Moody's Talks - Inside Economics - Houser on the Green Energy Transition

Episode Date: May 10, 2024

The Inside Economics team is joined by Moody’s Analytics colleague Chris Lafakis along with Trevor Houser from the Energy & Climate practice at Rhodium Group for a discussion on how the Inflation Reduction Act promotes the U.S.'s transition to green energy. Podcast host Mark Zandi kicks things off with a quick overview of recent economic developments. The conversation then shifts to a discussion of the IRA’s incentives and tax provisions. Following a brief statistics game, the group explores the potential impact of the upcoming election on the green energy transition.Follow Mark Zandi @MarkZandi, Cris deRitis @MiddleWayEcon, and Marisa DiNatale on LinkedIn for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-hosts, Chris DeReedies and Mercer D. Natali. Hi, guys. Hey, Mark. How are things? All right. Hanging in there?

Yeah. Well, I thought we should just advertise our upcoming conference in D.C. Shouldn't we, Chris? We probably should, now that you mentioned it. Yeah. You want to advertise it? We didn't rehearse this, but, you know, do you know the day? June 4th.

Oh, I was good. Thank goodness you're here because I would have said June 5th and misled everybody. It's June 4th, the Tuesday. Okay. And the title of the conference, you're going to have to help me there. I think it's long run. The growth. I don't remember.

You guys are really selling it. I know. I was going to ask, you've seen the agenda. I think the agenda is pretty good. I think it's like the economy in the long run, looking at the economy in the long run. Yeah, something like that. That's right. Yeah, yeah.

Yeah. But you've seen the agenda. Which is your favorite session? Oh, there were two sessions that really stood out to me. One on productivity and another one on housing. Yeah, right. Can't miss. Can't miss. Can't miss on those, right?

No. Yeah. Because on the productivity, you're going to be debating Dr. De Antonio. Yeah, we're taking our little inside economics debate on the road. Oh, cool. Mono, mono, mono. Mono, yeah. And then, of course, you're the session on

real estate. Mostly it's going to be focused on housing, single and multi, right? That's right. I'll be moderating a panel there. So looking forward to that. Yeah. External guest as well. So yeah, should be really interesting. Yeah, it should be a good conference. So hopefully folks are interested. We can help you just contact us and we'll help you register. But we'd like to see you there in DC on June the 4th. Okay, this is going to be a really interesting podcast. It's going to be focused on climate. I talk a lot about the Inflation Reduction Act. The piece of legislation passed in 2022.

A lot of moving parts there, but the key aspect of that was all the climate-related provisions. And we've got a couple great guests. We got Crystal Fackas, our own colleague who follows these issues carefully. And then Trevor Hauser, who is at Rodium, who's really very articulate voice on these issues. So we have them both. come back to them, we'll invite them in into the conversation in just a few minutes. But before we do that, it was a light econ Data Week, wasn't it?

Very, very light. Yeah. But, you know, there's always things to talk about. So I thought maybe we just spend a few minutes and we could each identify something that happened in the economy, broadly, doesn't even have to be directly related that provides some insight into how things are going or in what direction we're headed, just to get the conversation going. Does that sound like a reasonable thing to do? Yeah, absolutely.

Okay. Do you want to go first, Marissa? Sure. Okay. Well, two things stood out to me. I'll talk to one is the statistic and one is sort of an event. Oh, okay. The first thing is, did you see that UI claims popped up?

I saw it. Yeah. Quite a bit. Does it mean anything, though? I don't know. It's apropos of our conversation. last week, right, when we were talking about the jobs report and the weaker report. And I was a little more worried about it than you guys worried about UI claims turning on a dime.

I mean, they're still low. They're 233, but the increase was quite large, the largest we've seen pretty much all year. So I wanted to point that out. We'll see what happens with that. I did notice, you may be impressed by my level of the detail I bring to these analyses, but I did notice that the biggest increases were like in New York, right, in California. It just felt weird, right? It felt seasonal adjustment issue or something weird going on.

No? Okay. It's tough with this data. It's weekly and, yeah, it's aggregated from state U.I claim. So we'll see. But it certainly caught my attention just on the back of the last jobs report. But the thing that I wanted to note just in terms of, happenings in the economy was that the Bank of England had a meeting and they held their

interest rate steady, 5.25% right where the Fed is at. But there was a little more dissension in the makeup of the Monetary Policy Committee in terms of there were two members that wanted to lower rates. Inflation is now lower over there than it is in the U.S. and they seem ready to move ahead of the Fed, right? I mean, most of these central banks take their cues from the Fed, but it increasingly is looking like the BEO and maybe, and probably the Bank of Canada and maybe even the ECB may end up moving before the Fed to lower rates. Yeah, I think a number of countries already have, right?

Smaller economies. Yeah, right. Frontier economies. Northern European economies have, yeah. Yeah. Yeah. I guess the concern or the limitation would be if their currencies came under pressure. Right.

Yeah. Right. It doesn't feel like that's happening, though. Have they? Like the pound seems pretty stable, I think, even though investors are now discounting a move by the Bank of England before the Fed. I haven't noticed. Have you noticed anything on the pound? I didn't look at that, but I haven't heard much about it.

But, yeah, I mean, they're looking at potentially moving in June. And we've pushed back our first Fed rate cut to September. Right, right. Good. Those are a good ones. Chris, do anything you want to call out? Yeah, I saw a couple things related to the consumer that came out this week. We had, of course, the Uner's in Michigan Consumer Sentiment survey came out this morning,

showed a 10-point drop in the headline consumer sentiment. So that's a pretty... Did it really? I miss that. Wow. Yeah, so that's a pretty big drop from. April to May. Yeah.

So certainly you got the, maybe the vibe session still there. Consumers still certainly on edge about the future. Well, that must put the number back pretty close to the low if it's down 10 points, no? It's back to where it was in November. That's kind of treading around that low. Yeah. Right. That's definitely something to watch.

Yeah. Then I saw Consumer Credit. So that's the G19 report from the Federal Reserve. That was weak. It showed that credit growth for both revolving and non-revolving debt was around $6 billion or so, rounding numbers here. And that's, yeah, that's certainly much weaker than expectations, which were for more, something closer to $15 billion. Very weak growth on the revolving credit side. So that's bank card lending and other credit card type of lending.

So, you know, is that tighter lending standards preventing? consumers from getting, possibly, but I think it's also just consumers themselves and are retreating perhaps. And again, it would be consistent with that more cautious consumer confidence number. And then I was listening to some of the Wall Street reports, some of the retailers and whatnot, like a Starbucks. And they're also indicating consumers, at least among their consumer base, they're seeing some potential weakness there as well.

So, you know, kind of like that unappropriate insurance. claim number. I don't want to overreact. This is one number's here, but I'm telling you, the Fed's got these interest rates. I mean, come on. Even Canada's going to do it. Come on. Canada, yeah. We also got the senior loan officer survey, which showed tightening, continued tightening in some segments and almost across the board weaker demand for all types of consumer credit. Yeah, but, I mean, it's not like they tighten more. It's just they're still tight, right? I mean, it's not like the percentage, net percentage of respondents that said they're tightening increased. It just kind of stable, even down a little bit. No, some of them did.

Really? Some of them, I think, did. Yeah. Okay. But I don't know if it's like fewer, you know, like maybe one more increased and instead of staying the same or something. You know, I don't know what the makeup is. But yeah, no, it did tighten. We take it, no. I mean, it's, still tight. There's still more runners that are tight. And demand. And my point was more about demand, which is kind of Chris talking about the demand for credit. Well, just to add to your narrative, I thought you were going to mention the Equifax-based data we get on consumer delinquency. We got that for April. Did you see that, Chris? Yeah, I was a little surprised. I had thought the delinquency rate on credit cards and auto had

stabilized. And it was stable for. three, six months, but saw a pretty sizable increase in April. Now, it could be seasonal adjustments that bear, you know, with this data, especially around tax refunds. Exactly. You know, so I don't want again, like you, I don't want to read a lot into it, but this feels like softness is starting to build in here. And I keep going back to the bed, you know, come on already. We're there. You know, you're playing with fire here. But anyway. That CPI report next week is going to be important.

Yeah, it's going to be important. Yeah. I was going to point to some commodity prices. Have you noticed the price of gold recently or the price of copper? Both have risen pretty considerably. Gold, yeah. Yeah, gold prices are up. And, you know, my kind of pet theory is just all the people's concerns about geopolitical risk.

And also central banks, particularly I think the Chinese central bank has been kind of shifting away from U.S. treasuries and needs to put its money somewhere. So it's putting it into gold, I think, I think. So that's something to watch. It's at a new high. I think on a real basis, though, it's still, you know, it's not like in the stratosphere compared to history, but it's getting pretty high. And copper prices, $4.65.

cents. Now, historically, I would have said that means, you know, a strong economy, but I'm not so sure. That may just mean demand, right? We're going to talk about climate in a second. And, of course, electricity, and electric demand feels like it's starting to pick up. And you need copper to, you know, for electric grids and to move electricity around. So demand for that's picking up and, you know, copper prices are up. But okay, anything else you guys want to mention before we move the conversation forward and talk about climate? No? No, stay tuned. Stay tuned. Yeah, next week will be key. Key, key, key week.

Okay. And let me introduce our guests, talk about climate change and everything related to climate change. We've got our own colleague, Chris Lafackas. Hey, Chris. Hey, Mark, how are you? I'm doing well. It's good to have you in the conference. You've been on inside economics more than a more than a couple times now, right?

I'm a regular interloper. You are an interloper, but a very nice one to have when it comes to anything related to energy markets or climate change. So thank you for joining us. And a special guest, Trevor Hauser, Trevor, good to see you. Hey, Mark. Happy to be with you. And Trevor, you're a partner at Rodium Group. That's right. Yeah, Rhodium's an independent research provider, and I'm with the company's energy

climate practice. Yeah. Do you run, I think you run the practice. That's my understanding. Yeah, we now have multiple partners leading up the practice. But yeah, I'm the founding partner of our energy and climate business. Can I ask you? Because I got to know you or getting to know you through Dan Rosen.

Dan is a really good economist focuses on China. And we've had him on the podcast before. And very strong views about China. all on the dark side, but all exactly right. How did you and Dan kind of connect? And why is Rhodium focused on China and climate? How did that happen? Well, Dan started Rhodium in 2004.

It was called China Strategic Advisory then. So he had been in the Clinton White House last couple years and had spent a career as a think tanker before that. And at the end of the Clinton administration, wanted to do policy relevant research, but to do it in a more fast-paced private sector environment. And so decided to start his own shop. I, in 2005, audited a class with him at Columbia University. I was a student at City College of New York, which is 20 blocks north of Columbia. And I basically snuck into his class at Columbia.

And we struck up a friendship, and he asked me to come join him in this. new little consulting outfit he had started. And at the time, it was just doing research on China, and he needed someone to cover the energy and commodities side of the China story. And then over time, I built out an energy and climate research business with that more global scope. Oh, got it. Got it.

And as I said, Dan is, has very strong views on China. And, you know, I belong to this group, the national, I think it's the national, committee on U.S. China relations. So I think this, if the law is correct, goes all the way back to the ping pong diplomacy back in the Nixon days. And this organization is still around. And Dan is on that, on one part of that organization, is very involved in one part of that organization. And he's always in pitched battles with others that are much more optimistic about China, particularly the Chinese. But I'll have to tell you, he's been dead on.

And we were talking at the last NCUSCR, I think I got that right, meeting. And we were talking about investment in the U.S. and how that's really taken off here. And he said that we should have you on to talk about the Inflation Reduction Act and what kind of impact that's having on investment in the U.S. And thus, thank you for joining us. Yeah, my pleasure. Yeah.

Before we kind of dive in, maybe I'll turn to Crystal Fackas just for a minute. Chris, do you want to summarize the Inflation Reduction Act? You know, I know there's a lot of moving parts there. We can't go down. Can't describe every moving part. But broadly speaking, can you kind of give us a sense of the IRA before we go further? Absolutely. I'll keep the summary at a very high level.

And, of course, we can dive into individual components. of the IRA as needed. So there are, I would say, maybe five key parts of the IRA. First is that it raised taxes on corporations. The second is that it grants, and we can go into great detail about any of these as you wish. The second is that it grants Medicare, the authority to negotiate over. Let me stop you right there, Chris. I don't care about anything that's unrelated to climate risk.

I know the IRA's got lots of stuff going on, but we're, focused on climate in this one. So can you summarize the climate aspects of the legislation? Yes. So there are two important climate aspects to- This is what you have, you know, when you have economists, is what you deal with, right? I mean, they want to go- Mark, you asked for a summary of it. I did. And it's really my fault. It's really not. He can give us the, you know, the blow-by-blow on every provision in that piece of legislation. So very, very explicitly, let's focus on the climate provision.

Chris. Okay, there's two big things on climate. One is direct federal spending and the other one is the provision of tax credits. The spending was initially estimated to be roughly $80 billion, $120 billion in direct federal spending and the tax credits were the remaining $250 billion. That's the initial JCT score. So $370 billion as scored initially by the the JCT accommodation of direct federal spending. Joint Committee on Taxation, which is the group that scores the tax side of different pieces of legislation in Congress. That's correct, yes.

And so $120 billion in direct federal spending for clean energy economy, $250 billion in provision of federal tax credits for the clean energy economy. These things can, they're focused on an array of initiatives. So they can either provide incentives to produce electricity from clean energy sources, invest in renewable energy technologies, address climate change through carbon sequestration, support renewable fuel production, clean energy manufacturing, securing the energy security and I would say supply chains of critical minerals. So they're focused on really a range of aspects. And all of the individual components are intended

to reduce our economy's reliance on fossil fuels at the end of the day. Now the Joint Center for Taxation came back a year later and said that these provisions were going to be much more costly than initially estimated, about two-thirds higher than initially estimated. So that the deficit, the bill, which was helping,

to reduce federal government budget deficits would be more like, you know, deficit neutral over the first 10 years or so. So I would say in a nutshell, tax credits, which are the bulk of the spending and direct spending by the federal government on a wide array of initiatives. And maybe, Mark, a way to think about that is like, so the Inflation Reduction Act, It basically discounts all types of clean energy available in the economy and pretty much all applications. So whether you want to buy a solar panel and put it on your roof or a heat pump water heater to replace your old water heater, or whether you're a business and you want to invest in a new wind farm or a new solar farm, all of that is cheaper now than it was before because of the IRA.

As Chris said, the mechanism through which the bill makes it cheaper is varied in some places you can file for a tax credit and other places you have. to apply for a government grant. But it basically, the way it operates is making all those technologies cheaper so that more people will buy them. Yeah. And it's been very, correctly if I'm wrong, Trevor, but it's been very successful in the sense that there's been take up on all of this much greater than was envisaged when the legislation was passed into law. Is that right? Yeah, which is exactly why the, as Chris mentioned, the initial when, when, uh, the budget forecasters, whether at JCT or within the administration, initially tried to estimate,

okay, how much this is going to cost. I actually don't know for sure because so much of it's the tax credits. And you can discount products, but you can't guarantee people buy them. And so you kind of have to guess if we cut the price by 30% of this via tax credit, how much more are people going to buy it? And the uptake has been stronger than originally experienced. expected. So that makes the fiscal cost of the bill a little bit higher, but it also means it's doing what it's needing to do and even more so in terms of driving clean energy deployment and reducing emissions. Yeah, as I recall, this is a fuzzy recollection that the IRA in its totality, it was not paid for, and this is with the original scoring, not with, you know,

what's happened subsequently, but the original scoring, it was not paid for in the 10, year budget horizon the CBO uses to score these things, the Congressional Budget Office, the nonpartisan group that does this work in the government. But over a long period of time, like a 20-year horizon that it did, is that recollection correct, do you know? And has that now calculation changed because there's been more take-up? So this thing is no longer kind of deficit neutral in the long run. Do you know? I think it sounded like Chris had the score right in front of him. Yeah, so the initial score was $450 billion in spending and $750 billion in revenue collection. Of course, that includes money that is from the IRA.

The bill spends $80 billion to fund the IRS in the hopes of getting more money back from enforcement of the tax laws because people are finding a way to get around paying their taxes. So that initial score was for $300 billion in savings over a 10-year window. Of course, a lot of things have changed since then. So we have a lot more clarity on how the law is being applied. Some of those provisions like on Medicare pricing won't go into effect until 2026. The insulin price caps went into effect in 2023. The IRS funding was lowered from $80 billion to approximately $60,000. billion. Of course, the big one is that the cost of the tax credits provided for clean energy

have increased dramatically. I would still expect the bill to be, I would say, reduce the federal government deficit, but to a much lower degree than previously estimated. So I was wrong. It was in the, when the legislation was originally scored, it wasn't just deficit. neutral, it actually was, it reduced the deficit. Yes. Okay. And now with the increased takeup on the tax subsidies, you're still thinking that when it's all said and done, this will still be a net plus for the federal government from a fiscal

perspective. Yes, but only on the margins, really. I mean, I think for all intents and purposes, it's going to be deficit neutral. Okay. Yeah, Trevor, I just want to nail that down because wherever I go when I talk to people, they think the IRA is just this massive government spending tax cuts and it's not paid for it it's just adding to deficits in debt and that's just not right right I mean it you know at worst it's deficit neutral is that or is that is that a reasonable working assumption yeah that's

reasonable okay assumption right hey before we kind of any anything else on the IRA that we should explain any other aspects of the IRA we should explain before we go on talk about you know kind the, what's working, what's not working in the economic impact? Yeah, the one thing I would say is for the purpose of talking about clean energy deployment, it's useful to think about the IRA and combination with the bipartisan infrastructure law, which was past the year before, which also included substantial and in many ways, complementary investments in clean energy deployment. So when we assess the effectiveness, we're usually assessing the effectiveness of those

combination of bills together because they really were each tackling different and complementary pieces of the clean energy deployment challenge. Right, because that infrastructure legislation had a lot of money for the electric grid, for example. Electric grid, EV charging, hubs for to drive deployment of early stage climate technologies like clean hydrogen and direct air capture that then subsequently receive tax credits as they reach more maturity from the IRA. So they really were designed as tandem pieces of legislation.

And of course, the other big piece of legislation that was passed was the Chips Act, to kind of incent, you know, obviously more chip development production here in the U.S., but also a lot of R&D. Does that play a role here as well? A little one less so. I mean, certainly if you were looking at what are the policy drivers of manufacturing investment in the U.S., you'd want to look at all three of those together because of the Chips and Science Act incentives for semiconductor investment. For clean energy specifically, that comes in as a distant third in terms of its level of importance to the IRA and the bipartisan infrastructure law.

Okay. Okay, very good. Before we kind of dive into the more nitty-gritty and what's working and not working, from a broad perspective, I just had this kind of perspective. I just want to kind of articulate and get your view, get your view on it.

You know, when I think about climate, there's obviously, in most people's mind, this is something we've got to tackle. The climate is changing very rapidly, temperature rises here. It's having already observable impacts in terms of weather and it's having economic consequences. We can see that on the southwest coast of Florida, having impacts on the housing markets. People are having trouble getting insurance, so forth and so on. But even if you put that to an aside, there's still reasons why we would want to move to green energy,

away from fossil fuel, away from greenhouse- submitting kinds of activities. And that's simply national security, because as long as we're dependent on oil. And by the way, there's this kind of perspective that because the U.S. is producing so much oil, we produce more oil than anyone else on the planet at this point by orders of magnitude, that we are independent of what's going on in oil markets. Not true. It's the global. The oil market is global.

we still pay the price that everyone else pays. And so we are still very dependent on all the supply demand dynamics globally that are influencing the price. For example, sanctions on Russian oil or Saudi production cutbacks or what the Iranians decide to do or not do. So from my perspective, this move, this effort, and the IRA is part of it, the infrastructure's law part of it, the Chips Act is part of it, this move away from basal fuel to green energy. is just really a matter of national security. What do you think of that view? Is that right or wrong?

Yeah, it's interesting because some of the most important pieces of early legislation that kind of kick-started the clean energy transition in the U.S. came in 2005 through 2007, signed into law by President George W. Bush, really around the frame of, folks will remember, at a point where crude oil prices were skyrocketing, you know, you had George Bush, a Texas oil man,

who in 2007 delivered a state of the union address where he declared that the U.S. had to wean itself off of oil and signed into law that year, major legislation that increased fuel economy standards invested in electric vehicles included incentives for renewable energy production. And for the Bush administration, it was primarily around what you said, Mark, which was creating domestic alternatives to imported oil. Now, of course, shortly after we had the shale boom and growth in domestic production,

and the fact that from a balance of trade standpoint, we are now at parity or a little better them parity in terms of our energy trade balance, you know, it has lulled some folks into a little bit of a place of complacency that our economy is no longer vulnerable to oil supply disruptions around the world. But as, you know, as you know better than I do, the macroeconomic impacts of an oil price spike are not limited to the balance of trade effects, that the impact on inflation, on consumer sentiment. And what you pay at the pump as an American driver is, It continues to be determined by global oil markets, even though we're now a net exporter of oil. So if something goes boom in Saudi Arabia, the price of gasoline goes up in Iowa just the same now as it did a decade ago.

Yeah, exactly. Hey, Chris DeReedy, anything you want to add there or any color you want to provide? I think I covered it. You agree with that perspective. It's not only about climate. It's about national security. It's about becoming less dependent. I would even say economic security.

So we have the shale boom, but the shale boom has become apparent is going to last forever either, right? So we need to move to other fonts of energy in order to sustain the economy in the long run. Right, right. Mercia, anything? No? When we get to the stats game. Oh, okay. Okay.

Okay, fair enough. Okay. Maybe one extra, extra point on this, Mark, because this is often a question that people raise when you posit the national security benefit. You know, folks will say, well, what about with electric vehicles, like a lot of the minerals and stuff that go into those EVs, like those come from other parts of the world. Aren't we just trading one national security concern for another? They're very different in the way that they impact the U.S. economy, because one is a input to a manufacturer product, and the other is, a fuel for ongoing operations, right? So think about this way.

If let's say we continue to be reliant on cobalt produced in the Congo for battery manufacturing, right? And let's say there's a big disturbance in the Congo and we can no longer get cobalt. Everyone who has an electric vehicle continues to drive them. The cost of driving those EVs doesn't change at all. It does slow the pace at which you can manage. manufacture new vehicles, but it doesn't change the operating cost of those vehicles overnight.

Right. So it doesn't have the inflationary impacts. It doesn't have the shock to consumer budgets, as opposed to an oil supply disruption, which immediately impacts the economics of everyone driving a car on the road. And so these supply chain issues around the clean energy economy are real and need to be managed, but they're fundamentally different in magnitude than the national security issues that come from, from international oil and gas trade. Well, of course, certainly at this point in time, the oil market, the cobalt market, any other mineral you want to conjure up that we need for an EV battery are on totally different planets in terms of their scale.

I mean, they're totally different, totally different things altogether. I would add there, Mark, that some of the spending from the IRA addresses that point specifically last November, the Department of Energy announced $275 million in grants, and the goal there is to decarbonize the American economy in an equitable fashion while simultaneously reducing the U.S.'s reliance on China. So they're going to invest in nine former coal communities, and what they're going to do is establish domestic U.S. production of critical materials that are currently imported from China.

So that's from actually that that that's that's actually from the bipartisan infrastructure bill. My apologies. As Trevor mentioned, it's the two are complementary. But the U.S. government is very focused on this question of critical minerals and because they will be needed as we transition away from the fossil fuel economy. Okay. So let's talk about some of the nitty-gritty of the RA, because there is so many moving parts and hard to disentangle. Maybe the way to do it is, and maybe this is too simplistic, but I'll give it a shot.

What, if you could pick one provision out of the IRA that's working really well, maybe even better than you anticipated. What would that be, Trevor? Anything in particular that stands out? So the biggest surprise in the IRA are the manufacturing tax credits. So the IRA includes tax credits for investment in new manufacturing in many different parts of the clean energy supply chain. So in the electric vehicle supply chain, everything from critical minerals mining, as Chris mentioned, to battery component manufacturing to sell and module assembly to EV assembly. there's credits for wind farm component manufacturing, for solar manufacturing. And we've seen a remarkable uptake in those tax credits far, far larger than expected.

They really have fundamentally changed the economics of doing clean energy manufacturing in the U.S. and companies are responding very quickly. So in the last year, we've seen in the U.S., so in 20, Let's see, let me just pull this up. In 2023 in the U.S., there was, let's say, between 2022 and 2023, companies announced 156 billion in new investments in manufacturing and clean manufacturing in the U.S. And that's a 165% increase over the two years prior to that. It's large enough now. We're talking about 50, 60 billion a year of actual investment activity that's happening.

happening in clean energy manufacturing in all different parts of the country. So in the Midwest, in the kind of traditional auto manufacturing regions there in the southeast, a new clean energy manufacturing hub that's sprouting up in the US Southwest between Arizona and Nevada and in California. And I think that a lot of observers had assumed that the US had permanently seated leadership on manufacturing to China, that the US couldn't manufacture stuff anymore, and particularly not in the kind of advanced vehicles or solar sector. And the amount of both solar and battery and EV manufacturing activity

that we're seeing occur right now is genuinely surprising. Interesting. Chris, Lefakis, anything you'd want to call out that has been surprisingly positive from there, right? Well, I'm right there with Trevor. I mean, the advanced manufacturing tax credits, the initial score from JCT was that those credits would cost $31 billion. The updated score pegs that number at $133 billion. That's an increase of 33%. I would say the EB tax credits, there's also been tremendous uptake of those and well exceeding the initial estimates from $14 billion initially to $72 billion in the updated score.

on a percentage basis, that's actually bigger than the advanced manufacturing uptake. But I am a little bit skeptical of those because we saw during the Cash for Clunkers program that really what that program did is it pulled forward a lot of demand. So what could be happening with the EB tax credits? And obviously it's going to take time for us to know for sure. But maybe some of the EBs that people would have purchased in 2025 and 2026 and 27 got pulled forward. to the more immediate window because of the provision of those tax credits. Okay.

You know, there's been a lot of hand-wringing about, you know, climate, this transition to green energy is going to be very, very costly. And therefore, in the context of inflation and the problem of inflation that we've been suffering through here over the last several years, that the worry was that that that was going to be kind of a a a a uh a tailwind to higher inflation rates going forward that we you know we're going to we have to spend all this we all this resource to go from uh you know our current fossil fuel based energy system to something that's more green and that's going to be costly and therefore raise prices and exacerbate our inflationary problems that that i guess that could happen

depending on how you drive this transition. I mean, I think here in the U.S., given the IRA and the infrastructure legislation and all the tax subsidies that have been provided, it really hasn't been at all inflationary, right? I mean, it's just because we're not adding to the cost of utilities or businesses because it's all being absorbed by the federal government and the subsidies that they're providing. Whereas if you go over into Europe, perhaps there that might be inflationary because there the strategy has been not to use tax subsidies, not use a carrot, but use more of a stick, like a carbon tax kind of approach to pushing businesses to adopt green energy because it's costly not to do it because of the taxes. And that would

be more inflationary. Is that, is that, Trevor, do I have that perspective right? Do you think that's kind of sort of what's going on here? Yeah, I think that's, I think that's generally right. I mean, the one ashterics I would put on is I think there's a little bit of a difference between whether it's like macroinflationary or microinflationary. So I think from the micro level, you're totally right. And that the what kind of economists had assumed would be the way that we would tackle climate change by putting a tax on carbon emissions that socialized through the economy that got some legs in Europe. That raises the price of goods to consumers while incentivizing them to buy cleaner options. So it's microinflationary, right? the price of the individual carbon-intensive goods that customers are seeing that that price goes up.

There have been a number of attempts to do that in the U.S. over the years, and the politics are just pretty bad for it. And so what policymakers have learned in the U.S., there's two ways that you can price carbon. One is by making dirty stuff more expensive. That's what a carbon tax does. Or you can price carbon by making the clean stuff cheaper, right? It's all about relative prices. And in the U.S., we've definitely gone with the make clean stuff cheaper approach via tax credits,

which is micro deflationary because it's lowering the cost of electricity. So the Inflation Reduction Act lowers the cost of electricity, lowers the cost of vehicles to consumers. Now, it's potentially macroinflationary if it is increasing aggregate demand and investment in the economy beyond what the economy can sustain. And so that's where, you know, these overall equilibrium questions come into play. But at a micro level, you're definitely right in terms of what consumers experience day and day out. In Europe, climate policy feels inflationary.

And in the U.S. climate policy is experienced as deflationary. Although if it's deficit neutral as we kind of sort of established, then the aggregate demand effect should be a wash. Exactly. So it should not be inflationary at the end of the day. Yeah. So it's actually quite fascinating from, you know, when you think about it. So we went down, the U.S. was, if you go back in time, going down the path that economists would recommend, just tax carbon or we cap and trade was the kind of approach that Congress got pretty close to passing. Maybe that was in the, I can't remember, was that in the Clinton administration or the Obama administration?

Obama 2010, the House of Representatives passed a cap and trade bill, which has never made it through the Senate. Never met him through the Senate. Right. So that was the original approach. And I think we learned that that's a stick. The stick just doesn't work. People aren't going to go for it. But then we said, okay, okay, well, you know, let's go with the carrot.

And the carrot seems to be working pretty well, particularly, again, because we're paying for the carrot. And in addition in the U.S., that kind of political reality happened to align well with congressional rules, which a cap and trade bill needs 60 votes to pass the Senate. Tax credits can pass through a 51 vote budget reconciliation process. So there was that additional factor that has inclined the U.S. Congress towards the Karen statistic approach. Oh, that's so interesting.

So do you think it feels like the approach we've taken is that it's working. It feels like the right approach, right? Yeah. So if I asked you, Trevor, should we have a carbon tax or a cap and trade system, in the context of the IRA and the infrastructure legislation, do you think that's necessary at this point? Or are we often running here? I think that the clean energy carrots approach gets you 80% of the way there. Okay. And the politics are much, much better, right? There are some downsides.

You're doing it by proxy because you're not actually pricing the thing you ultimately care about carbon. You're trying to approximate it by we're going to provide this level of incentive for this technology based on how clean we think it is. You're going to get that wrong in some cases. You're going to have to readjust it. And then there are parts of the economy that a carbon price would ultimately work better for because of the international tradeability of the products. So for the industrial sector, which is something the IRA doesn't really touch that much. So steel, cement, aluminum glass production, the ideal approach there would be to putting place a carbon price domestically and then adjust that price at the border for imported products because you could get some harmonization with Europe's policy on the traded goods side. So that's a place where a carbon tax or a carbon price would make more sense from a pure substance standpoint.

but for 80% of what we wanted to carbonize, the non-carbon price policies are good enough and much better politics. Good enough. Hey, Chris, the reason, I know this is a bit unfair. I keep throwing the ball into your court, but just want to make sure that I'm not missing anything that you'd like to ask on this particular topic.

We'll move on. I just put on this particular issue about carrots versus sticks. I think there's a lot to say here. I think I might wait for the stats game. Okay, we're going to get to that stats game. One more thing, though, before we get to the stats game, and that is we talked about the thing that surprised you on the upside. What a provision or provisions in the IRA has kind of been, what happened here,

has been disappointing to you? So the place where we're struggling the most in the clean energy transition right now is in wind development. So wind investment in the U.S. has actually fallen. by more than half over the past two years since the passage of the IRA. That is not because of the IRA. The IRA includes incentives for wind. It's that in the case of wind, the incentives in the IRA have not been sufficient to address some of the other headwinds that the wind sector is facing. So part of that is inflation. Wind is much more sensitive to high interest rates than other

types of clean energy technology because of the build times, particularly for offshore wind projects. But the other and probably the more important over the medium term is that wind is much more geographically concentrated and where the resource is. And where the resources is is generally not where the demand for electricity is. So you've got to find a way to move the wind from West Texas or from Oklahoma to Chicago. And to do that, you need to build a power line. Oh, really? The windy city? You're telling me you got to move?

Really? That's the best you could do? Maybe Philadelphia. Let's say Philadelphia. Philadelphia. And so that means you've got to build a transmission line to get it there. And so while the incentives in the IRA for wind are very strong, right? They've lowered the cost.

They've made wind cheaper than it was before. To get that cheap wind to market, you have to build a transmission line that requires navigating mediating myriad federal, state, and local regulatory agencies on siting and permitting. Now, tackling those permitting issues was not something that the IRA could do because, again, of those budget reconciliation rules, right? They could only do tax and spend. But it is the unfitish business of the IRA. And there was a deal when the IRA was passed with Joe Manchin that Congress would come

back and do a permitting reform bill. And that second part never happened. And so a lot of the places where we're seeing implementation struggle is indeed because that second part didn't happen. We haven't done the permitting reform needed to build clean electricity at the scale and pace necessary. Got it. Got it. Hey, Crystal Fack, the same question to you. And don't tell me you're going to say wind.

Is it to win? I'm going to say wind and I'm going to say permitting reform as well. I mean, you have Trevor on here. I mean, you know, you don't need both of us. We're going to tell you the same thing. I'm just using you to check each other. I would just say permitting reform is so difficult. I mean, how many decades, Trevor, have we been talking about permitting reform?

And it's because it's not just the federal government. It's because it's state and local. In addition, it's because, you know, one senator can muck up a bill. It's just, it's very difficult. And then you also have the not in my backyard where like a lot of constituents. would oppose kind of construction of long distance, in some cases direct current transmit high voltage, direct current transmission lines,

which are necessary, unless you get some like some rapid advancements in battery technology, but even then you still need those long distance transmission lines because you have this wind corridor in the center of the country from Texas all the way up to North Dakota, that's where wind energy is most plentiful. and people don't live there. They live on the coast,

and you need to get power to those places, the population centers. Okay, very good. Well, let's play the stats game before we come back and talk about the election and what impact that might have on all this effort to move to green energy. In the stats game, we each put forward a stat.

And Trevor, I warned you about this, didn't I? You did. Yeah. Okay. So we each put forward. Tell me if I needed to bring a stat or if I'm just answering stats. Well, up to you. Up to you.

Okay. Hopefully you'll, you, I'm sure you can come up with one on the fly, but no worries if not. We each before it a stat. The rest of the group tries to figure that out through clues and deductive reasoning and questions. The best stat is one that's not so easy that we get it immediately. And Trevor, you've got to be really careful here because Marissa is really good at this game. She gets, I don't know, I'm not sure how she does it.

not so hard we never get. And if it's apropos to the topic at hand, that would be all the better. So we always- And this is Jeopardy style. We give the answer and then you've got to guess the question. We've got to guess. We've got to guess what it is. So this is, we always go in Marissa first.

Marissa, what's your stat? My stat is 3.5%. Is it related to climate? Indirectly. Definitely related to what we've been talking about. Energy price. Yeah. Is it an interest rate?

It's not an interest rate. Is it an energy price related? No. It's not an interest rate. It's not an energy rate. Indirectly on that. Okay. Which is a big hint, I think.

Is it an inflation measure? No, not directly. This is what she does. This is how she does it. I'm sorry to be pauses. She looks around. Yeah. Okay, okay.

What's the big hint? It's indirectly related to climate? And inflation. Yeah, it's related to what we were talking. Remember, you asked Trevor about the impact of energy on the economy, and you came to me, and I said, I'll wait for the stats game. So that's a big clue. Is it the weight of?

No. Electricist, no. No. I got inflation on my minds. three and a half percent of something, right? It's, it's, is it three and a half percent of total expenditure on clean energy economy? It's not a share. Not a share.

Gosh. Not a rate. It's a growth rate. It is a growth rate. Yes. Not an interest rate, but a growth rate. Okay. But not a growth rate in prices.

A growth rate in some form of employment or, I don't know. output or on the renewable share? It's related to inflation. It's related to. I think you got to put it out of our misery. Okay. It's the one year ahead inflation expectation from the University of Michigan. Oh.

Oh, yeah, sure. So, which is exactly equal to what CPI inflation is on a year-over-year basis right now. So University of Michigan, which we know is problematic. We don't, right, where we kind of talked about the drawback. of this particular consumer sentiment survey, but I thought it was a good statistic to illustrate how sensitive the U.S. economy can be still to energy prices. So Michigan overall, the sentiment survey fell a lot over the month in May, and that was mostly because of the expectations component, which was led by consumers' expectations of what

inflation will be one year ahead and five years ahead. It's the biggest uptick and the highest inflation expectation that we've had since last fall when Israel Gaza started. So is this come out today? Yes, it did. Oh, I missed that. Yeah, it came out this morning. So because it was lower, it was closer to three, right? And you're saying it jumped to three and a half? That's right. That's right. It was three point, well, it was three point two percent in April. Okay. It jumped to three and a half percent. And it hasn't been. three and a half percent since November. And you're positing this is because gas prices are up.

Yeah, that's right. Probably makes sense. Yeah. Right. Okay. Do you see that we were sending around this email, in this email, this chart that showed media reports around gasoline prices. Yeah.

And once you get over $3.50 for a gallon of regular unleaded, the media really starts it to pay attention. It's all over it. And obviously, that has an impact on the collective site. is what you're saying in their expectations. Yeah, very good. Unless you look at California like I do, then it's 450. Like 350, we're like dancing in the street celebrating 350 gas.

I'm in California too and I just paid 530 last two weeks ago. Holy cow. Wow. Well, stop driving. Got to get an EV. Come on. I did. I was going to save this for next week's podcast, but I bought an EV last week.

Cool on EV. Hold on EV? Yeah. 100% electric. Very good. What did you get, Marissa? That is awesome. I got Genesis.

Oh, very nice. Yeah, it's really nice. Who produces that? It's Hyundai. Hyundai's like luxury line. Right. Can I go next just because I'm going to give you a hint. It's going to segue off of Marissa's.

Yeah, sure. So I'm going to give you two numbers. It's related to what the hint is that it's related to what Marissa just said. Okay, so the two numbers are negative 8% and positive 80%. Is it something related to EV sales? It is. EV sales over the past year are down 8%.

Close. Some segment of EV sales are down over the past year, 8%. That's right. Tesla is down 8% year-on-year-on-year in Q1 in terms of registrations. Okay, so what's the 80%? Overall EV sales? Everything else. Hyundai Kia is up 80% year-on-year.

Oh, cool. Cool. Wow, that's a good one. You chose why. It's very related. Actually, if you hadn't segwayed like that, there's like zero probability we would have gotten it. Correct.

That's why I grabbed this moment. Otherwise, it was never, we were going to make no progress on it. That's really good. So Tesla sales are down 8% year over year in Hyundai. Up 80% year on year in the first quarter. Again, this is registration data, which lags sales data by a couple of weeks.

So it's like when the registrations come in at the DMV. But the broad trends are going. going to be the same. In overall EV sales, are they, what are they? Do you know? Up 14% year on year in the first quarter. Yeah. And there's so that's slower. It's a, it's a slowdown. But also, it's important to remember total vehicle sales growth dropped considerably in Q1 relative to last year. So it looks like that slowdown in aggregate EV growth in Q1 is more macro than micro. That that's just part of the overall slowdown in vehicle sales, new vehicle sales in the first quarter of the year. So you're still optimistic.

Oh, sorry, Chris, go ahead. I was going to say you're not including hybrids in that calculation, right? I'm including plug-in hybrids. So this isn't important. I think that we need to retire the term hybrid, like just a regular hybrid. That's just a more efficient gas car. That's like plug-in hybrids, right, like the ones where you actually can run off the battery for a period of time. So we're including those, the plug-in hybrids, but not just regular hybrids like Toyota Prius.

So you're not worried about. EV sales, there's been a lot of concern that, you know, the bloom is off the rose, or the rose is off the bloom? What? Is it bloom off the rose? Yeah. Yeah, bloom off the rose for EVs. You're not seeing that.

You don't think that. No. I'm certainly, I'm certainly concerned just because we're at this very tenuous part of the EV takeoff where we're moving from the early adopters that are paying for premium vehicles to wider spread adoption. And we need the, oh, we have. need to be offering a wide enough range of mid-range cars in the next year or two to make that transition, and the charging infrastructure has to get in place. But I'm not, I think that the press coverage over the past quarter has been histrionic, keying mostly off of some very bad Tesla numbers, which are as much a Tesla-specific story as they are, a story about the EV market in general.

Oh, that makes me feel better. That's good. Great. That was a great stat. Trevor, you can play this game anytime. Krista, do you want to see one more? Yeah, it was just question. On that note, how much is available still in terms of the EV tax credits? So the tax credit is $7,500 per vehicle is available to if you indefinitely, basically. I mean, it's available for a decade. But there's a couple of conditions.

So the vehicle has to be assembled in North America and a certain share of the battery components and the critical minerals need to come from North America or North America and free trade partners respectively. And then there's income thresholds for the for the tax credit. I thought there's a limit by manufacturer. There used to be. So the original EV scheme was $7,500, but it was only for the first 200,000 cars sold. And so a couple of years ago, GM and Tesla had both blown through theirs. The IRA removes the cap on the total number, but then imposed income thresholds, vehicle price thresholds, and these local content requirements.

Got it. Go ahead. Hey, Crystal Fackas, you want to go next? Yeah, and just to add on that, the vehicle price thresholds are actually critical to ensuring that the tax credit doesn't get capitalized in the cost of the vehicle. So it was a well-designed piece of legislation on that front because, like, prior legislation has shown that, like, if you don't, if that didn't exist, that it could get capitalized in the cost of the vehicle.

Actually, we see that that's not the case with Tesla announcing that it would lower its prices over the past month or so for model 3s and I believe model S's as well. Yeah, and I agree also that this is a temporary blip in the long-term positive trend, which is like evident in like Tesla stock price versus like General Motors and stuff like that. Okay, so yes, I can go next. Yep. So I don't know if I should include the unit or not. Maybe like, I think I should. I think without the unit, you guys will not get it. Far away, Chris.

Okay. $139 per kilowatt hour. $139 per kilowatt hour. Is that the final price of electricity from Vogel 4 after it came online? The new incredibly expensive, multi-billion dollar nuclear. PowerPoint in Georgia? No, it's not, but it's somewhat related to... That's expensive.

Boy, if that's $1003. Is that like the coal plants put up in South Africa? It is not. It is related to Trevor's, the theme, the lines that Trevor was on. Is it? Okay. So some source of... Some source of...

Energy. Yeah, energy. Is it wind? Is it something with wind power? It's not wind power. It's not solar. It can't be solar, can it? No.

It's got to be, is it fossil fuel related? No. It is EV related. Oh, EV related. I have no idea. Trevor, I think he was the only person who would possibly get this. $139 per kilowatt hour. I don't know.

Yes. Oh, per kilowatt hour. Is that the price of a battery pack? Yes. It is, Trevor. It is the volume weighted average lithium ion battery pack. Oh, wow. And cell price split.

It's $139 per kilowatt hour. A decade ago, in 2013, it was $780 per kilowatt hour. Prior to the election of President Obama was over $1,000 per kilowatt hour. So it's just a test. to how much the market has made EVs more affordable and thus allowed their sale to proliferate. Oh, that's interesting. Does the technology suggest that this is going to continue, the cost is going to continue to decline? I think that we have achieved most of the gains in the reduction in cost.

The pace of decline in the Lyon Battery Pack has slowed significantly over the past five years or so. I think that some additional efficiencies can come to bear, however. So I think maybe five to ten years from now we'll be looking at a price that is maybe like $110 per kilowatt hour somewhere in that neighborhood plus or minus $10. Yeah, the big focus now for the battery manufacturers mark is not so much driving additional cost reductions and traditional lithium ion batteries, but in alternative chemistries. So LFP batteries or sodium ion batteries or chemistries that are able to just reach much lower ultimate price entitlements than what lithium ion can do. Yeah. Or like crazy stuff, you know, like phosphate, you know, where the technologies are not really economically efficient at the moment, but you could achieve like bigger like breakthroughs. Well, I want to say that's a good, that was a good stat, but there's like zero probably.

Without Trevor, we would have never gotten that, never gotten that. I should, I should just as a disclaimer for my friends at the Southern Company in Georgia that, that, that was a joke. Vogel would never be charging $139 per kilowatt hour. It is expensive, but not that expensive. Yeah, there you go. There you go. They're choking over there and land on or whatever. Hey, Chris, DeRides, what's your stat?

It's 71 euros and 59 cents. Natural gas? Natural gas in Europe? Nope. Carbon, the EU E.ETS carbon price is probably recently settling at about 70 bucks. That's right. That's right. Trevor's good at this game.

He's very good. I mean, we're on energy. He's right up his alley. I was waiting for this moment. Yeah, yeah. You want to explain? Yeah. So the EU, we kind of alluded to it earlier.

They have a cap and trade system when it comes to carbon. They have these carbon permits. that get auctioned off and they're traded in the market, right? There's a certain limit in terms of the amount of carbon that industries are permitted to release and they buy these permits in order to cover their emissions. I brought it up because it's certainly the alternative way or another way. We could go about addressing the climate issue and the emissions issues. And I think we're starting to talk about effectiveness earlier.

And simple read of the data would say, hey, EU with this carbon training system, has their emissions down 47% below 2005 levels? The U.S. without it, going down the path of the IRA, at least early days still perhaps, but still lagging far behind the EU's path there. So I'd still argue that it's certainly a much more efficient, effective way to go about this than the RRA itself. Maybe politically, you know, this is the expedient path, the only path available, but from an economic standpoint, certainly, I think the cap and trade is still the way to go. Yeah. All self-respecting economists should have on their tombstone written, it should have been a carbon tax. Should have been a carbon tax. And maybe we still get there, right?

Yeah. Well, maybe, you know, a few disasters away from a carbon tax. Well, you know, who knows? Okay, I got a stat. 17.4 cents. 17.4 cents. Is that what you pay for electricity, Mark? Is that your retail rate? That's a pretty good, pretty good guess. Because I'm like, I am the typical American. Look at me and you see America. I'm not kidding. Well, typical American pays 12 cents. So I assumed you were a little richer than the typical American. I was putting you at 17. We're in a slightly higher cost jurisdiction. Because I'm looking at the average price of electricity per kilowatt hour. It's U.S. Bureau of Labor Statistics.

It says 17.4 cents. Oh, so that is correct. That was what it is. No, no, but Trevor is saying it's lower than that. So we're maybe. This is a difference. It could be tiny. Whether it's, whether it's retail, whether it's residential rates or like average rates for all consumers.

Okay. Yeah, that sounds high, Mark. Individual mileage can vary. I'll send you the chart or send you the data. You can take a look. I'm sure there's a gazillion ways of measuring it. Maybe it says U.S. City average or maybe it's for city, people living in cities.

It's possible, yeah. Something like that. But it was 13.4 cents. before the pandemic hit, so we're up four cents per kilowatt hour, in the decade between the financial crisis or a little over a decade between the financial crisis and the pandemic, it did not change at all. It was basically flat. So it's risen a lot. Now, you know, early on after the pandemic, that goes to the Russian war and the impact on natural gas prices and that, you know, we saw a spike in electricity prices.

And I'm assuming the cost of climate, you know, we're having problems in California and Texas and different parts of the country, and that's adding to costs as well. But it feels like it's starting to increase again very significantly, even though natural gas prices are backed down. So if you look at the cost per million BTU, correct me from on, Crystal Fackas, but I think if you go back in the teeth of the Russian war when Europe was struggling, with their natural gas shortage, we were at $6, $7 per million BTU. We're now back down to $2.2 in a quarter, which is low by historical standards.

So does anyone have a sense of what's going on here? You know, what's driving that? So, yeah, yeah. So the electricity prices are regulated. So there are, you know, state, you have to get your price increases approved by the state. And so they're much stickier. They're not as likely to decline when that. ever input cost decline just because they're a stickier price in general.

And except for in deregulated markets where you have like a little bit more competition and like providers are like bidding for customers. But by and large, like you've had this period of very high inflation. So even though the input cost to produce electricity, just that input has declined, the cost of natural gas, you know, labor and and equipment and compliance and maintenance, all of those costs have increased. So you have these cross currents that affect kind of like the overall cost of producing electricity

that are kind of outweighing, I would say the decline in natural gas prices. And then the other component is like that they're regulated at a state level. So that's why they've actually risen a little bit over the past couple years, even though natural gas prices are fall in. Well, it feels like this is a pretty long lag. I mean, natural gas prices peaked over two

years ago, right? So it feels like something else is going. It could be demand. I mean, could the one thing that I belong to this group of economists and I was just listening to the conversation around AI. And one of the concerns that was expressed more than once by folks who are in that world is the demand for electricity generated by artificial intelligence. I mean, to to power the calculations necessary to create, make AI functional, it takes a lot of electric input. And of course, you have crypto on top of that, and that's all electricity. Chris knows a lot about that.

You know, his electric bill is Matt, Trevor, he is all in on crypto and trading all the time and doing all that kind of money. Single handedly. single-handedly driving the price up. Could that also be playing a role or is that not showing up in the data? I don't know the market well enough. It will. I think so part of what Chris was saying is wholesale electricity prices post-gas price decline

are not super inflationary. Retail prices are both that cost of energy, right, plus the cost of getting that energy to your house. And all of that distribution system investment, those costs are going up a lot because of inflation. And that's the stuff that there's a greater lag on because of the way it gets rate-based by the utilities. So usually in your bill, you've got an energy cost component and then a non-energy cost, like your transmission and distribution cost component.

The energy cost component is a little bit more variable with the wholesale market. Gas prices are higher. Your energy cost is up. Gas prices go down. The energy portion of your bill goes down. Then there's the rest of your bill, which is the amateurized investment that the utility is making in the infrastructure that gets the energy to your house. And that there's more of a lag on because of that regulatory process that Chris mentioned. And we've seen in a lot of markets wholesale power prices staying flat or going down and retail electricity prices going up because of all of the investment that's required to continue to maintain and upgrade that electricity.

distribution infrastructure. So it's not, that all makes a lot of sense. It's not demand, though. It's not like demand is kicked into a high gear here. It will. So demand's starting to grow up. So as that's the trick is demand does grow going forward, the amount of increased transmission and distribution investment that that requires, does have the chance of translating into

meaningfully high rates. Yeah, it was so interesting. I mean, the concern was that the break on AI is actually going to be electricity. Just the cost of electricity is going to be so high that it's going to make it very difficult for businesses to kind of expand out their AI infrastructure. So I thought that was interesting. We've also seen a huge spike in the price of uranium over the past year, right? Isn't that another – I know it's not the major feedstock, but certainly a contributor. To nuclear, cost of nuclear.

Yeah, cost of nuclear. And then most much of the uranium comes from Russia or has come or from Russia story. Right, good point. another national security. Yeah, but that's uranium cost is like a small part of like the overall costs of producing renewable. I mean, electricity from nuclear sources. Yeah.

And usually the nuclear plants aren't setting the price at the margin in a wholesale market either. Usually that wholesale price is getting set at the margin by the price of gas because that's where the marginal, where the marginal supply is coming in. So that's why the wholesale electricity prices follow natural gas prices pretty much one for one. for one okay okay let's uh Trevor you've been very generous with your time but I want to end the conversation talking about the election I know nobody wants to talk about the election but we got to talk about the election because it feels like to me all this progress that's been made and it's my word progress on uh it's filling this transition from fossil fuel over to green energy

could be in jeopardy depending on who depending on whether president former president Trump wins election. I mean, he's ostensibly no fan of renewable energy, very much a fan of fossil fuels, and will kind of shift the incentives here away from green, toward back towards fossil fuel. And has been spoken very critically of the Inflation Reduction Act. And, you know, the worry might be that he uses his executive order or other tools at his. disposal regulatory tools to kind of muck up or derail or even, even rain in, you know, the kind of things that have been done on the RA. Am I just overly concerned here, if that's the case?

I mean, did I characterize things correctly? And if so, am I overly worried about this? I think that, so the first piece of context that's useful for folks who haven't been tracking in the clean energy space as closely is the, through all of the policy and technical innovation work that's happened over the past 20 years, a number of clean energy sources, whether that's electric vehicles or wind or solar,

have now come down to a level of cost parity where they've achieved escape velocity. They're gonna continue to grow. It's a question of speed, right? How fast, not if. And so for a lot of parts of the the clean energy economy, even a complete rollback of the IRA is not going to completely kill those industries. It's just going to slow the pace of progress. Now that matters a lot because

when it comes to climate change, speed matters. Every year that we are releasing more greenhouse gases into the atmosphere is another year where they're accumulating and contributing to warmer temperatures. So speed matters. The question would be both in a, if President Trump won re-election, what's the composition of Congress? Is there Republican control of both chambers or just of one chamber? Right. And for the Inflation Reduction Act, how popular with individual Republican members have the investments that the IRA is already starting to deliver become, right? I see. And, you know, we saw in the first Trump term, there was a pretty concerted effort to roll back the Affordable Care Act that ultimately failed because those were real

benefits that were flowing into the economy and constituents in both red states and blue states did not want those benefits removed. And so the question for the Inflation Reduction Act will be how significant have the investments in new factories, new plants and equipment driven by the by the IRA bin, how organized and vocal are those companies and their workers with their members to try to try to protect those investments going forward. So I think it's pretty unlikely even in a Trump administration and Republican control, both the House and Senate, that you would see all of the incentives in the IRA rolled back. But I think you would see some of them rolled back. The bigger change is actually

going to be on the executive side between the two election outcomes, how much regulatory action happens. And that I think it'll be in about face. So a Trump administration would immediately try to stop regulatory actions that the Biden administration's EPA has started putting into effect and certainly would not be promulgating any new climate-focused regulations, whereas a second term of the Biden administration would not only continue implementation of the EPA regulations that have already been adopted, but would likely it put in place additional regulations as well. Okay, got it. So what you're saying, my words, is that you use the words escape velocity that we've achieved. The IRA, the infrastructure legislation has now been in place long enough. It's now in the kind of the DNA of the economy sufficiently enough that it's going to be very difficult to stop this train from moving forward, that it's going to continue. It may not move as fast forward, but it's going to be. going to continue to move forward. And there will be some regulatory changes that will slow down

the process and may put some aspects of the effort to address climate change on hold, but broadly speaking, we're off and running here. That's right. Got it. Okay. Okay, great. Guys, anything else you want to ask, Trevor, before we call it a podcast? We covered a lot of ground. No? Okay, hearing no okay crystal facis anything christreides and marissa no okay very good well Trevor i want to thank you for taking the time with us it was really very insightful thoughtful and engaging and appreciate uh you uh coming on to inside economics and uh yeah this was a lot of fun yeah you can do you can tell dan i thought you did a better job than he did when he's no just kidding just kidding uh he's scared the hebi Gibi's out of us. I'm just saying. You're all, you made me feel better. He made me feel a lot worse.

So you can come back anytime. Great. That's what I like to hear. Yeah. Anyway, well, next week, where it's all about inflation, I believe the consumer price index is released on Wednesday. So, of course, a big, big release. And we'll be talking a lot about that. And until next week, thank you, dear listener. We'll call this a podcast. Take care.