heather Boushey [00:10:55] Yeah, right. Yeah, gasoline prices, retail gas prices at the gas station. And yet we know that we’re taking steps right now to move the economy towards electric vehicles. Were installing EV chargers around the country at these plants and every state to do so Really excited about the forward momentum there. That’s all great and there will be new ways that will measure inflation in the future. But our go to common sense of what people will look at to measure inflation will no longer be gas prices. That’s a very small thing in. The grand scheme a thing that’s probably not all that important, but it is an indication of, oh, there’s a lot of ways that we’re thinking about what’s happening in our economic forecasting that may or may not be taking account of this transition and what it means and what kinds of different prices or what kinds of different activities we might need to be monitoring in a different way.
Jason Bordoff [00:11:48] Yeah, I did read the paper. Noah flagged it for me when it came out, which was which was really interesting. And I had the sense consistent with what I think you’re just saying. One of the things I’ve been spending a lot of time thinking and writing about myself with my colleague Meghan O’Sullivan at Harvard, and maybe just coming from my own background at the National Security Council as we see an energy transition unfold. And let’s be clear, it’s barely not not happening nearly fast enough yet. If you want to bring emissions down, oil use is going to go up about 2 million barrels a day this year, not down, but but over time, if that accelerates and you start to see a shift with less oil and gas as part of the energy economy, more electrification, more renewables. You’ve been thinking about what that means for energy security and geopolitical risk. And I think you’re asking sort of a corollary question of what it means for the macroeconomic risk, what what the impacts on the macro economy might be from shocks to the energy system. If we have a very different kind of energy system in the future? Is that how to understand it?
Heather Boushey [00:12:47] That’s a great way to think about it. I mean, the way those economists have been bucketing this is that you can have a set of physical risks that may affect the macro economy you think of because of climate change. There might be labor migration to different places. There might be changes in temperatures that lead to changes in what workweeks look like or hours of work because of heat or heat exhaustion. You know, there is the destruction of capital due to a tornado or increased storms. The damages that are happening, for example, that we’re reading about today in California, those are some of the physical damages which have to be accounted for and how we pay for any and any ways that we fix those capital goods that have been destroyed. But also how we think about how we think about people moving. Right. That’s their you know, maybe they’re moving from their home, which is their most important asset, but also that the physical infrastructure, the roads, the all the things that go into making a community and community schools and, you know, all the all the like, those are all investments that’ll need to change. So that’s one category. But I think just as importantly in the near term is also the effects of moving to a different source of energy, what economists would call the transition risks. So again, there’s labor issues involved in that. We have workers in different parts of the country that are currently working on fossil fuel sectors. And as you pointed out, some of that work, you know, that work will continue and we are still going to need some of those fuels for a while. But there’s also all of these new sectors increasing so that that will affect, you know, where workers go. It may affect what places they are in across the country. Those could potentially have macroeconomic macroeconomic effects. And if there is if the workers aren’t in the right places, that could lead to bottlenecks and supply side shocks. We have this huge influx of investment that the federal government is trying to induce right now. That’s the purpose of so many of the policies that the president has put in place that is drawing in capital. To what extent is that crowding in new capital that wouldn’t otherwise be invested or be invested in things that would be less productive than what they are now or were not? But if that is the case, that will also have macroeconomic implications. And one of the things we know about an economy is that you invest in new things you’re often advocating. You’re doing it at the cutting edge of the technology. Those investments may be much more productive than what you what was there before. And when we’re trying to do something quickly, we may be moving to a higher productivity outcome in the near term As we move as we shift to new sectors, we’re more on the cutting edge. I mean, these are all these are all questions. I’m not saying any of these things are not going to happen, but there are questions. And then, you know, we do need to think about price, price volatility, supply side shocks. Are we going to be able to get access to all the tools we need, for example, for all the batteries and all the different things, but there’ll be bottlenecks. How does that affect trade? So that’s a I’m sorry, that’s a very long laundry list, but it is just to give you a sense of some of the economic questions that come up that we need to integrate into how, where, what kinds of stories and narratives are building up about what is happening in the macro economy.
Jason Bordoff [00:16:08] Yeah, there’s a lot there for research that I suspect will take some time. You can imagine oil price volatility would it would matter less. You could imagine severe weather that knocks down power lines might have more of an impact because more things are electrified. I mean, on and on down the list. Is there any preliminary sense about on on that in the end? What? Way this cuts from a macro economic standpoint. If we have a different kind of clean energy system in the future.
Heather Boushey [00:16:33] I think in the very near term, I think there’s two things. One is there is a lot of investment happening right now. And so that to me, I think what we’re seeing already is that so much has been spurred by the Inflation Reduction Act and the bipartisan infrastructure plan, that that is leading to an influx of capital, that that seems expansion that seems expansionary in the near term. Time will tell how much of that, again, is just doing one thing instead of another. That may have been a better outcome. Who knows? But it does look that way given the numbers that we’re seeing and how much investment we’re already seeing, what the private sector is doing relative to the public investments that have been made. I think the second thing is the extent to which there are bottlenecks. So I am I think those are the two questions. And I don’t I don’t know which how that will play out, which one will be more important. But those are certainly things to keep an eye on.
Jason Bordoff [00:17:30] And what about the actual physical impacts of climate change? How should we think about the way those affect the macro economy and GDP growth?
Heather Boushey [00:17:39] Well, here to the challenges is that a lot of the physical damages of climate change ultimately fall on the public purse. So be they at the state level, the local, local level, state level or federal level. A lot of it does come down to to to government. You think of the the role that the Federal Emergency Management Administration plays when you have a tornado or hurricane or something, that they are the ones that are helping to pick up those pieces. You think about the, you know, all of the challenges that are happening to communities when you have these kinds of physical damages in terms of a greater need for social services and to rebuild all of these things, there’s there are private costs, but there’s also public costs. And so I think we worry a lot there to the extent to which we don’t get climate change under control, the extent to which we allow temperatures to rise, we allow emissions to continue. That is adding to these physical damages that will be a drag on the economy and particularly a drain on public resources. I also worry about a couple of other things. You know, the extent to which we don’t get emissions under control, it means that we may be spending more money on mitigating physical damages, which may crowd out investments that we need to make in the clean energy transition itself. And that seems like a very important thing to keep front and center, that making these clean energy transitions is the best thing we can do for our future economy. It’s also good in the here and now. We’re creating jobs. We’re creating new, vibrant, hopefully very competitive industries. But the costs of inaction, I think, are also quite high. So the physical damages are already starting to add up. You know, we see we see this time and time again, these record breaking years. Do you know just how costly all these damages are, you know, for all actors across the economy?
Jason Bordoff [00:19:41] Yeah, I think that’s an important point. The cost of inaction being greater than the cost of action. But I’m wondering, do you think there is a cost of action? And by that I mean, you know, the whole idea for international climate diplomacy is kind of premised on there is a free rider problem. There is a cost to doing something about climate change and transitioning to a different kind of if you’re not going to use 80% fossil fuels like we have been for decades, there is a cost to shifting toward something that sometimes, maybe less often now costs come down but will be more expensive. It’s more expensive to make green steel than not green steel, green. Samantha Non green cement. That whole premise, I think increasingly people are questioning maybe that’s not true, that there is a net cost to doing something about climate. I’m wondering what you think, recognizing that the cost of inaction is clearly higher than the cost of action. But is there actually a cost to action?
Heather Boushey [00:20:38] Well, there’s always there’s always costs, but a. So two things. First, some of the costs of action that you’re talking about have to do with how you do it. So I think for a long time, economists said, by the way, we need to spur the transition to clean energy is to raise a carbon tax. It’s a standard economic idea. Something’s bad, then we’re going to tax it so that people use less of it. But the challenge with that is that it doesn’t actually solve the economic problem. It doesn’t make it it doesn’t create that new thing that you want. If you just make it more expensive for me to drive my car because you’re taxing gasoline, then it may then it may just be more expensive for my car. That doesn’t necessarily mean that an entrepreneurial will come up and make me a cheaper car. Especially in a case where there are no real coordination challenges. So to to keep going with the case of automobiles. One of the biggest challenges, of course, with the transitioning to electric vehicle is whether or not there will be a place for you to charge it. If you want to go on a road trip to visit your family or anything else. You know, if you at any other time you would need to charge this. And so there’s been a bit of a chicken and egg. Well, without those charging stations, that charging network, then it is incredibly hard for me to imagine, oh, buying an electric vehicle. But then why would it why would any private actor put together a home charging network around the country if they don’t see people are going to be using it? Now, Tesla tried to solve that problem for their own cars by creating their own specific charging network, and that’s great for them. But that also created another coordination problem that if you bought, say, you know, a different kind of car, a Chevy or, you know, a different brand, you can’t use their plugs. And so you have the standards coordination failure as well for the consumer. So all of those are costs of making this transition. And that is exactly where government can make a huge difference. So you can go in and say, well, no, that, you know, we could do this to raise the carbon tax or we could do this by actually looking at the real challenges to making the transition sector by sector. So making the transition to electric vehicles, let’s put in charging networks and there’s, you know, research out there that says that maybe one of the most important things we do that I think we’re spending a little over $7 billion on the federal dollars on a national charging network. And then we’re also seeing private actors step up. Teslas are making it possible to standardize plugs using their network. But that investment is lowering costs for consumers, but it’s also helping to induce that private capital. So getting that really clear demand signal to auto manufacturers all around the country like, hey, this network is going to be there, build these cars and consumers who are looking to buy a new car might choose this over buying a fossil fuel vehicle. And then, of course, on top of that, to sweeten the pot, the federal government has added all these tax credits for the manufacturing of electric vehicles and commercial electric, not just for consumers, but for commercial uses. They’ve added these tax credits for consumers, and we’re doing all this work to ensure the supply chain of critical minerals that need to go into the batteries. Another coordination failure in a country where you don’t need batteries. Nobody had set up those supply chains, but we need them. We need them desperately, need them fast. So this is a very long answer to yes, there are costs to changing what kind of car you drive. And if we think that is socially important, that we get emissions down and make that shift, then why don’t we just spend our time and energy making it easy for people and for businesses to make that transition? And I think this is where we’ve seen already a lot of success. Let me just point one data point here, which is that we have already seen North American battery cell manufacturing increase, so much so that we will have enough capacity in battery cell manufacturing to meet the president’s commitment for half of all EVs sold by 2030 to be electric vehicles. And a third of that new investment has happened since the passage of the inflation reduction. And that is that is sending that clear demand signal, which is also helping to all of that investment is going to lower prices for consumers over time because so much capital is going into it, so much innovation. And we’re already seeing that there. There is reporting out there that electric vehicles will be on par with with gas powered vehicles by the end of the year in terms of price.
Jason Bordoff [00:25:21] I want to go deeper than one or two points. But but but do that by first stepping back and asking and just to set. So so everyone listening knows who they are. Listening to your background, you wrote a great book, Unbound. It talked about how we’re talking about what could be a drag on the economy and that inequality itself can be a drag on the economy. You co-founded something called the Washington Center for Equitable Growth about why we need to think more about issues of equity in economic policy. Can you just talk a little bit about how your view of economic policy, how maybe it is different than than what some more traditional neo liberal economic ways of thinking in Washington were? I. My first government job was in the Clinton administration. Bob Rubin, Larry Summers. There. There’s a certain view of economic policy in that building. And what does that mean for how we think about some of the issues you’re talking about now, energy and climate?
Heather Boushey [00:26:22] Yeah, happy to. So what we focused on what I focused on prior to joining the Biden administration, what I also focused on, you know, during the campaign with the then vice president and what he did, both as vice president and in between, is the ways the economic inequality affects economic outcomes, the way that we there’s a lot of empirical research out there that shows that there’s various ways that inequality has this distortionary affect on outcomes. And you can see that in a variety of ways. You can see how economic inequality staples the opportunity with kids. Now we there’s all this research that shows that children who grow up in poverty are lower income families, even if they are talented and have a lot of aptitude to do great things, just don’t have that opportunity. And that that is really tied to play space inequality. There’s a large body of literature on that and a lot of policies to figure out how do we do that? But we know that some of that is just specifically because of the economic inequality and because inequality has been rising for almost a half for a half century now. Not just income inequality, but wealth inequality and the path to upward mobility has gotten harder and harder. So Raj Chetty talks about a bit The rungs on the ladder have gotten further and further apart. So that means that, you know, again, if you have people with good ideas or good aptitude, they just don’t have that same opportunity. And each time that happens, our whole economy loses out in terms of productivity and growth because the right talent isn’t being matched with the right opportunity. So that’s one thing that we talked a lot about. So you need to create that upward mobility, that opportunity. But the other thing is that we’ve seen with rising inequality, this rising concentration of wealth and this rising concentration across firms, and this is something that the President has prioritized, that we need to make sure that our markets are competitive. And we have seen this rise in concentration across industries in the United States economy, you know, in recent decades. And that has an effect on economic outcomes. It means that there is less opportunity for a new startup with a good idea to get out there and and make it because that opportunity is being subverted by those at the top that are creating barriers to entry or buying up little, you know, buying up all the little competitors and then stapling good ideas. And I think that that is an important piece of the puzzle as we’re thinking about the clean building, a clean energy economy, we want to make sure that as we build this, we are thinking about shaping markets in a way so that they are competitive, that we’re getting the best out of capitalism, which is, you know, openness, making sure that new ideas can come to the fore, new innovation come to the fore. That’s how we’re going to see lower prices over time, but that we are still supporting those industries to do that. And I think that’s one of the lessons that I took from the years that I let it go to growth that we’ve really embedded into so much of the President has done has been around competition. Another thing I want to point out on the concentration at the top, The president, I mean, my goodness, if you said it once, he said it thousands of times that he wants to tax wealth and not work. He has made a commitment to the American people to not raise taxes on anyone, making more that more than anyone making less than $400,000 a year. And he has put forth a budget just a week and a half ago that closes the deficit, that reduces the deficit by $3 trillion over the next decade. Invest in things that are important to the United States and does this by really focusing on the different kinds of taxes that we can do at the top of the income distribution that so many economists will tell us can be good for growth. They can help focus capital in the United States away from things that might be unproductive towards things that are productive. So if you think of this administration focusing again, just to bring it back to clean energy, we are making these huge investments in a clean energy economy. I think that there’s a lot of evidence that this will that these are the sectors that are going to be important for economic competitiveness, for our country, for the world in the coming decades. We’re making these investments now, and we’re doing that through pushing forward a set of tax ideas that is putting money to its best purpose, its best use. So these are some of the themes that are focused on and equitable growth that I think we see sort of running through different, different ideas that we’re working on here. And there’s a lot of empirical evidence for them. That’s the unveiling did that was there was this big literature review of all of the different studies and analysis that showed the way that. Inequality systemically distorts, subverts and obstructs the pathways to economic growth and stability.
Jason Bordoff [00:31:27] And let me ask about thanks. That was a great helpful overview of your amazing career and work the the how some of that how those issues of inequality connect again to energy and climate. So one is about energy prices which you know, can be regressive changes in energy price, high low income consumers, households spend a higher share of their income on energy than high income consumers. And yet I think basic economic literature would tell us, when you want to use less of something, you it’s better if it’s more expensive, not less expensive. So do we want gasoline prices to be higher or lower?
Heather Boushey [00:32:05] Well, we want to make sure that everybody has access to the things they need in life, and especially has access to the transportation that they need to get to their job and get to all the things that they need. Now, again, I think this is where the president and this administration is really focused on tackling the real world challenges rather than sort of falling back on, you know, maybe more simpler economic ideas. Certainly it is true that if we raised prices on gasoline, people would drive, unless there’s evidence for that. And but we also know that’s going to disproportionately hurt folks at the bottom. So, you know, again, that’s one of the reasons why finding ways to subsidize that movement towards that clean energy economy saying, okay, if you’re going to make changes in your home and move to a heat pump, which, you know, maybe folks higher up, the income distribution would have more capacity to do. We’re still then we’re going to make it easier. We’re going to make it cheaper. And we’re going to say that if you’re buying a new heating system for your home, your boiler goes out. We’re going to make it cost effective for you to go to clean energy as you make the transition or, you know, all the different subsidies that the inflation reduction has on the consumer side to address some of those equity issues. But the other thing that we’re focused on is making sure that as we do this transition, we are prioritizing the need to create good jobs. Now, the president has said when I hear climate, I think jobs, I think good jobs, union jobs. And this is an opportunity to invest in America, all across America and create jobs that can benefit American people and American communities. So some of it is about the prices that we pay and how we deal with that, deal with equity in terms of the distribution of costs. But it’s also about the production side of the economy. How do we make sure that if we’re going to be competitive in this industry for decades to come? How are we laying the foundation now for these to be vibrant industries that create opportunity where the jobs are good? The president has pushed the administration on is economic justice agenda so that the investments go to disadvantaged communities. This is certainly a priority for him. It’s been a priority in the implementation of the bipartisan infrastructure law. So there’s a lot of different ways that we’re dealing with this equity issue. One that I think is very important is about what to actually, you know, what is the investment in getting led out of pipes around the country. This is something that is very much about equity but is also about communities. If you if you want to invest in a business, are you going to go to a community where the water is and safe to drink? No. Right. That’s that’s a that’s not a good investment. So part of these investments in taking the lead pipes out of the water is good for low income families who may have that. But it’s also good for economic development, which is just one way of thinking that so much of the infrastructure that we are doing.
Jason Bordoff [00:35:00] The obviously, the administration has talked a lot about domestic job creation in the energy transition. And we heard the president, the State of the Union, talk about a desire to see, you know, things in federal infrastructure projects made in the U.S.. I’m listening to you. I’m recalling a quote I might be paraphrasing, but but from our mutual friend Jason Furman, who at one point said, If we care deeply about the urgency of climate change, we perhaps should care less about where clean energy is made and produced, then that it is as cheap as possible so we can deploy more of it more quickly. Is that a tension with, you know, what’s the where’s the cheapest solar panels, the cheapest batteries? We need all of them. We can get as fast as possible. A lot of that’s going to come from China or we want to make sure it’s made in the USA.
Heather Boushey [00:35:48] I think this is very much a yes. And we are building an industry. We are building an industry that needs to benefit the American Americans, American communities, American workers, and it also needs to be clean. We need to be doing both. But when you are trying to foster this new industry, you need to be thinking about not creating problems for yourself down the road. Right. So we want to make sure that those are good jobs, that these are jobs where we’re not creating future problems. For the Department of Labor’s Wage and Hour division or occupational health and safety to have to go and investigate. We want these jobs to be good jobs. We want them to be safe. We want to make sure that they’re they’re not adding to environmental pollution in other ways. These are all things that we have to think about because we’re spending taxpayer dollars on this. And so that’s I think the first thing we’re spending the we are focusing the taxpayers dollars on fostering an industry to help us transition away from emissions. We need to make sure that that’s in the public interest and consistent with all of our other laws and the ways that we think about jobs.
Jason Bordoff [00:36:51] Is that so? Sorry to interrupt. Is that what you just described? Is that how you would define industrial policy? This phrase is used a lot right now. Is that what industrial policy means to you?
Heather Boushey [00:37:01] I’m going to follow Brian Deese on the. Idea that we should think about it as a industrial strategy. But it is it is it is really thinking long and hard about the fact that what we make here in the United States and how we make it matters. It matters for our national security. It matters for economic competitiveness. It matters for how we are shaping markets. Because if the government is intervening, we are shaping that market. So they are having an impact on it. Are we doing that? So we have to think about all those questions. So yes, and as we do this, the core question of of why making sure that good jobs are front and center to it is this this economy. So one is it’s got to be consistent with the other things that we’ve already decided are important in terms of economic policy, too. There is a need to bring people along. And if Americans are saying, hey, we’re investing in this, but what are we what is my community getting out of this? That that would create challenges. But it’s also the case that we need these industries to be with us for the long haul. This is where the global competitiveness questions, I think, are going to reside, right? The whole world is moving to clean energy and the whole world needs to very quickly. The United States has the advantage of having the innovative capacity and the and the fiscal space to be able to make these investments, to get things to scale really, really quickly. So let’s do that. Let’s share it, and then let’s pull down costs for the whole world. I think that is a core part of why this is so important to do it here. But we also need to make sure that this industry is resilient. What did we learn during the pandemic? We learned that our supply chains were brittle, too fragile, and the and the closure of a plant in Malaysia because of the COVID outbreak could mean that Americans weren’t getting new cars for months and months. Right. It exposed that they’d just in time production as real consequences, real costs and a failure of resiliency. So I think of it this way OPEC controls 40% of the world’s oil supply. And my entire life, OPEC has been held up as an important oligopoly that has control over the economy in really important ways. They can affect supply. Well, China controls core parts of the clean energy supply chain to the tune of 90%. So if we think that 30% was right in oil, why do we think that 90% won’t be won’t create fragilities and lack of resiliency? We need to make sure that we are that we are focusing on this and putting this front and center. So that is what this is about.
Jason Bordoff [00:39:53] Yeah, it’s I mean, everything you said makes sense. I think there is a difference between inputs to a finished goods like a car and the daily flow of oil. But but nonetheless, the 90% of semiconductors coming from Taiwan or 80 90% of critical minerals being refined and processed in China, I think we’ve all been reminded with the supply chain problems we’ve seen and the pandemic and recent conflict with Russia invading another country and Europe have been reminded of the risks to the global supply chain. And at the same time, I think it is probably also true that to have a really fast, a much faster clean energy transition, we’re going to need more, not less, trade in clean energy components. We’re going to need to work across borders and work with allies. And so where does that take you in terms of how to navigate that tension? Obviously, the Inflation Reduction Act has sparked a backlash from some allies like the Europeans. And there’s an idea that, you know, Secretary Yellen has put out friend shoring. How do you figure out how to be how to work together and be collaborative so we can take advantage of, you know, what Ricardo talked about with with Portugal and England? If you have comparative advantage, you want to take advantage of it, But also be careful about excessive dependance on certain parts of the world, too, that we may have more concerns about. How do you strike that balance.
Heather Boushey [00:41:11] And and making sure that we really think hard about the fact that we’ve had 50 years of rising economic inequality in this country. We have we do have been benefits communities. And this is going to be challenging. So we also do need to focus on creating good jobs here at home. So that’s my first point. But let me get to your question directly, because the president has taken a series of steps and it’s really important to emphasize them. You know, first, you know, in the first year of the administration that they announced the global arrangement on sustainable steel and aluminum, this was a really important partnership. The world’s first carbon based sectoral arrangement on steel women in which are really tricky industries to decarbonize. And so that, you know, setting that standard and saying we all need to do better, we need to make sure that we push our industries to be as clean as possible and create that partnership that. It was really important and there’s continues to be work on that and and to restrict access to the United States and the EU markets for dirty steel and for countries that dump steel into our markets, that that is a priority. So I think that signals our we are working with our with our friends and allies. Now also just just just in March, which is the month is still short here and the president met with President von der Leyen of the EU to deepen our relationship with our allies and partners. And what came out of that was an immediate intention to begin negotiations on a targeted critical minerals agreement. And that is that is incredibly important that we we’ve talked we know that’s come up a number of times in this conversation. We need these minerals. This is the new material that needs to go into so much of the clean energy pipeline.
Jason Bordoff [00:42:59] And I’m just curious, what would an agreement like that look like? Is it an agreement for fewer trade barriers, for cooperation to develop the resources in a sustainable way in Africa or elsewhere?
Heather Boushey [00:43:10] Yeah. So what it means is that the relevant critical minerals that would be extracted or processed in the European Union will count towards requirements for the electric vehicle tax credit. So that gets around some of the challenges that the Europeans have raised. But it says, hey, we’re going to do this together and and we need to make sure that we’re creating these resilient and sustainable supply chains. I’ll also add that we do need to make sure that countries that have the capacity to do this critical mining, this critical mineral mining in a way that is safe and nonpolluting, you know, good for workers, good for those communities is also really important. And a piece of this as well. So so that’s those are just a couple of examples. But, you know, I think that building fast and building fairly do not have to be in tension. We do not have to accept that. And I think, honestly, the proof is in the pudding. The Inflation Reduction Act only passed late summer in August, and I think many people did not believe it was going to get across the finish line. So if you did believe that and you’ve seen the enormous I mean, this is not a visual medium to describe all of these maps, of all of the different investments that we have seen increasing in battery plants already being announced all around the country in electric vehicle manufacturers being announced around the country in manufacturing more generally for all sorts of things being announced. This is spurring that private action. And, you know, when we have done this before, we have been surprised at how fast things have gone. And I think we are starting to see that now.
Jason Bordoff [00:44:49] I’m curious what you think of all the there’s a lot of private analyzes. I’m sure you’ve seen that the Inflation Reduction Act will cost more than the Congressional Budget Office thinks because the tax credits are uncapped. And is that a good thing? It just means we’re going to get that much more clean energy deployment. Of course, it costs more government money then.
Heather Boushey [00:45:05] I think we have this scores that we have. So I can only as a as a see a person, I can only rely on the data that that we used for the budget process that was a part of the official process. But certainly those those numbers had estimates of how many people would take out these tax credits and how how useful they would be. It would be a very good thing if we saw industry stepping up to the plate and making more investments, if we saw consumers stepping up and saying, hey, I want to make this transition in my home to clean energy.
Jason Bordoff [00:45:37] Do you know, coming back to the the broader work you’ve done on inequality, there’s one school of thought with policy making, which is as targeted policy instruments as possible, right? You have an externality like carbon emissions addressing that particular problem. You can put a price on it, you could do it in some other way. And then there are problems with quality of jobs. There are problems with hourly wages, there are problems with health care, there’s problems with housing. We got a lot of social issues related to inequality and equity in this country. There’s another view, which I think is what I’m hearing and I’ve read in your work, which is these are all much more connected than than people realize. And do you worry that industrial policy risks trying to achieve too many goals at once? And if not, how are they connected?
Heather Boushey [00:46:25] So that’s always a challenge. I mean, it would be nice if things were easy and simple, and I think that we can. And as an economist, I can sit here and make a clear, simple analysis of something that looks good on paper. But in reality, there’s so many things that we have to take into consideration. And this is an historic and important new industry that we are creating broadly in clean energy. And we know that it’s not easy for consumers. We know that it’s not easy for businesses. We also know that different parts of these in just the different parts of the clean energy economy have different. Needs and different costs and different constraints and different coordination failures. So I think that our approach is to look at why has this not been happening and what does that ecosystem industry by industry need to be able to push forward and to be able to address the challenges of the transition, which I mean, one of the first things the President did was put in place a whole of government task force around energy communities. And, you know, how do we make sure that those communities that currently are producing fossil fuels are not left behind, but are get these get new investments and are able to use the skills and talents. I don’t have data to support this, but I did see a New York Times article this weekend that was pointing out that that workers in fossil fuels have skills that are very relevant and can easily make that transition to many clean energy jobs. And it’s great to see that starting to happen and to to realize that there’s a lot that we can tap into. If you weren’t thinking about this holistically, acknowledging that. To transition to clean energy. You need businesses to invest. You need new workers, you need communities. You need all of this change to happen. And change is really hard. I was joking to a colleague the other day. They used it when I moved to D.C. from New York. I had somebody gave me a keychain that says Change. That said, change is hard. And I kind of laughed about it because it’s such a it’s such an obvious thing to say that it’s like a little dumb thing that you can buy at a drugstore. Right. But we’re asking so many parts of our economy to shift at once. So thinking that this is just a marginal problem that you can solve over here, it just doesn’t seem resonant with the scale and scope. And then here’s the thing again. The proof is in the pudding. We got this done. How long have we known for How long the have the scientists told us we need to do something about emissions and we got it done. When we shifted to a model that acknowledged the complexity and the reality of the economics of this. Right. I tend to think that this is now pardon me, because I’m sure there’s a lot of climate people who are listening to this. The climate folks have convinced us, Right. We get it. It’s a problem now. It’s an economic challenge to change how we produce producing, use energy. That is a very econ space. So let’s you know, I think that that is the challenge in front of us. And it’s complicated.
Jason Bordoff [00:49:34] And just putting on the lens through which I do some of my work. I think if you read Joe Manchin statement in support of the IRA, it was not just economic but but national security issues as well, especially after Russia’s invasion of Ukraine. We’re remembering those a bit more. Just finally, I’m curious, when you look back on the writing, you did the books, you wrote, the think tank work you did. And I’m curious whether your service in government the last two years, do you think differently about any of your views on economic policy than you did when you went into the administration?
Heather Boushey [00:50:03] It’s interesting. One of the things that I wrote about in Unbound was that we did that the paradigm is changing in economics, that more scholars were opening up to the idea that inequality had this effect on growth and stability or the pathways to that, and talked a lot about the paradigm shift and pointed to the work, for example, by Alan Krueger and David Card on the minimum wage as a paradigm shifting analysis for looking at micro data that changed the way economists thought and that there’s a lot of that. So there’s that. And the President talks about this being a paradigm shift. He said this early on in the administration that he wanted to change the paradigm. Here’s what I’ve learned. It’s not a paradigm. It is many paradigms. It is that you have all of these different people working in different places with different knowledge faces who are confronting this challenge of moving to clean energy, where their priors, their common sense coaches may be being upended and we need to work through those one by one. And so the monumental task of implementing it is, I mean, anybody that goes into government, I feel like this is the thing to say that it’s kind of easy to have ideas. It’s really hard to put them in place and to make sure that we’re doing them well. It is an honor and a privilege of a lifetime to be able to be here to do this. But gosh, it’s hard.
Jason Bordoff [00:51:31] And it’s part of the reason people doing the kind of work you were doing before or we do every day here at Columbia. Really important to make that kind of research, I think, as actionable as possible. So it’s good to have new ideas, but how would you actually implement it? What are the the pragmatism, the politics, as well as what the research and evidence tells you.
Heather Boushey [00:51:50] And occasionally send your star staff in to help serve for a while.
Jason Bordoff [00:51:54] Very happy to do that when we can. So thanks for your service and thanks for taking the time to share your thinking about, about your career, your work, and and what the Biden administration’s doing on economic policy as it relates to energy and climate. Heather Boushey, thanks for being with us.
Heather Boushey [00:52:11] Thank you so much, Jason. This has been a real a real treat. Thank you.
Jason Bordoff [00:52:18] Thank you again, Heather Boushey, and thank you for listening to this week’s episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs. The show is hosted by me, Jason Bordoff, and by Bill Loveless. The show is produced by Stephen Lacy and Erin Hardwick from Postscript Media. Additional support from Saga Time, Sahar Noah Kaufman, Victoria Prado, Daniel Prop, Natalie Volk, and Kyu Lee. Roy Campanella, engineer of the show. For more information about the podcast or the Center on Global Energy Policy, visit us online at Energy Policy, Columbia Dot edu or follow us on social media at Columbia U Energy. And please, if you feel inclined, give us a rating on Apple Podcasts. It really helps us out. Thanks again for listening. We’ll see you next week.
The Inflation Reduction Act, passed last year, aims to accelerate the clean energy transition, and benefit American workers, communities, and manufacturers. It does so by providing large amounts of funding to the domestic clean energy sector, paired with certain requirements for materials and technologies to be produced in the U.S.. But accelerating climate action is a big task, to say nothing of fostering economic fairness and opportunity in the process.
How can the Biden administration move forward on all these different priorities simultaneously? How will its domestic climate agenda impact the U.S. economy? And what is the role of industrial policy in a world undergoing an energy transition?
This week host Jason Bordoff talks with Heather Boushey about the nuances of the Biden administration’s domestic climate policy and how it fits into their broader economic plans. They also discuss what it means to use industrial policy in furtherance of the energy transition.
Heather is currently a member of the Council of Economic Advisors for the Biden administration and chief economist to the Biden administration’s “Invest in America” cabinet. Heather works on domestic investment and implementation of infrastructure and clean energy laws. She previously co-founded the Washington Center for Equitable Growth, where she served as chief economist, president and CEO. She has also held the position of chief economist for the Center for American Progress.
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