Industrial Strategy

In this episode, Brian Deese, outgoing director of the National Economic Council and an influential advisor to President Biden, discusses the opportunities and challenges in Democrats’ new focus on industrial policy.

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David Roberts

Brian Deese has had a remarkable two years. As President Joe Biden’s top economic advisor and director the National Economic Council, he has played a key role in defining and implementing Biden's policy approach.

In April of last year, he delivered some “remarks on a modern American industrial strategy” that laid out a vigorous approach to investing in economic sectors deemed important to national and economic security.

And by all accounts Deese played a pivotal role in seeing the strategy into law, through the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act, which together amount to the greatest reinvestment in US infrastructure and manufacturing — and, specifically, clean energy industries — in generations.

The pivot to unapologetic industrial policy is a big change for Democrats. Deese has moved in those circles for a long time — ten years ago he was a young wunderkind advisor to Obama, making The New Republic’s list of “Washington's most powerful, least famous people” — so as he prepares to depart the administration, I was eager to talk with him about what the shift to industrial policy means, why the US needs to onshore key supply chains, and the work ahead for Democrats in implementing their new laws.

All right, then. Brian Deese, welcome to Volts. Thank you so much for coming.

Brian Deese

Oh, I'm really happy to be here.

David Roberts

I had, I'll say, a little banter, maybe a couple of jokes scheduled here for the front end of the pod. But then I looked at my list of questions for you, and we don't have time for any jokes, Brian. We don't have time for any banter.

Brian Deese

Very serious, very quick.

David Roberts

We got to get deadly serious right off the bat here. So let's start here in 2012. Ten years ago, you were the deputy director of the NEC under Obama. And in 2022, ten years later, you were the director of the NEC under Biden. And I'm just curious how things have changed, how America's sort of strategic economic outlook has changed in that ten years. And specifically, I'm curious whether the sort of vigorous investment in industrial policy that we're going to talk about here in a little bit, the kind of stuff that has been going on under Biden, whether you were recommending that to Obama at the time, or whether there's something importantly unique about this present moment.

Brian Deese

Well, look, I think a lot of the world has changed since that period, both in policy and economic terms. If you think back to 2012, we were both right on the back end of a historic and transformational policy accomplishment in the enactment of the Affordable Care Acts, which changed the fabric of our economic and social safety net in important ways right on the front end of that implementation. And at the same time, in a period of very challenging and slow recovery from the Great Recession that was made worse by a failure of policy, a failure of the ability for Congress to overcome Republican opposition at the time, to invest more, to try to help to drive a stronger recovery. You look over those ten years, we live through a period that a number of people have characterized as secular stagnation where our output was constrained and that had a lot of impacts on quality, on labor markets.

And then of course, we lived through this once in a century event of the global pandemic and in many ways historically unprecedented in modern human history. And I think that that helped to bring to the forefront a set of economic challenges that had persisted over that decade and much longer. But we're now really to the floor, particularly the vulnerability of supply chains and the weaknesses in our industrial capacity as a country. And so those things together helped to crystallize the economic strategy that Biden as a candidate put out in 2020 and really have been pursuing, that in some important ways have similarities to things we were promoting at the time.

Significant investment in physical infrastructure is something that has been clearly necessary for a long time, but in some ways have important differences. I think we've got a different approach to clean energy and clean energy deployment at scale, which I'm sure we'll get into here, but also the prioritization of key geostrategic priorities like rebuilding semiconductor capacity here in the United States. So I think the landscape looks very different now economically both because of some of these significant economic changes but also policy changes as well.

David Roberts

What you're talking about and sort of what's come to the fore over the last ten years policy wise goes under the umbrella term of industrial policy. There's been a lot of kind of hype and talk lately about kind of the return of industrial policy. But I'm not totally sure that average listeners really have a sense of what that means. So maybe just let's just start by saying what do we mean by having versus not having an industrial policy? And where has industrial policy been for the last like two or three decades versus the last two or three years which has seen a really vertiginous sort of pivot around this subject.

So maybe let's just start by defining what we're talking about.

Brian Deese

Yeah, sure. And look, I use the term industrial strategy, which is obviously very similar to industrial policy, but a bit broader in ways that I'll explain. And I think at its core, the idea behind an industrial strategy is that the private market on its own, private actors operating to maximize their own utility, will end up under investing in areas of the economy that have strategic and economic significance and that by using targeted public investment you can unlock greater economic opportunity and crowd in greater private investment in those areas. And so an example of this is in physical infrastructure that allows you to unlock productive capacity of the economy.

And we have a great history of this in the United States, from the interstate highway system to the intercontinental railroad, where public investments in laying the foundation for private capital helped unlock greater productivity, greater innovation across the United States. I think what happened is that in the late 1970s, early 80s, there was a broader philosophical push around what now people talk about as trickle down economics that basically at its core had the view that any government or intervention was by definition going to pervert markets and crowd out private capital. And so the dominant paradigm became one of tax cuts, often skewed toward the highest income folks. Thus, the trickle down but also deregulation getting the government out of the way in all cases.

And I think that that philosophy helped to feed a sense that if you were doing industrial policy, it was in fact a dirty word. You were, by definition, perverting a private market or picking winners, the government picking winners versus picking losers. And as a result, a lot of the policy conversations steered away from even mentioning the word. And so I think that obviously that has changed. And it's changed. Things have changed certainly earlier than the last couple of years. But I think in the last couple of years, particularly in the wake of the pandemic, there's been more of a recognition that some of these basic ideas of having active and energetic government investment to help crowd in and build more capacity in strategically important areas is not only not a dirty word, it's absolutely necessary to address the economic and national security priorities we face.

David Roberts

And I think one could fairly argue that there's no such thing as a giant industrialized wealthy democracy that does not have some sort of industrial strategy. It's just whether you're upfront and honest about it right. Or whether it's sort of buried in the tax code and you're sort of quasi-ashamed about it, but you can't, practically speaking, literally just let the market do whatever. It's not practical industrial strategy has always been there.

Brian Deese

Well, that's right. And I would say that one of the interesting things about, I think, the evolution and the reinvigoration of this conversation, this public conversation, is that one of the hallmarks of effective industrial strategy is transparency.

David Roberts

Exactly.

Brian Deese

And so we back our way into potentially really self-defeating the industrial strategy approaches when we, as you say, we end up there. We don't admit it or we don't acknowledge or we don't actually identify what are our policy goals. Transparency is a key element of, I think, doing industrial strategy effectively, both for economic reasons and for political economy as well, so that people can understand why you're doing what you're doing and then can hold you accountable to whether the thing you were trying to get done actually happens.

David Roberts

Right. And this notion of picking winners, I guess I'm curious sort of how the US. learned to stop worrying and love picking winners. All the traditional sort of objections to this, government doesn't know what's going to be next, government makes bad bets, government distorts things. What do you make of those worries? I mean, are you worried about making some bad bets or getting some things wrong? How do you think about the dangers of picking winners, which are real dangers?

Brian Deese

Yeah, like any critique, there's a kernel of something really important in that catchphrase of the government shouldn't pick winners and losers. And I think that the caution, the important caution is the closer that the government gets to actually directly picking individual companies or individual counterparties in a way where there is a sort of a high stakes economic interest there. You do need to worry about waste, you need to worry about corruption. And we know that in different countries and different parts of our history, those things certainly are worthy of being paranoid about. But I think the core mistake that people extended from that critique for too long was to say that that was a concern that meant that you shouldn't engage in the enterprise altogether.

And one of the things that I believe and I think that we have tried to build into our policy approach is wherever possible, the best way, I believe, to try to drive industrial strategy outcomes is to provide long term and technology neutral incentives to encourage investment where the government is not actually going in and identifying and picking a particular winner. Now, there are some cases where that is necessary. And we could talk about the semiconductor program that we're putting in place where because our capacity has eroded as a country and because of the scale necessary to build semiconductor fabrication capabilities, there are only a small handful of companies around the world who even have that capability. And so in that case, we needed to design a policy that was going to provide grants directly to companies on a competitive basis.

But precisely because of that, we are putting an extraordinary amount of thought into the way to run that competitive process in a way that guards against some of the downside risk and captures some of the upside opportunities, but wherever possible. And a lot of what is in the Inflation Reduction Act around clean energy is actually trying to lay that foundation of signaling to private companies and the private market that there will be long term predictable incentives in place. But then not having the government say, we think that this particular technological application is going to be more successful than this.

David Roberts

Right. More like picking winning areas of investment than picking winning companies, right?

Brian Deese

Yeah. The way I like to think about this is look, if you want to know our American industrial strategy in a nutshell right now, we have identified three broad areas that we believe will have big returns in terms of productive capacity and our economic and national security. And those are infrastructure innovation with semiconductors at the center of it and clean energy. And so we are picking those. We're picking broadly that those are areas that for geostrategic reasons and for economic reasons and for what we know about, where you can get productivity enhancements in our economy. But then wherever possible within those, we're not trying to say the government is best positioned to figure out whether this particular technology for generating clean hydrogen in this particular application is going to be more effective than this other one.

We're trying to say we need more clean energy capacity. Clean energy supply. We need it faster and cheaper than we have gotten it to date. That's an existential project. And if we do it in the United States, we'll build manufacturing industrial capacity here, we'll be able to capture greater export share of a very fast growing global market. And for all those reasons, that's the industrial strategy part of this.

David Roberts

That segues nicely to my next question, which is that a big part of the thrust of the big three bills that were passed — the Infrastructure Act, CHIPS, and the Inflation Reduction Act — is onshoring, basically bringing more of the supply chain into the US. So let's just talk about that a little bit. The case for onshoring, if I put my sort of conventional economist hat on, it doesn't fit very well, it's too tight, it constrains blood flow in my brain.

Brian Deese

But I wish we were on video so I could see that hat.

David Roberts

Yeah, you can imagine me grimacing while I'm wearing it. But the traditional economist take is why not just buy whether it's semiconductors or lithium-ion batteries or the materials for lithium ion batteries, why not just buy them wherever in the world they could be made for cheapest? Would it not benefit all global consumers if whoever can make those for the cheapest makes them and sells them to everybody else? This is sort of the basic Econ 101 justification for trade, right? For international trade is specialization. Some people can do things cheaper than others. Why do we need to make these things domestically?

What is the threat exactly of international supply chains which are, it should be pointed out, ubiquitous. Like most of the stuff we get and use in the US. We don't make here. We don't dominate the supply chain. So why in these particular areas do we need to bring mining and processing and manufacturing the whole supply chain into the US.

Brian Deese

So I think there's two broad answers to that question. The first is the rise of China in the global economic system. And the second is the embedded risk that we have now seen made explicit around brittle and just in time supply chains. So let me take the two in order. The first is that that kind of stylized. Let's just try to find the lowest cost producer. Again, there is a lot that we shouldn't look through and we should harvest in that basic intuition. But one of the things that it misses is that over the course of the last 20 years, China's rise in the global economy has been achieved through non market economic means in many instances.

And so the Chinese economic model, where you either steal or expropriate technology, use significant non-market subsidies and other tools to build capacity to then dominate particular industries, is a constructive challenge to that basic model. And there are some clear national security implications where there are technologies that we believe, for national security reasons, we need to deny in certain instances.

David Roberts

Can I press on that just a little bit? Because this is I find that a lot of people refer to the danger of China dominating, say, the lithium-ion battery supply chain in those terms, sort of vaguely like it's national security. It's a threat. And I find it all a little hand-wavy. So I just like to hear what concretely do we think China would or could do? Like, China selling us a bunch of stuff? That's a two way relationship. It hurts them also if they cut us off from buying the stuff they're making so tangibly, what do we worry China might do?

Brian Deese

Right? So, look, and I think you're right that it's important that we be specific in these contexts and in our policy to avoid broad-brush characterizations. First, there are certain direct military applications for cutting edge technology that we have to be particularly aware of. And without going into the kind of detail that I shouldn't. If you look at, for example, the export control regime that we have put in place for leading-edge semiconductor technology, we are trying to be quite intentional about being specific and tailored and targeted in those purposes, but in controlling some leading-edge, the most sort of advanced chip technology because of its direct use application, in particular military applications.

Okay, so that's one category. There's a second category about the fact that if part of the Chinese model is to employ slave labor or to violate basic rights and norms, that you don't want to be reliant on a dominant supplier where the basic technological capacity to produce key inputs is subject to those outcomes. And so the upstream solar supply chain is a good example of this. Right. Where over the course of the last decade plus, because of a variety of different means and tools, China dominates those markets and does so in ways that we can't rely.

It creates instability because we can't rely on a producer, where if the production is only done as a function of unacceptable basic human behavior, then the technology and the capacity doesn't exist elsewhere to pivot. And you've created an acute supply chain vulnerability.

David Roberts

Yeah, I guess another way of putting that is if there's only one producer, none of the buyers have any leverage over the producer, basically.

Brian Deese

That's right. And that's why I think that the second piece of where I think conceptually why we should care is this notion of supply chain resilience. And one of the things that we did when we first came into office, the first month it was February of 2021 was the president issues an executive order to identify the key supply chains and do a full forensic analysis of where the vulnerabilities and the chokes points were, where you had the dynamic you just described of one dominant technological owner or one dominant supplier, where you might create those types of vulnerabilities.

Right? And the answer to those questions is not and should not always be that you just need to bring every one of those supply chains to the United States and have the production happening here.

David Roberts

I assuming you even could do that.

Brian Deese

Because it's neither feasible nor advisable to try to have all of it in the United States. But at the same time, there's clear lessons and clear outcomes where having homegrown industrial capacity and the technological and the innovation benefits that come from that is an absolute necessity. So there are areas like leading-edge semiconductor production where we in the United States do need to have that homegrown capacity to produce and the technological spillovers that come from that. That does not mean that the goal is that the United States is going to produce all or even most of the leading-edge semiconductors that are produced in the United States.

But once you have that capacity and you have more diversification of players who are capable of doing it, you're reducing your vulnerability. And that's true of the upstream battery supply chain, of the solar supply chain as well.

David Roberts

So it's mainly about resilience and national security.

Brian Deese

Yeah. And I think you are right, and it is right to push policymakers to be specific rather than vague about the applications in those contexts because there is a risk, as you say, of just sort of justifying any particular market intervention on those terms. But I think that because of the work in the analysis that we've done, at least in the areas where we have taken seriously and put into place industrial strategy policies, I think that we can demonstrate what does resilience mean? Right? What does it mean? What is the goal in terms of trying to get leading-edge semiconductor production here into the United States?

And certainly as we go and we implement and execute, we should be held to account, to actually identifying those goals and then seeing if we are meeting them.

David Roberts

What about those cases? And it does seem like there could be cases where industrial strategy is in some tension with climate strategy. And so, as an example, let's take these EV credits in the IRA. They are the new version. The new generation of EV credits are tied to some pretty strict domestic content requirements and domestic manufacturing requirements, arguably so strict that no one meets them yet. So it seems like, intuitively, I can see how that's good for industrial strategy, maybe even good for the US economy and good for resilience to manufacture and do more of that stuff onshore.

But it also seems like, intuitively, that's going to slow down the spread of EVs in the US. If we are putting a speed bump, basically between us and us adoption of EVs from a climate perspective, you just want to lower emissions as fast as possible, as much as possible, the cheapest, fastest way you can. And this is not the cheapest, fastest way. Right? Deliberately it's not. It's got an eye to resilience and redundancy. So how do you think through that tension?

Brian Deese

I actually think that to have a durable, effective climate strategy that also operates with the urgency that the issue deserves, you have to factor in this concept of resilience or you're not going to succeed across longer periods of time. And I think the upstream solar supply chain example that we were just discussing illustrates that. If the idea into the current global market with the reality of how China and other actors operate, is that a narrow, fastest, cheapest without any factoring in anything else mentality results in China dominating key input components. To the degree that there is no other producer, then it's not a durable strategy to reduce emissions over the time period that we need to do this.

Because even as we act with urgency, this is a project that is going to operate across the next two decades and longer. And so I think that you need to have strategies that are focused on driving down those costs as quickly as feasible, but factoring in that cost reductions into brittle and unreliable supply chains are not actually going to deliver those cost reductions in a reliable way over longer time frames. So the electric vehicle credit example that you raised, again, the legislative process is imperfect, and there's lots of ways in which the bills are imperfect.

David Roberts

That's the kindest way I've ever heard it described.

Brian Deese

Well, I had a but there, which is the status quo prior to the enactment of this law, was that the credits had a very different structure whereby many of the leading electric vehicle producers had grown themselves out of getting any credit.

David Roberts

Yeah.

Brian Deese

And so the status quo ante was not unmitigated credits everywhere. This approach sets a different bar. Not once you sell 200,000 vehicles, you no longer get a credit. And instead it sets the bar of saying, can you move more quickly to try to get to more resilient supply chains? And while I recognize that that does have some of the impacts that you're describing, I will also say, having talked to a number of the companies that operate in this space, a number have said to me, look, I'll be honest. When this bill was in its final drafting stages, we were incredibly concerned about all of this.

And in the weeks and months afterward, it has totally changed our behavior. We are reorienting. We are investing in particular ways. Interesting things that we thought were hard or impossible may still be hard, but we're now making them possible. And so, look, we'll have to see. And as I said, I wouldn't claim that we've got that element or some other elements perfect, but it's a high bar to drive toward a different goal.

David Roberts

Looking back on this in ten years, say, do you think our move to onshore some of the supply chain will look faster and easier than we anticipated in advance?

Brian Deese

Look, I think any strategy to address the climate crisis today needs to do at least two things. One, is have a credible way to massively drive down the cost curves of deployable technologies to decarbonize the power sector, the transportation sector, the built environment, et cetera. And two, to do so in a way that creates resilient supply chains for the input components for all of that building that we're going to need. And that the strategy that will succeed in really driving the mission direction we need. We'll have to have both of those components. And so I am hopeful that because of the action that we have taken over the last two years, we've given the United States now a historic set of tools to achieve both of those outcomes and to achieve both those outcomes at a scale and a speed that many would have thought was not possible even a couple of years ago.

That doesn't guarantee success in the outcome, but it certainly puts us in a very different position than we were a couple of years ago.

David Roberts

Let's turn a bit and talk about one of our favorite subjects here on Volts, namely administrative capacity. I would say that serious industrial strategy needs administrative capacity, right? It's almost axiomatic. And so Rob Meyer had a piece in the New York Times recently, sort of making the case that the recent US ambitions, as expressed by these three bills, especially IRA, are somewhat exceeding our administrative capacity. In Germany, for instance, you have government departments that work very closely with certain industrial sectors, sort of hand in glove to do some planning and to adapt along the way to see what those sectors need.

We don't really have that. And tax credits are kind of a blunt instrument, a blunt force tool, I guess. We have the Loan Programs Office in DOE, which is doing amazing things under Jigar. But our administrative capacity in the federal government in the US seems to have withered a little bit over the last several decades of this kind of neoliberal period we've been going through. Do you think we have the administrative capacity necessary to do something of this scale and speed?

Brian Deese

Well, look, I appreciate the challenge, and Rob and I went back and forth on, I think what his thoughtful New York Times speaks to this effect. I think the answer is that we need to build that administrative capacity. But the one thing that we can't do is we can't wait for the chicken to produce the egg at the stylized utopia where the United States builds all the administrative capacity necessary for this kind of big national project and then and only then gets to passing the legislation is not only not how our political system works, but the intensity of the need for speed on clean energy and climate change doesn't really give us the luxury of doing that. But I would say do we need to build more administrative capacity across the board?

Yes. Are we making big strides and innovating in new ways? Yes. You mentioned LPO and the work that Secretary Granholm and Jigar are doing. There are other great examples of that. We've stood up a joint program office between the Department of Transportation and the Department of Energy to do electric vehicle charging implementation across the country and showing how do you actually build the administrative capacity to get two different agencies to work together with 50 states to coordinate to actually do that. So yes, we are building that car while we charge it or whatever the right analogy is.

But we're showing good results. A lot of people said you're never going to get all 50 states to even apply for this because some don't even have the capacity to do so. But through an iterative process of building capacity at the federal level, building capacity at the state level, we just yesterday, we're recording this on the 16th, yesterday released the Electric Vehicle guidance for how we're going to get interoperability standards. We worked with key companies, including Tesla around them, announcing for the first time to open up parts of their network. These things need to work together.

But I think the right answer to that constructive challenge is how do we build this at the same speed and urgency that we need to address the issue. Last point, I'll say you made the point about tax credits. Tax credits are blunt, but they can be enormously effective in the American system. Right. We're going to do this in the American system in a way that is different than some of the European models and otherwise. And having long term technology neutral tax incentives is among the most powerful and efficient ways to give private capital providers the incentive to pull forward investment.

And we know that that investment is among the most powerful ways to drive cost curves down and it also requires less administrative capacity to your point. So, I wouldn't discount that, even as I agree that there are a number of places where we need to build up that capability and we need to do it quickly.

David Roberts

Yeah, but by no means do I want to bad mouth tax credits — they made the point many times. They are the quiet workhorses of the progress made thus far. They don't get as much attention and argument and sort of team sports as you get around other policies, but they've been in the background for decades now, just chugging away with demonstrable results. So, administrative capacity is one aspect of implementation, but implementation of course, is a broader subject, a big thorny subject. There's a common critique of sort of people on the left that they fight and fight and get a bill passed and then they go home and watch Netflix.

And of course with something big like this, three big bills like this, all the devil is in the details in the implementation. So I'm sort of curious how you think about trying to avoid what Leah Stokes calls in her great book "The Fog of Implementation". Sort of just curious what are your worries implementation-wise? What are you worried could go wrong and how are you thinking about just following up and making sure this is done well?

Brian Deese

Yeah, well, I think one of the key elements is to maintain consistent leadership and urgency from the president, from the White House, from the key leaders across federal agencies, and to make sure that there is a consistent effort to try to connect the technical and the programmatic implementation with concrete outcomes that people can see in their lives and in their communities.

And obviously that's important from a political perspective, but I actually think it's quite important in maintaining the kind of culture and dynamic to avoid that fog of implementation that there needs to be a kind of urgency to being able to say if we are undertaking a national project to eliminate lead pipes in 10 million homes and 400,000 schools, that everyone involved in that process, from the EPA administrator down to the regional EPA offices down to the state grantees and onward understand that there are targets and metrics and milestones and you want to go into communities and you want to be able to show and demonstrate when that is happening because that's going to keep people forward, leaning forward rather than leaning back. Other big things that will keep me up at night issues is we do need to reform and change the way that we do permitting.

That's not just an issue of federal permitting, it's state and local. And the other thing is, I do think that there's a need to, at the grassroots and the community level, help connect and unlock the enthusiasm and the openness to recognize that a particular investment, again, be it in a wind farm or a small scale nuclear facility or in a rail corridor, is actually connected to this larger project. And there's not only an openness and acceptance, but an enthusiasm around trying to move more quickly rather than putting up roadblocks.

David Roberts

What about workforce? I hear from all over these days like, we don't have enough electricians, we don't have enough plumbers, we don't have enough sort of trade. We're moving into this period where there's going to be a frenzy of building and construction work and just the need for trade labor and we seem short on it. How much do you worry about that and what sort of things are the Feds doing to kind of help with that?

Brian Deese

It's an enormous priority. And for this year 2023 and next year 2024, connecting more people with these new job and career opportunities has got to be a top priority of implementation, I would say. While I recognize and I hear often the concern, I also think a lot of people are missing how much opportunity there is there because for the first time, and this is to go back to our very early conversation about sort of secular stagnation dynamics of having output below potential, we have a dynamic now where incentives are really aligned. Private companies are prepared to invest in job training and invest in paying workers and showing them that there are career paths and opportunities.

And so a lot of the opportunity is making sure that we are connecting those employers with the training providers that we know work effectively and efficiently, community colleges, union registered apprenticeship programs, et cetera, and then going and being proactive about reaching out to workers and communities that may have been overlooked. Right. So we are looking to try to get a million more women working in the trades and in construction than we've had in this country. And there's extraordinary job opportunities, extraordinary career opportunities. And I think one of the reasons why you see such a gender split is that employers and trainers in that space have either explicitly or implicitly built these things in ways that they haven't reached out to those communities.

And so we're going to have to be creative about doing things like that. But I think this also creates a lot of opportunity to bring more people into these trades and to do so in a way where you're giving them more upward mobility as well.

David Roberts

Another big subject that I know you probably had to address a bunch, but I would like to just grapple with a little bit are the sort of foreign policy / trade implications of all this. It looks to me like these three bills represent a pretty explicit pivot away from the sort of free trade consensus that has reigned in US politics in both parties really for decades now. And you see sort of trade partners in South Korea and Europe kind of freaking out about this a little bit. They're calling the stuff in the IRA "protectionism". They're sort of threatening protectionist policies of their own.

Are you worried that this sort of dramatic disruption of the free trade status quo is going to run afoul of some longtime trade relationships? Do you worry about this sort of global trade regime holding together amidst this?

Brian Deese

I don't. And here's why: The first is that the Inflation Reduction Act itself is going to be enormously beneficial to our trading partners and allies. And I think that we are making real progress with our European partners and others in helping them see and understand that that's the case. And that's because at core, the Inflation Reduction Act reflects two things. One, the United States meeting and stepping up to its obligation to actually meet its clean energy and climate commitments in a credible way, which is a priority that many of our allies, including our European partners but also others, have been urging the United States to do for years.

And also a commitment to use US taxpayer dollars to dramatically accelerate cost reductions in key next generation clean energy technologies that the world needs in these countries need as well. Now, we also all share the need to have more secure and resilient supply chains to the conversation we're having earlier. And the other, I think key and important part is that we are operating into a sector, we're talking about clean energy in this context where the world is way short supply. So we need dramatically more deployed clean energy technologies and capabilities in the United States. We need that in Europe, we need that in Canada, we need that in Australia, we need that across Asia, we need that everywhere.

So the United States stepping up and showing a viable scalable model to do so, in a way that will help drive down global costs, and in a way that puts the United States in a credible position to meet our commitments actually creates much more opportunity than constraint. And what it requires is harmonization and effective economic diplomacy and making sure that there is transparency and making sure that we are not doing things that would create unproductive or inefficient subsidy races. But at the core, the United States stepping up and investing in our own industrial capacity in these spaces is first and foremost the right thing to do for our country, the right thing to do for our workers and communities. But it also will have these global benefits as well. And I think that we will, over the course of this year, have a lot of opportunity to actually build partnerships against this.

David Roberts

So you're not worried about sort of like if we put domestic requirements and we put, say, a border adjustment or something like that, and then another nation will do it, and then we'll ramp ours up and they'll ramp theirs up and you will end up in trade wars. That will slow the sort of act as a slowing force on the spread of these technologies. You just don't think that's going to manifest?

Brian Deese

Look, I think you're identifying a risk. But I would say from where I sit, both on the substance and the economic diplomacy of this, there is more opportunity than risk in that area. So it's always a risk. It's always a risk that you should take seriously. But if we were having this conversation several years ago, the dominant conversation would be whether, how and in what context could you ever envision building a durable political coalition in the United States to pass any meaningful legislation that would increase clean energy and energy security and do so in a way that would put the United States in a position where it could actually sit at a table with the Europeans and talk credibly about them how to increase global ambition. And that would be the conversation, right? We are in a different conversation that certainly it has risks, but it's a higher class conversation if the goal is how to deploy clean energy globally at scale.

David Roberts

Good problems to have. Another sort of aspect of that similar family of worries is that if the US follows China's lead and starts sort of lavishly subsidizing its own industry and the EU follows, the US. Starts lavishly subsidizing its own industries, these developed nations sort of look inward. There's a worry sort of floating around that developing nations will end up sort of getting screwed, not getting the investment they need. So how do you sort of balance the need, which you've laid out here, for the US. To invest in itself, for a bunch of reasons, with the parallel need for developed nations to invest in helping developing nations build capacity themselves and lower their own emissions?

Do you think those are in tension at all?

Brian Deese

I don't think they need to be, and in fact, I think that they can operate together. But you're right to absolutely raise the issue. Look, I think it is incredibly important for the credibility of global climate progress for the United States to be able to credibly meet its own commitments. And that's important for developing as well as developed countries, number one. Number two, the United States being a place where we are investing taxpayer money to drive down technologies that will be particularly important in deployed applications in developing economies means that developing economies can also benefit from driving down those cost curves as well.

But I think it also goes to the need for the United States and other countries together to continue to increase our game in building partnerships with key developing countries to demonstrate that we can together bring climate finance at very significant scale into their economies to help drive this transition.

David Roberts

Because that has not been happening, right?

Brian Deese

Well, look, I would say there is a model that we need to build on the JETP initiative that we have launched, which stands for Just Energy Transition Partnership with South Africa and Indonesia, the partnership we launched with Egypt at the COP this year. These are models to demonstrate the potential of US investment, lower cost clean energy technologies, policy reforms to create more stable investment environments in these countries, and then the ability to actually bring private capital at scale into big, important projects. That's what it's going to take, but we're going to have to do that at a scale that we have not done yet. But I think the action that we're taking in the United States creates significantly more opportunity for that than constraint.

Again, it's sort of a similar, I guess I would say a similar story. Much work yet to be done, but we're definitely better positioned having taken the action that we have in the United States than if we hadn't.

David Roberts

Right. Let's talk then about the US being slow. This has been an increasing subject of conversation in liberal circles recently. I'm sure you've heard and seen this idea that US is entering this period where we badly need to rebuild ourselves, our industries, our infrastructure, not just because of climate, just because a lot of it is falling apart. We just have been under investing for a long time. But when we do invest, it's very slow and this manifests in a bunch of different areas. But I'm just curious how you untangle all those factors that are going into making the US building in the US slow and expensive.

How do you increase the pace without running roughshod over vulnerable communities? The fight over permitting reform did not auger well for this debate. It did not seem to suggest that it was going to be easy to resolve this debate. So just on the big picture level, how do you think about the US. Being slow and expensive and what can the federal level, what can you do to shake that loose?

Brian Deese

Yeah, I think it may be the biggest and most significant challenge that we face. And to go to your question about what we at the federal level we can do, we can commit to and then execute on doing business differently. Right. So we need to have the kind of accountability and transparency around project timelines that we have not always had in the past. We need to deploy efficiencies and creativity and innovation that we know is out there, but deploy it at a much broader scale. Some things that sound very simple, like we have a program called Dig Once, right, where we are coordinating between road projects and broadband projects and transmission projects.

So that if we're going to have a right of way, we should be trying to operate all of the digging projects that we're going to do as much as we possibly can in the same right of way at the same time. Now that sounds simple, but actually it's an innovation that if deployed, can have a geometric impact on speed. But then there's also more sophisticated design, technological approaches that we can use and we can borrow from other countries and we can do things like you had mentioned, labor. One of the things on these big complicated projects that project sponsors are finding is having a project labor agreement working up front to actually demonstrate how you're going to make sure that you've got the right people on the right time to do the work that is needed in a quality way.

Helps to reduce bottlenecks, helps to reduce cost overruns and time overruns. And so those are all things that we at the federal government can do, we've got to do in a more systematic way and at scale. Having legislation that would give some key reforms to the permitting process would help on that score. But there is also a lot that we can keep doing and working. And you made a really important point. We have to demonstrate that we can do all of this in a way that also builds more fairly than we have in the past. And so there's nothing simple about that project.

But we do have I often hear these conversations about permitting that move immediately to a certain sense of defeatism. Well, the United States just moves slowly and things cost a lot and therefore this is all going to go sideways. And I think we can point to practical examples of success and then we need to build on those.

David Roberts

One of the big bottlenecks in terms of building, in terms of things going slowly is transmission and energy, long distance transmission famously holding back the rest of the clean energy economy and it's just very difficult to build. There's landowner NIMBYs, there's state NIMBYs county NIMBYs, there's baroque bureaucracy on and on. There was some stuff in the Infrastructure Act, I believe, that did some good on transmission, a little bit in IRA. The permitting reform didn't end up going through. So that was the biggest thing. So I'm curious now that sort of the period of legislating is probably over what tools are left in the Biden administration's toolbox that can shake loose transmission and get that moving.

Do you guys have ideas on that score?

Brian Deese

We do. It's a great question. It's a super important policy. We've been working hard at this. I don't want to get too far ahead of where we will be,and our agencies will be shortly. But I think I could say that I think you'll see from us shortly that there are tools within our existing authority, under existing statutes that will allow us to very significantly prioritize and streamline the process at the federal level in terms of agency approvals and also use our federal authorities in ways that create stronger and more significant incentives for not only project sponsors, but also states and localities, municipalities to operate in line as well.

And one of the things that to go back to the culture point that I was making earlier, one of the things that we have now, ever since the infrastructure bill passed, is Secretary Granholm. She's got it, she's trying to make it famous, this map where she's got the transmission lines that need to get built right and they need to get built and they need to get built at scale. And to the point about success, we can already identify that there are a handful on that map that have moved from yellow to green and are moving forward in a way that was not true a year ago or even six months ago. But these additional authorities, I think you'll see us moving out on in the course of the next couple of months will give us more to work with and I think make 2023 a year where we can really accelerate on that front.

David Roberts

Sweet. One other follow up on the slowness question another big area of congestion is housing. This is also a hot topic lately. I think it feels like it's become more and more clear to more and more people that constraints on housing in high economic opportunity areas is not just a local issue. It is in the aggregate having serious macroeconomic effects on the US. It is a serious in other words, it is a serious nationwide problem, not just sort of quirk of coastal states. What, if anything, can the feds do? Because so much of that is local or state.

Are there levers available at the federal level that can shake that mess loose a little bit?

Brian Deese

I'm so glad you raised this question. It's a hugely important issue and we have a housing supply crisis in the United States, which is a crisis that has developed over the course of years, basically going back to the Great Financial Crisis. And if we don't build more supply of affordable and dense housing, then we get exactly the dynamics that you just described and it's harder for people to move to opportunity and find affordable places to live.

We have been dogged on this issue and there's a couple of things that we can do. The first is that we can build into some of our existing federal grant programs and new federal grant programs in the investments in infrastructure and otherwise incentives that says that if localities actually have more coherent land use and zoning policies that encourage this type of building, then that's going to be a plus up for them in receiving federal grants for something like, for example, public transportation, which makes a lot of sense if you think about it, which is we shouldn't be spending federal dollars on public transportation into an environment where they're not going to build coherent housing.

Secretary Buttigieg has done this in a couple of ways, but we've never done before and we're now franchising that to other grant programs. The second is we could pass legislation. The Low Income Housing Tax Credit and something called the Neighborhood Homes Tax Credit. Bipartisan support for these pieces of legislation that provide incentives for people to build dense rental, multifamily and single family housing, again in areas where they have local land use policies that encourage this type of building. And there's bipartisan support for that type of legislation. I know that there have been conversations across time of trying to advance this.

Both of those steps are things that we could do. You are right that the decisions operate in many cases at the state or the local level, but we can provide a powerful incentive to encourage and invest in those communities that are doing the right thing.

David Roberts

Could have done a whole pod on politics but I mostly left that out. But I'm just curious. Looking back now, it seems striking that Democrats went into this latest session heads full of extremely ambitious dreams. The original Build Back Better Bill was robust. Let's say it had a little bit of everything in it over time. We just saw that get stripped down and stripped down and stripped down but somehow the climate piece, the clean energy piece, survived more or less intact through that entire sausage making process. What are we to make of that? Does it all just come down to sort of like whether Joe Manchin woke up on the right side of the bed or are there larger political lessons to be learned from the sort of resilience of this one piece of the Democratic agenda?

Brian Deese

One of the takeaways that I have is that it has been important for us to change the policy and the political approaches to trying to radically and dramatically build clean energy capacity in the United States. And that one of the important parts of how President Biden has approached this. And frankly, Democrats in Congress — and a lot of Republicans too — is to focus on this as about building our capacity, our manufacturing capacity and our energy security by dint of having more homegrown, affordable, reliable energy and to do that and to build a strategy that can achieve very significant climate ambition. But it is based fundamentally on that investment opportunity.

And that has, I hope and expect, will be an important takeaway over the last couple of years is that even as this process has been challenging and winding across time, if you look across the infrastructure bill as well as the CHIPS bill, but also, obviously, the Inflation Reduction Act. What you see is that these types of investment approaches have a lot of salience. And they have a lot of salience because they're focused on places and people and giving people economic opportunity and helping to drive significant emissions reductions across the country. But based on that core opportunity, I think that is very different from the political conversation that we had in 2009 and 2010 on this issue.

It's different than the conversations we've even had over the course of the decade since and I'm hopeful that it will lead to a more durable political environment for us to drive forward these policy pieces that are going to be hugely important for our economy and our country and our planet in the future.

David Roberts

You are credited alongside Chuck Schumer with bringing Manchin around. I don't suppose you want to give us any secret insight on what was the magic key, the magic phrase, what sort of sorcery achieved that?

Brian Deese

No. Look, Joe Manchin is an independent thinker, independent minded guy. And he has spent an enormous amount of time thinking about these issues. And he has always, throughout this process, prioritized the importance of energy security and moving on the climate goals and the climate priorities that we needed to move with a focus on American capacity and energy security. And I think that he always brought a ton of insight into what was necessary. And a lot of this was about listening and understanding and understanding places where we had principal disagreements, but at the end of the day, trying to get at those core issues where the policies themselves were less at odds.

And so Senator Manchin always has and always will operate independently based on his own principles. But I was fortunate enough to be part of this process, part of a team to ultimately get us to the finish line. It was a long process, that's for sure, but better for the country that we're on the other side of it.

David Roberts

Just in terms of being placed kind of at the center of history and seeing things unfold. It's been quite a two years you've lived through there at the center of everything, so I hope you're able to catch up on some sleep.

Brian Deese

Well, thank you for that. And I hope that we can continue to have these conversations about what I think are a set of incredibly important climate and clean energy challenges, but also a really high class set of challenges compared to where we were a couple of years ago. And so that's what leaves me pretty fundamentally optimistic about all this.

David Roberts

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