This transcript is from a CSIS podcast published on January 29, 2025. Listen to the podcast here.
Quill Robinson: Welcome to Energy 360: The Transition, a CSIS miniseries, exploring the energy implications of the 2024 election. I'm your host, Quill Robinson. This week, Joseph and I discussed the complexities of green industrial policy and the trade-offs between climate goals, innovation and economic growth with two top experts. Oren Cass is the Founder and Chief Economist of American Compass, a think tank dedicated to reshaping conservative economic policy. Jane Flegal is the Executive Director of the Blue Horizons Foundation and previously worked as the Senior Director for Industrial Emissions at the White House Office of Domestic Climate Policy under the Biden Administration. Let's dive in.
Oren, Jane, welcome to The Transition Podcast. We're glad to have you here today. You're two iconoclasts, both in your own right. I think, Jane, in the climate community you're known as somebody who supports an all-of-the-above approach. You've worked with Republicans before. You're supportive of nuclear energy, carbon capture. It makes you a bit of an iconoclast in the climate space. Oren, you've taken on the free market, free trade orthodoxy and the conservative movement, often sparring with some of the major institutions and figures in the conservative movement who really defined the terms of the conversation for many years. So, we're glad to have both of you here today to talk a bit about industrial policy and how it intersects with energy and climate. And so, Joseph, I will let you start off here and jump in.
Joseph Majkut: Thank you, Quill, and thank you both for joining us. I'm ecstatic we can have this conversation. It is very clear to us as we've been hosting the series of podcast conversations on what this transition from the Biden administration to the Trump administration may mean for climate and energy, that one of the through lines will be a new embrace of industrial policy. Policymakers on either side of the aisle want to see reshoring of manufacturing, higher security in our supply chains, stronger role for the U.S. in the value chains of both existing and emerging technologies and products. In the Biden administration, we saw an approach which was very focused on emerging technologies in the energy sector, particularly low-carbon technologies. Jane, maybe we could start with you for a brief description of how the thinking in the Democratic Party in the left, and what goals the Biden administration had in mind in kind of creating a new industrial policy for energy and climate.
Jane Flegal: Thanks Joseph, and thanks for inviting me to be part of this conversation. I'm also very excited and it's always fun to be described as an iconoclast for having what I believe to be quite pragmatic views, actually, about energy, climate and society. But in any case, maybe just taking one step back, I think one of the things that strikes me as a bit of a misunderstanding about industrial strategy is, at least as I think about the definition of industrial policy or industrial strategy, I think it is largely about a set of tools that governments can or cannot use to achieve different aims. And so I actually think it's totally plausible and, in fact in some cases, unavoidable to marshal the tools of industrial strategy to achieve multiple objectives. And obviously in the interest of good policy, we would hope to be as explicit as possible about what those goals actually are so that we can measure whether or not we're achieving those goals and more effectively manage what are going to be inevitable and real tradeoffs.
But I just don't think there's anything incoherent about having an industrial strategy that is trying to manage and sort of co-optimize to the extent possible for multiple things. And I think you see that reflected in the Biden administration's approach to industrial strategy, kind of across the board. So it certainly is the case that the Biden administration had a very keen interest in the Democratic Party in general in marshaling the tools of industrial policy to help accelerate the clean energy transition in order to address the very real economic costs of unchecked climate change itself. That is true. That was one significant motivation.
Joseph Majkut: I think we should go to Oren and bring him into the conversation. Exactly on that last point, the part of the argument is the world is moving toward decarbonization, it's moving toward new energy technologies and not making investments in those areas is a poor strategic choice even if you think this is just a hedge, right? That the U.S. is awash and oil and gas, why would we move to electric vehicles? Well, it could be that that's the way that not only global consumers go, but U.S. consumers go as well. Oren, what do you make of those arguments and more generally, you're such a keen observer of thinking on the Right with respect to industrial policy. How do you think about this question of trade-offs across a variety of objectives?
Oren Cass: Well, I think trade-offs is exactly the place to focus because I agree with Jane that when you can sort of do multiple things at once, that's great. The interesting challenge in almost any policy discussion is that you can't do all the things you want at once. And particularly when it comes to the climate discussion, I think there's a very sort of clear line of demarcation, which is to ask, well, let's say there was no such thing as climate change. Would you still be doing this? And if the answer is no, then you have to admit that you're doing it even though it is not the best use of resources except for the fact that you're trying to mitigate climate change. And that's not to say you shouldn't try to mitigate climate change, it's just to say that you should be honest about whether what you're doing is actually the best use of resources and best policy focus for jobs, for supply chains, for growth, for innovation, or if you are accepting a hit on all of those things because you have this climate priority. And I think one of the huge mistakes that the climate crowd has made is to try to pretend that that's not true and that green industrial policy is jobs policy when it's not. Industrial policy can be jobs policy, and when you add green, you're doing something that's taking away from the jobs potential for some other purpose. And you can make that case on the merits, but for other reasons we could talk about, although this is not a climate podcast, the climate crowd has chosen not to do that or given up on doing that.
Joseph Majkut: So a prime example is we give a $7,500 tax credit to electric vehicles in a tax policy that was extended in the Inflation Reduction Act. JD Vance, when he was a senator, had a bill – I don't know how seriously he intended it to be taken – that would've given a $7,500 tax credit for buying an American made ice vehicle. If you wanted to just subsidize manufacturing, you could do that.
Jane Flegal: The one introduction I might make here is that I believe that there are real instances where adding the green to industrial strategy does take away from job creation or economics. There are cases where that may be true. I don't think it's universally true. There are cases where these things are actually quite aligned.
Oren Cass: Oh, totally agree. But my point is then you just don't need the word "green", right? I remember I went to CPAC once a number of years ago and lectured them for poo-pooing solar energy, and I said, "Guys, it's literally the sun. If 50 years from now we're not powering our economy with the sun, we've really missed a step". And so the idea that yes, a good industrial policy would have solar technology among its areas of focus for the 21st century, that totally makes sense. I think the EV example is a really good one though, where – look, are EVs probably the technology of the future for all sorts of reasons, even getting beyond CO2 emissions? Yes, probably. Should we pursue it in a frantic way at all costs, faster than the transition would otherwise happen? Even if that means knee-capping American manufacturers and becoming dependent on China for critical elements? You can sell that if all you're trying to do is get CO2 emissions down as much as possible in the year 2028. You can't sell that if what you're actually talking about is the health and strength of the American industrial base.
And I think that's where you, therefore, see this real shift from what ultimately Biden did prioritize and what you'll see Trump prioritize because there really is a trade-off there. And so just to put a fine point on it, if you believe EVs are the future, then step one is bringing back the critical minerals industry in this country: opening up critical minerals development, rebuilding processing here and so on. And if you get that stuff right, then when EVs are ready, you will have American EVs. We did the wedge backward and said, we don't care where this stuff comes from, we just need EVs on the road. And that's exactly the wrong trade-off if you're actually interested in the strength of the American economy.
Quill Robinson: Oren, before we dive further into particular technologies, I'm curious... When I heard Brian Deese or Jake Sullivan talk about this new "Washington consensus", sort of describe the Biden administration's vision for industrial policy, it seemed quite similar to what you're describing. Is the only difference in diagnosis and in strategy the prioritization of climate change, or is there any other difference that we should keep in mind?
Oren Cass: I think that's probably right. I mean, I figured Joseph's first question was going to be "define industrial policy," right? Because that's the obnoxious first question. And so kudos to Joseph for not starting there. I think it is useful to think about at least how I would define industrial policy as sort of, you know – when we would talk about it on the right-of-center especially, we always go all the way back to Adam Smith and say, look, the entire premise of capitalism is that if you can get the private and public interests aligned so that people pursuing their private interest also serve the public interest, then markets are going to work really well. It is a huge mistake, especially on the right-of-center, that we think this somehow happens by magic. It doesn't, and it's not always true. And so the basic insight of industrial policy is just to recognize that those things that are going to be the most socially valuable forms of investment, whether you're thinking about something like climate change or just thinking about job creation, innovation, long run economic growth, that's not necessarily where the capital is going to flow.
And so industrial policy in my mind is just the recognition that that is true and the decision to identify places where we want to use policy to bring those things closer in alignment. And so I think it's exactly right that you therefore see folks on both the left and right of center – from a Biden administration, from a Trump administration – recognizing that. Where they then diverge sometimes, but not always, is on the question of, okay, well what are the things that we need to get more capital flowing to than markets will do on its own?
Quill Robinson: There is certainly a big narrative around IRA and IIJA investment going into red communities and creating jobs and re-industrializing. I think that was always probably overplayed, and it seems with the pushback on the IRA now that it doesn't actually have as much political staying power as we might've thought. At the same time when I hear President Trump and a lot of Republicans talking about energy, it seems like it's more of an enabler for reindustrialization as opposed to a destination or a goal of it. That's my sense... The production of fossil fuels enables the rest of that, as opposed to making particular energy widgets being the goal of reindustrialization. Does that sit true or would you disagree with that, Oren?
Oren Cass: I probably would disagree with that. I think certainly from Trump himself, there is much more interest in energy for energy's sake. And I think it's a point to remember that this is one of the ways it's actually a very useful on-ramp on the right of center to industrial policy is that energy policy is the one place where the right was always very comfortable with the idea that energy independence is a national security priority. It is, particularly post-oil shocks, a sort of consumer security, if that's such a thing, priority. And obviously –
Joseph Majkut: We call that economic security nowadays.
Oren Cass: Economic security, sure. And that obviously we are going to have to have policy that is actively oriented toward driving investment and growth in that sector.
Joseph Majkut: I would also say that the energy sector is one of the places that has pretty positive workforce outcomes over the last couple decades. Oren I know you write a lot about wages of non-college educated male workers in the United States. The oil and gas industry is one of the places where they've realized incredible productivity gains at the worker level, and you have very, very growing salaries over the last couple of decades.
Oren Cass: Yeah, that's exactly right. They tend to be very good jobs. They are good jobs in very different places than other sectors have been supporting economic growth. And then I think there's also, and you certainly see this in Trump's focus, the shift from energy independence to energy dominance is a really important one. There's the idea that actually the U.S. could be the energy superpower and that in geopolitical terms then as well, the energy output itself has extraordinary value. I think what's so interesting, and Jane's exactly right on this point about the coalitional question, is that what all this stuff has in common is the area that is actually most likely to sit right at the center of all of these shifting coalitions. Like if you draw the Venn diagram of this kind of new Trumpian coalition – that disagrees on so much, right? – but you've got the sort of America first economic nationalists, you've got the very sort of working class blue collar focused folks, you've got the Silicon Valley tech accelerationist types, and you start trying to find one on earth would they all actually agree on and want to do.
And the one thing right in the center of this is this idea of “we're going to build again,” we're going to bring back this idea of “reindustrialize” is the one thing that potentially unites them all. And Elon Musk himself is such a fascinating example of this because on one hand you have him out there doing the libertarian tech bro thing. On the other hand, he's literally human history's greatest subsidy farmer. And I don't say that as a disparaging thing. And there is no one who better understands or has better proved the value of tax credits, subsidies, loan guarantees, and government contracts for private sector innovation than Elon Musk. And so you see sort of even in him and then sort of all the way out from there, this tension between what would be a very unifying agenda, but then on the other hand, the sort of legacy old Right impulse of just saying "government should just get out of the way, government can't do anything, let's just do a big tax cut". And so I think that is the core fight in this first year. Are we just going to spend the year fighting about a tax cut or is there going to be an ability to focus on this thing that actually would unify these elements of the coalition?
Joseph Majkut: I cannot let you two go without talking about trade, because it's all well and good for the government to make investments in whizbang technologies, but one of the key elements of an industrial strategy, one of the key tools is tariffs. And in particular, President Trump loves tariffs. I'd love to have a little discussion on what that could mean for the U.S. in terms of energy technologies and an industrial strategy where we think that may be going. Particularly since we've talked so much about EVs, the case of Chinese EVs is very interesting. On the one hand, we've already talked about the security aspects of having a battery supply chain here in the U.S. that could be good for the U.S. industry, but it also could be that these are just great products that consumers want to buy, and we're so far using tariffs to keep them out the U.S. How do you both see those kinds of conversations going over the next couple years?
Jane Flegal: Oren, I'm going to let you start on the EV tariff question because I read your "Electric Slide" article.
Oren Cass: I was going to say Jane should go first because President Biden was such a strong leader on this very question. But look, I think the reality is Chinese EVs are not going to be allowed into the American market. Not only are they not going to be allowed directly into the American market, but if Mexico tries to let BYD build factories in Mexico, Mexico will be flung out of USMCA. And so it's actually an incredibly useful sort of exercise to think through how trade policy and the concept of globalization in the 21st century is just totally different than what we ever considered with GATT all the way up through formation of the WTO. There the question was always geographic. It was "country of origin" didn't mean who's the owner of the company. It meant literally, "where are the pieces of metal being bent?" And that's just not going to be the case anymore.
So I think it's fun to think through that for all sorts of implications. I think ultimately it's going to mean pretty much the end of the global trading system and a return to sort of competing trading blocks. But for purposes of the energy and industrial policy discussion, I think it's just really important to think of trade policy and industrial policy as complimentary. I think if you do trade policy without the industrial policy, you first of all can really sock it to consumers because you're driving up the price of imports without doing anything to support the creation of the domestic alternative. And there isn't necessarily a lot of reason to believe you're going to get the kind of investment you want or that it's going to be successful if you do industrial policy without trade policy, you're just in a bidding war. And I don't like the U.S.' chances about bidding the Chinese Communist Party on who can most aggressively subsidize any strategic industry. So I think the two have to go together to both ensure that you are creating a domestic market and then creating good incentives within that domestic market.
Jane Flegal: Yeah, I mean, I think one thing I might just say here is to our earlier discussion about potential conflicts between green industrial strategy and industrial strategy more generally. One thing that I find kind of frustrating in the climate discourse right now is folks will assert, often just as a provocation, again, if China can make much cheaper EVs and our goal is to reduce transportation emissions as rapidly as possible in the United States, why not just have a policy that is about allowing the most rapid deployment of cheaper EVs as quickly as possible? And my sort of cop-out – but I think correct – answer is that that's not a politically plausible or durable strategy. So even if your singular goal with just reducing emissions as rapidly as possible, in a world where politics matters that is just not a strategy that is workable. Neither is increasing the cost of goods in the United States so much that inflationary pressures result in political backlash to climate stuff. And I'm not an economist, but that I think is a real set of issues that someone needs to figure out how to manage more effectively.
Oren Cass: It is a slightly different issue, right? With just importing everything, you have the economic impact. And by the way, I think it's important underscore, this is not even primarily a political concern, which I think sort of tends to be read as like, "Oh, those people will get angry about it for some reason." The fundamental problem is you would wipe out perhaps the largest and most significant single sector of the economy, the foundation of the entire industrial base, and the sort of sine qua non of a military industrial base that can support U.S. national security terms. And so even if everybody was like, "Oh, we're happy globalists, let's all drive Chinese EVs", it would still be a terrible idea. But I think that when you talk about just bringing the stuff into the U.S., the China problem is just different. And this is why I say it's not like the GATT/WTO fights where in the 1980s, "Hey, Japan, we just want Honda and Toyota to build their factories here" was an entirely satisfactory solution. Saying, "Hey, Chinese Communist Party, we just want you to have your controlled companies making massive investments in the United States" is a total non-starter. We won't even accept a social media app. And rightly so.
Joseph Majkut: Yeah, or in this context, there was a big political fight around Ford having a JV with CATL and utilizing some battery technology from CATL. And that wasn't even Build Your Dreams branded automobile.
Oren Cass: Yeah, it was insane that they thought of trying to do that with CATL. It is disconnected from the direction that both U.S. and China policy are going, which is frankly beyond a decoupling to a fight hard break between the two economies.
Jane Flegal: If I could just say, obviously my point of entry here is the climate. I want to just say I am genuinely concerned about the geopolitical tensions between the U.S. and China and would like to feel like I had a more coherent theory myself about how to not end up in a hot war with China that is made more likely by our trade decisions. Just to say, that is outside of my role as a climate expert. I am genuinely a bit concerned, but I don't think there's easy answers there.
Joseph Majkut: So you mean here like aluminum, or ethylene.
Jane Flegal: Yeah, aluminum, steel, cement, ethylene, all of these things. So I spent a lot of time thinking about the intersection of trade and climate and industrial strategy for the purposes of industrial decarbonization, and we've seen a bunch of countries thinking about it, in fact, starting to implement order adjustment mechanisms as ways to account for the difference in the carbon content and cost of production of various goods. I was really bullish on bipartisan interest in this idea. You have Senator Cassidy in the U.S. and Senator Whitehouse both really enthusiastic about versions of this idea domestically. I'm curious about how this plays under a Trump administration. Is the posture just like, "Who cares about carbon content, we're just going to do 25% tariffs without any basis in anything?" Or is there room still in the Trump years for bipartisan work on polluter import fees or border adjustments?
Joseph Majkut: Just one note from me -- that as we were watching the nomination hearings for various cabinet secretaries related to energy and climate change, so Chris Wright at the DOE, Doug Burgum at Interior who will also be the Chair of the National Energy Dominance Council -- Oh, and who's the guy who's nominated for Treasury Secretary?
Oren Cass: Scott Bessent.
Joseph Majkut: Scott Bessent, nominee to be the Treasury Secretary. That issue of, sort of, carbon weighted trade or carbon tariffs did come up from members on both sides of the aisle. And everybody expressed a lot of interest even though I think they weren't quite ready to embrace some sort of carbon-based tariff or trading adjustment quite yet. But your thoughts, Oren, on the long-term propositions would be very, very welcome.
Oren Cass: Yeah, I mean, I think there's nothing wrong with the policy per se, that sort of border adjustment. Bob Lighthizer, who was U.S. trade representative in the first Trump administration has been supportive of it. I think the problem is twofold. One is just as a matter of implementation, "Well, let's calculate tariffs based on what we think the carbon intensity offset by the regulatory costs assigned by," et cetera, et cetera, frankly gets fairly implausible fairly quickly, I think. Especially if you're trying to sell to a right-of-center that's very skeptical of the ability of government to do this in an at all reasonable and coherent way. And then secondly, it just runs into the fundamental trade-off problem of, "Okay, well what is the reason we're trying to privilege domestic manufacturing over imports?" Is it because we want to support domestic manufacturing or is it because we want to somehow make it more affordable for us to raise the cost of using carbon domestically?
And ultimately these things are somewhat in tension. And so in a world where you couldn't have tariffs because you had a bunch of neoliberals running around saying "free trade is good", it's very tempting to tell them like, "Oh, but you also really care about climate change. What if you could backdoor your carbon tax as a nationalist sounding tariff?" and everyone Davos gets super excited. But in a world where people are actually ready to move on from that sort of free trade regime and say, "No, we should be protecting the American market because we should protect the American market," the whole carbon border adjustment thing becomes, again, not wrong, but just -- a suboptimal sideshow is a little harsh, but suboptimal approach both politically and substantively, think.
Joseph Majkut: We also counter the same tension that Oren raised earlier. If you're just raising tariffs and you don't have a program for investment within the United States, you're just raising costs. And so whatever that domestic policy needs to be to make sure that the U.S. maintains its so-called carbon advantage or accelerates it over time, I think is equally important.
Jane Flegal: Yeah, I do think for me, this political question of what is the pitch on the center right for a border adjustment in a world where we're comfortable doing tariffs for lots of other reasons, I think that's a central question for me about the political future of a border adjustment. I will say there's lots of different versions of doing a border adjustment or a polluter import fee, not all of which are tied to domestic regulation or pricing. So there are countries that are dumping nearly half of our industrial pollution problem as a result of the carbon loophole in international trade. And so you could imagine a world where you just do kind of a fee based on the carbon intensity of goods disconnected from the cost of producing those goods that looks at the U.S. average for different whatever. There's different ways to design this, and I will say, I think the folks at Silverado Policy Accelerator have done a very good job of laying out a bunch of work on the design considerations that might be appealing to a wider audience than, you know, what the Sierra Club has put out.
Joseph Majkut: Well, clearly much more to follow on that. We need to end our recording today, and I want to thank you both for joining, and we hope that this is the first of many conversations in the coming years.
Oren Cass: This was great. Thank you.
Jane Flegal: Thanks, guys.
Quill Robinson: Thanks so much for joining us on the transition. We'll see you next episode.
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