Industrial policy allows government planners to select favored and disfavored industries or sectors. It thereby bypasses and distorts impersonal market signals that would otherwise direct scarce resources to the uses most valued by market participants. Instead, various forms of aid and penalties are imposed on different sectors in order to accomplish the planners’ objectives, This includes interventions in foreign trade and attempts to steer technological development. Industrial policy often comes under the guise of enhanced national security. Of course, it can also be used to reward cronies. And it has a poor record of accomplishing its objectives and avoiding unintended consequences.

The Sausage Factory

The executive and legislative branches of the U.S. government are loaded with economic interventionists, regardless of party affiliation. In an age of (Chevron) judicial deference to “experts” within the administrative state, it is not uncommon for legislative language to give abundant leeway to those who implement policy within the executive branch (though a couple of upcoming Supreme Court decisions might change that balance). Increasingly, bills are stuffed so full of provisions that lawmakers find it all but impossible to read them in full, let alone make an accurate assessment of their virtues, drawbacks, and internal contradictions.

Even worse is the fact that bills are, in great part, written by relatively youthful legislative staffers with little real world experience in industry, and who harbor the naive belief that whatever is wished, government can make it so. But their work also proceeds under guidance from lawmakers, administration officials, consultants, and lobbyists who have their own agendas and axes to grind. This is how industrial policy is promulgated in the U.S., and it is through this ugly prism that we must view environmental policy.

The Left dictates environmental and energy policy in several states, especially California, where energy costs have soared under renewable energy initiatives. California households now pay almost triple the rate per kilowatt-hour paid in Washington, and more than double what’s paid in Oregon. Something similar may happen in New York, which has highly ambitious goals for renewable energy even as the costs of the state’s offshore wind projects are out of control. These and other state-level “laboratories” are demonstrating that a renewable energy agenda can carry very high costs to the populace. The same is true of the painful experience in Germany with its much-heralded Energiewende.

Net Zero

The Left is also pulling the strings within the federal bureaucracy and the Biden Administration. The objective is an industrial policy to achieve “net zero” CO2 emissions, a practical impossibility for at least several decades (unless it’s faked, of course). Nevertheless, that policy calls for phasing out the use of fossil fuels. Under this agenda, mandates and subsidies are bestowed upon the use of renewable electric power sources, while restrictions and penalties are imposed on the production and use of fossil fuels. A subsequent post on the subject of power generation will address this prototypical failure of central planning.

Electrification

Here, I discuss another key objective of our industrial planners: electrify whatever is not electrified in order to advance the net zero agenda. Of course, for some time to come, more than half of electric power will be generated using fossil fuels (currently about 60%, with another 18% nuclear), so the policy is largely a sham on its face, but we’ll return to that point below. The EV tailpipe is very long, as they say.

Electrification means, among other things, the forced adoption of electronic vehicles (EVs). President Biden’s EPA has issued rules on auto emissions that are expected to require, by 2032, that 60% or more of cars and light trucks sold will be EVs. The USA Today article at the link offers this rich aside:

“…the original proposal — which was always technology-neutral in theory, meaning automakers could sell any cars and light-duty trucks they wanted as long as they hit the fleetwide reductions….”

Technology neutral? Hahaha! We aren’t forcing you to choose technologies as long as you meet our technological requirements!

EV Doldrums

Anyway, the EPA’s targets are completely impractical, partly because the value for drivers is lacking. Not coincidentally, the market for EVs seems to have chilled of late. Hertz has soured on heavy use of EVs in its fleet, and Ford has announced reductions in EV production. The new UAW agreements will make it difficult for some domestic producers to turn a profit on EVs. Fisker is just about broke. Apple has cancelled development of its EV, and several other automakers have reduced their production plans. Toyota was the first producer to raise the red flag on the breakneck transition to EVs in favor of a measured reliance on hybrids. Of course, there are other prominent voices cautioning against rapid attempts at electrification in general.

To be fair, some EVs are marvelous machines, but they and their supporting infrastructure are not yet well-suited to the mass market.

A Tangled Web

Here are some drawbacks of EVs that have yet to be adequately addressed:

• They are expensive, even with the rich-man’s subsidy to buyers paid by the government and carbon credit subsidies granted to producers.
• Costly battery replacement is an eventuality that looms over the wallets of EV owners.
• EVs have limited range given the state of battery technology, especially when the weather is cold.
• There presently exist far too few charging stations to make EVs workable for many people. In any case, charging away from home can be extremely time consuming and the charges vary widely.
• The purchase and installation of EV chargers at home is a separate matter, and can cost $4,000 or more if an upgrade to the service panel is necessary. Installed costs commonly range from $1,175 to $3,300, depending on the type of charger and the region.
• EVs are much heavier than vehicles powered by internal combustion engines. As a result, EV tire wear can be a surprising cost causer and pollutant.
• Used EVs are not in demand, given all of the above, so resale value is questionable.
• Battery fires in EVs are extremely difficult to extinguish, creating a new challenge for emergency responders.
• Reliance on EVs for local emergency services would be dangerous without duplicative investment by local jurisdictions to offset the down-time required for charging.
• For decades to come, the power grid will be unable to handle the load required for widespread adoption of EVs. A rapid conversion would be impossible without a great expansion in generating and transmission capacity, including transformer availability.
• Domestically we lack the natural resources to produce the batteries required by EVs in a quantity that would satisfy the Administration’s goals. This forces dependence on China, our chief foreign adversary.
• The mining of those resources is destructive to the environment. Much of it is done in China due to the country’s abundance of rare earth minerals, but wherever the mining occurs, it relies heavily on diesel power.
• Joel Kotkin points out that China now hosts the world’s largest EV producer, BYD. Biden’s mandates might very well allow China to dominate the U.S. auto market, even as its own CO2 emissions are soaring,,
• Producers of EVs earn carbon credits for each vehicle sold, which they can sell to other auto producers who fall short of their required mix of EVs in total production. Tesla, for example, earned revenue of $1.8 billion from carbon credit sales in 2022. But note again that these so-called zero-emission vehicles use electricity generated with an average of 60% fossil fuels. Thus, the scheme is largely a sham.

The push for EVs has been hampered by the botched rollout of (non-Tesla) charging stations under a huge Biden initiative in the Infrastructure Investment and Jobs Act. Progress has been bogged down by sheer complexity and expense, including the cost of bringing adequate power supplies to the chargers as well as the difficulty of meeting contracting requirements and operating standards. This is exemplary of the failures that usually await government efforts to engineer outcomes contrary to market forces.

Electric Everything?

Like EVs, electric stoves have drawbacks that limit their popularity, including price and the nature of the heat needed for quality food preparation. In addition to autos and stoves, wholesale electrification would require the replacement or costly reconfiguration of a huge stock of business and household capital that is now powered by fossil fuels, like gas furnaces, tractors, chain saws, and many other tools and appliances. This set of legacy investment choices was guided by market prices that reflect the scarcity and efficiency of the resources, yet government industrial planners propose to lay much of it to waste.

Central Planning: a False Conceit

John Mozena quotes Adam Smith on the social and economic hazards of rejecting the market mechanism and instead accepting governmental authority over the allocation of resources:

“All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.”

And Arnold Kling gives emphasis to the disadvantages faced by even the most benevolent central planner:

“As Ludwig von Mises and Friedrich Hayek pointed out during the socialist calculation debate, central planners lack the information that is produced by markets. By over-riding market prices and substituting their own judgment, regulators incur the same loss of information.”

Advocates of EV industrial policy have failed to appreciate the large gaps between the technology they are determined to dictate and basic consumer requirements. These gaps are along such margins as range, charging time, tire and battery wear, and perhaps most importantly, affordability. The planners have failed to foresee the massive demands on the power grid of a forced replacement of the internal combustion auto stock with EVs. The planners elide the true nature of EV-driven emissions, which are never zero carbon but instead depend on the mix of power sources used to charge EV batteries. Finally, EV mandates show that the industrial planners are oblivious to other environmental burdens inherent in EVs, whatever their true carbon footprint might be.