Clean Energy Industrial Strategy, the American Way

The clean energy transition is well underway, and it is no longer a question of ‘if’ nations will invest in clean energy, but ‘when’ and to what end. Using clean energy industrial strategy, countries can play to their strengths and identify unique opportunities for leadership and innovation. It pays to do so: with a successful clean energy industrial strategy, governments can spur industrial growth, facilitate a market-based reduction in reliance on OPEC+ oil, restructure supply chains to eliminate national security vulnerabilities, support strong and growing domestic industries, and ensure long-term economic growth and job creation. 

The most significant variable between industrial strategies is the relationship between government and the private sector. Some strategies deploy a ‘hands-off’ approach allowing the private sector to work largely without interference, while others take a more interventionist approach, with government mandates on production rates and prices. 

Left completely to their own devices in a hands-off scenario, companies are unlikely to deliver public goods outside of their own interests, nor will they receive assistance to overcome market flaws and other challenges to be their most competitive and productive. 

On the flip side, the United States has neither the resources nor the inclination to execute a more aggressive, ‘tight grip’ industrial strategy. The private sector is 88% of US gross domestic product,¹ and the country has long spurned government interference in private industry, even structuring legislation (i.e., the Bipartisan Infrastructure Law and the Inflation Reduction Act) to mandate cost share dollars from private businesses accessing government incentives. Plus, in a country where innovation and entrepreneurship have long been economic cornerstones, any government activity that stifles creativity in the private sector could prove catastrophic. 

As the United States dives headfirst into the energy transition, it’s clear that a successful clean energy industrial strategy will require the government to work together with industry, not simply dictate to it (nor, in the opposite extreme, to ignore it altogether). But there isn’t one set way to deploy this kind of collaborative industrial strategy. 

Over the past year, Third Way has assembled four workshops on clean energy industrial strategy, convening stakeholders from the private sector, the Biden White House, federal agencies, and other key groups to exchange insights on how industrial strategy can help advance national priorities like manufacturing, economic growth, creation of high-quality jobs, and energy security. 

Informed by these insights, this memo offers analysis of the various expressions of clean energy industrial strategy, provides a brief overview of the impact of the current strategy, and offers recommendations to advance US strategy, deepen its efficacy, and deliver long-term economic rewards for average Americans. 

Analysis: What Makes a Successful Industrial Strategy? 

There are several variables that can impact the success of an industrial strategy for clean energy. Government obviously has a broad range of policies at its disposal to influence private sector activity. Much discussion has been devoted to the mechanics of industrial policies—whether tax credits, grants, loans, mandates or some other effort targeted at industry are most appropriate to achieve a desired outcome. But equally important are the attributes that define these policies: How aggressive are they? How quickly are they deployed and at what scale? Are there ideological restrictions limiting how policy is implemented? And how much private sector input goes into its design? 

Below, we explore these dimensions—the tools in the federal government’s policy toolkit—and provide recent examples of where Congress and the Biden Administration have found the right balance to engage industry and unleash its power to strengthen competitiveness. 

Federal Policy Toolkit 

These attributes shape the policies that deliver on industrial strategy and can determine their effectiveness. Finding the optimal approach with each trait will maximize the benefits to America’s economy and the energy transition. 

Aggressiveness: Government can be more or less aggressive in controlling the design and implementation of clean energy industrial policy, with the most inflexible policies coming in the form of mandates from government for private sector firms. In the European Union, the ‘Fit for 55’ package erred on the side of cumbersome and prescriptive, requiring 40% emissions reductions across member states’ economies with specific targets for clean energy deployment and sector emissions reductions. In addition, the EU’s access to financing in this package requires the private sector to navigate complex applications with uncertain outcomes. This mandate approach could be very costly for industries to achieve given resource or cost constraints and offers little flexibility for industries struggling with abatement. By contrast, the US entered a passive phase of industrial policy in the 1980s. For three decades, America mostly turned a blind eye to massive globalization and outsourcing of the production of technologies that American innovators developed. Both approaches to strategy—markets heavily directed by government, or very little government guardrails for markets—will not work in the US for the future we are facing. 

• Current US Approach: This more interventionist approach of using mandates contrasts with the Biden Administration’s efforts to provide incentives for companies to choose whether they will take advantage of tax credits, grants, or loans. Unlike with a blanket mandate, companies will move forward only with investments that the market will support. While some of the provisions in the climate laws include certain requirements like sourcing from our free trade agreement partners (or “friendshoring” with those for which we do not have a formal agreement) in the case of electric vehicle tax credits, companies maintain the option to decline the credit and source from any country they like. 

Scale and Tempo: The scale and the pacing of incentives need to be aligned with broader economic conditions to drive growth efficiently. For example, the Green New Deal (GND) proposal included as much as $30 trillion in government spending over a five-year period. That would have required less skin in the game for industry and fostered higher risks and less careful prioritization. And it would have likely had macroeconomic damages like inflation, ignited even more fears of budget deficits that compromise the US government credit rating, and jeopardized the dollar’s status as a reserve currency. A different, but also inefficient, approach to policy scale and tempo prevailed in the US for many years in the form of “temporary” tax credits. These incentives for clean energy investment and production would be here one year and gone the next, and seemingly always on the chopping block. This lack of policy stability proved detrimental to both companies and markets. 

• Current US Approach: Congress and the Biden Administration have taken a fairly balanced approach. Spending from the IRA is only a few percentage points of the spending proposed in the GND, but still amounts to the largest clean energy investment in US history. The cost was offset by other measures, and the bulk of the subsidies are spread out over a period of ten years. 
  All of this has served to spark investment without intensifying inflation. The decade-long horizon of many of these incentives is also providing a greater degree of long-term certainty for investors than was previously offered by one- or two-year tax credit extensions of America’s recent past, or the 5-year subsidy surge that had been proposed. This 10-year gradual approach also gives companies more policy stability, enabling them to plan more efficiently. 

Ideological Flexibility: Deep-seated ideology often calls for limiting policy and technology options that could otherwise serve the nation's industrial strategy. In the United States, the Right is often unwilling to support more than basic research and development, believing private companies must bear the burden of bringing new products to market without support from the government. Because US firms must compete against firms from countries providing robust state-backed support to industry, the right-wing’s aversion to government involvement in industry has limited the success of US firms in many fields. 

By contrast, the US left-wing has historically cherry-picked technologies it views as worthy of support, promoting funding for wind, solar, and battery storage, while spurning other technologies like carbon capture and nuclear. The reasons for this rejection are manifold, including a belief that carbon capture prolongs the use of fossil fuels and overstated concerns about the cost and sustainability of nuclear energy. But, whatever the reason, the approach is dangerous—supporting innovation for some but not all clean energy technologies puts US firms at a disadvantage in the global marketplace and slows decarbonization. 

• Current US Approach: Through laws and executive orders, the Biden administration has demonstrated an understanding that the right-wing approach of solely funding R&D is simply not enough for new industries to thrive in the US. The Administration’s current approach also avoids the common left-wing practice of favoring individual technologies, while leaving others to go-it-alone without federal support. Instead, the Biden era has embraced a “tech-inclusive” approach, providing optionality as any given technology may advance to commercialization at scale and lower energy transition costs more quickly than other technologies. In this way, the strategy should lead to a step change in clean energy industrial growth. 

Degree of public-private collaboration: How closely a government collaborates with industry to chart an industrial strategy pathway can profoundly alter the shape and efficacy of that strategy. Some advocates have deep mistrust of the private sector and would argue that industry is self-serving and should be kept at a distance from policymaking. Or, on a more nuanced note, they would say that policymakers should develop strategy and only then give industry a chance to respond to it. 

In the current environment, with substantial change under way due to the drive toward US competitiveness and supply chain restructuring, our view is that a high degree of public-private collaboration is warranted—necessary, even. Yes, industry viewpoints should be verified and balanced by government and a solid backbone of data. But industry information is valuable too. Close collaboration between government and industry can help ensure adjustments to the strategy are made efficiently as market conditions change. Waiting too long for these signals to be recognized by policymakers could make for slower progress and loss of competitiveness among these clean energy industries. 

• Current US Approach: We see evidence of robust public-private sector collaboration engrained in many of the clean energy programs and advisory committees being deployed across key agencies. 

The Loan Programs Office (LPO) at the US Department of Energy works each day with private sector businesses who are on the cusp of bankability, supporting a cadre of companies who will be key to our future clean energy industries. LPO becomes immersed in applicants’ business and financial plans, including the applicants’ estimates of demand, cost structure of production, workforce requirements, and supply chain sourcing plans. This is all part of their due diligence exercises and developing data to support decisions regarding conditional, and then final, commitments over a 2-3-year period. 

The Department of Energy’s commercial liftoff reports are another example of active, strategic engagement between the federal government and the private sector. These reports include valuable information regarding industry conditions in many clean energy sectors. The Department’s introduction to these reports states: “These Liftoff Reports create a common fact base and a tool for ongoing dialogue with the private sector on the pathways to commercial liftoff.” 

The Li-Bridge Alliance is another successful example of public-private collaboration. Argonne National Laboratories convened a group of businesses in the energy storage industry and developed a collaborative process to make policy recommendations to the US Department of Energy. Argonne is working with other DOE national labs across the country to meet national Blueprint goals identified by private industry participants. Argonne leaders have facilitated this alliance through three US “convenor organizations”—NAATBatt International, New York Battery and Energy Storage Technology Consortium (NY-BEST), and New Energy Nexus. This approach is strategic and likely to generate better results because the private sector feedback loop is critical to understanding what type of policies work best. 

Across all these dimensions—aggressiveness, scale and tempo, ideological flexibility, and degree of private sector involvement—the Biden Administration’s current strategy has sought balance and moderation and a pathway that works for the United States, given our unique market advantages, resources, and political realities. For example, the private sector in the US is far nimbler and more responsive to market forces than the government ever could be. As a result, the largest incentives in the Inflation Reduction Act are tech-neutral and support all technologies that can deliver emissions reductions and other important goals, a model of moderation. 

At the same time, the market signals to which the private sector is responding are imperfect. Sometimes markets fail at activities that are in the nation’s broader interests, like national security or climate. In these cases, it is up to government to step in. In collaboration with the private sector, it can determine the most effective, cost-efficient way to incentivize the private markets to pursue these important goals that are in the national interest. The current approach has, thus far, provided the kind of support that allows the private sector to take risks, responding as best it can to market signals as firms venture into new markets. 

Impact of Biden Administration's Current Strategy

Guided by three laws and several executive orders, the Biden Administration’s industrial strategy is catalyzing opportunities for American industry to excel in producing and installing an array of key clean energy technologies such as energy storage, hydrogen, geothermal, nuclear, solar, wind, electric vehicles, grid infrastructure, and carbon capture. Federal financial incentives are catapulting commercialization to a point where increasing scale leads to lower costs, greater demand, jobs, and reduced emissions. 

As can be seen in the list below, this is a comprehensive approach that is rejuvenating US industry and rightly focusing on addressing clean energy supply chain and manufacturing vulnerabilities. 

• Bipartisan Infrastructure Law: Clean technology demonstrations; workforce development; infrastructure for power transmission, EV charging, CO2 transport and storage; critical minerals.
• CHIPS and Science Act: Investments in clean energy science, technology commercialization, manufacturing, and regional clusters. 
• Inflation Reduction Act: Clean energy tax credits and financing; supply chains; industrial decarbonization; place-based investment; federal procurement; siting and permitting; community engagement.
• Executive Order on Catalyzing Clean Energy Industries: Using USG procurement power to support clean manufacturing and achieve decarbonization goals.
• Federal Research and Development Executive Order: Linking R&D efforts directly to support domestic manufacturing and job growth.
• Supply Chains Executive Order: Significant step toward assessing supply chains for critical minerals and other products where vulnerabilities exist, and identifying gaps in US manufacturing capacity across supply chains.

The US is already seeing results from the implementation of these strategic efforts. a strong sense of the impact of the administration’s efforts and the profound impact of robust industrial strategy in advancing new industries. According to the Clean Energy Investment Monitor published by MIT Center for Energy and Environmental Policy Research and the Rhodium Group, investment is surging: 

• In 2023, clean energy investment surged to $239 billion, up over 35% as compared to 2022. Clean energy investment has nearly doubled in two years’ time. 
• Since Biden took office, these investments have grown from $31 billion in the first quarter of 2021 to nearly $71 billion in the first quarter of 2024. 
• Investment across twenty clean energy technologies now represents 5% of all investment in the US economy. On average, every dollar of federal investment is crowding in $5-6 in private investment. 
• In the 15 months since President Biden signed the IRA into law, there has been $287 billion of private investment into clean energy. Independent research on jobs and workforce development, like this Upjohn Institute report on battery manufacturing jobs, point to the significant growth in jobs and wages for non-college workers who can receive some skills training to take advantage of these opportunities. 
• Since the IRA was signed into law, 164 companies have invested in at least one clean energy manufacturing project. 

That impact is visible far beyond the White House, with private sector leaders publicly celebrating the impact of US industrial strategy. 

That said, no strategy is perfect, and the US has considerable work ahead to lead the global clean energy marketplace. There is still a need for a whole-of-government approach to partnering with the private sector on clean energy strategy—integrating current elements that are already in place, but not fully connected.²

Recommendations 

The Biden clean energy industrial strategy has set a pathway for US competitiveness. One of the foundations of this strategy is how the US government is actively engaging with the private sector. Government leaders explicitly acknowledge that policy stimulus can enable scaling of clean energy industries, but only when the private sector is leading. 

We have three recommendations for increasing the likelihood of successful outcomes delivered through public-private cooperation. 

1. Policy Scope

Policy scope refers to the breadth and depth of tools needed to implement a strategy. Clean energy industries that are competitive may need very little policy support. In contrast, emerging clean energy industries facing startup hurdles, lack of a viable manufacturing process, or financial challenges, may require a broader scope of policy support. 

• Analysis has found 50% of benefits of IRA won't be realized without rapid grid improvements. Third Way research with the Boston Consulting Group found that slow grid deployment was a leading barrier to US competitiveness in a wide variety of clean technologies. The Biden Administration has taken several major steps on transmission modernization and permitting reform, but legislative solutions are still needed on this front. Action is also needed to address the backlog of new generation projects waiting to be connected to the grid. 
• Robust trade policy and multilateral collaborations will be needed to combat the harm caused by subsidy-driven exports from China and make sure America’s clean manufacturers are not unfairly undercut by imports with higher carbon intensity. 
• Increasing the capacity of the US International Development Finance Corporation (DFC) and the Export-Import Bank (EXIM) to promote the growth and financing of export markets for clean energy. 
• The US needs creative solutions for “early adopter” customers who are leading in building demand and markets for emerging clean energy technologies. Public-private engagement that can stand up and support these advanced market commitments are important for prohibitive cost, “first of a kind” products. This is where capital structures that help to defray excessive costs of the initial units of production would open a gateway to accelerate volume growth. 

2. Policy Planning Capacity

There are many features of public sector capacity for policy planning. Many agencies have policy planning guides, and they are valuable resources.³ We highlight three ideas that would support clean energy industrial strategy. 

• Build on the existing capacity to monitor, measure, and assess US competitiveness. This can involve a host of activities. For example, submitting Congressional appropriations requests can include specific planning actions, such as the use of the national laboratories to identify and mitigate damaging supply chain gaps. Such requests, if fulfilled with appropriations, can improve planning capacity. Better publicly available data on clean energy economic activity, including timely job, wages, inventory, sales, orders, and shipments, would also enhance planning capacity. At present, most of these data are available with a significant time lag. 
• Create forums for public-private consensus-building and collaboration, like the Li-Bridge Alliance. Using the national laboratory leaders as a key intermediary between industry leaders represented in trade associations and the federal government, more alliances could be created to other clean energy technologies. At present, Li-Bridge is focused solely on battery storage. 
• Crafting and regularly updating “One Team” integrated government-wide strategy. A topline document that crystalizes the overall federal government clean energy industrial strategy and its top goals and targets, would be a meaningful guidepost for the private sector. 

3. Policy Reliability 

For the private sector, policy reliability is essential to making consequential investment decisions. A stable, ten-year time horizon is ideal. Most industries need to make investments that yield positive results in three to five years’ time. And those investments then set up the business to undertake planning for the next five years. Taken together, a 10-year outlook is very important for most industries, especially those in the business of manufacturing durable goods. While political forces may hamper stability, we want to have policy consistency wherever possible to maximize the advantages the US has in clean energy industries. 

All three of these recommendations tie together in a way that would bring durable benefits to American businesses and workers across clean energy industries, making them hallmark successes for future generations. Policy enhancements will create the connective tissue between government and industry necessary to implement a long-term strategy. Without expansive engagement and flow of information, such a strategy would falter. 

Conclusion

The Administration's clean energy industrial strategy can be a game-changer for our industrial competitiveness, economic growth, and job creation. The US has started on a path to competitiveness across a host of clean energy industries. This is being led by private sector businesses across the country, enabled by the incentives contained in the three signature laws passed in just the last three years. Leveraging the strengths of our market economy is the American way of building durable competitive advantage, delivering strong economic growth and jobs for future generations. The US has leaned into this proven approach to industrial strategy during the Biden era in a way that takes America’s unique strengths, challenges, and objectives into account, and should continue to do so for the long haul. 

The authors would like to thank George Washington University Research Professor Andrew Reamer for his helpful expertise and input to this memo.