By Steven Cohen, Ph.D., Director of the M.S. in Sustainability Management program, School of Professional Studies
The demise of federal subsidies for renewable energy and electric vehicles (EVs) is a mistake, but far from fatal. It’s a foolish economic policy because it will enable subsidized companies in China and elsewhere to develop these new technologies faster than American companies and, in that sense, own the future of energy and EV technology. Just as Americans bought Japanese autos and electronics in the last quarter of the twentieth century, when trade barriers are eventually lifted, we will probably be buying Chinese-made cars, solar cells, and batteries. Perhaps Chinese companies will imitate the Japanese companies and build assembly plants in the United States. I am confident that American automobile manufacturers will remain invested in EVs over the long run. They understand that one way or the other, renewable energy and electric vehicles are the future. Fossil fuels and internal combustion engines are the technologies of the past.
If the Trump administration wasn’t busy destroying university-based science and technology research, I’d probably be writing that the end of subsidies might well stimulate technological advances to enable the American renewable energy and electric vehicle industries to compete with fossil fuels and subsidized foreign renewable energy technologies. That may yet happen. Subsidies accelerate the use of current technologies, and their removal increases the pressure to innovate and risk newer, lower-cost but unproven technologies. The rapid deadlines on the removal of subsidies under the new Trump tax bill encourage the use of off-the-shelf technologies to complete projects before subsidies end. On the other hand, the change in the tax treatment of corporate research and development costs in the “big, beautiful bill” may also stimulate innovation, since companies can now take immediate tax deductions for research expenses as soon as they are incurred. Under Trump’s 2017 Tax bill, research and development expenses could no longer be immediately deducted as a business expense. Trump’s 2017 bill required companies to amortize domestic research expenses over five years and foreign research over 15 years.
I do not share the gloom and doom projections of the companies losing subsidies and the reporters predicting the negative impact of the demise of the Inflation Reduction Act. The business cases for renewables and EVs remain. However, the environment for American technological innovation is unstable and uncertain. Reporters should acknowledge that uncertainty. I am surprised that the red state members of Congress abandoned the green subsidies that companies in their states were receiving and have not been fighting the cuts in their own jurisdictions’ university-based scientific research. I am learning that these legislators seem to prefer the trappings of power to its exercise. Federal subsidies and research grants were accelerating the transition to a decarbonized economy. They were incentivizing American scientific research along with the manufacturing of batteries and electric vehicles. But it is difficult to predict the short-term future of energy technology. At a minimum, we must first step back from the death throes of the fossil fuel industry and the culture war effort to ensure its survival and take a hard look at the trends in energy use around the globe.
Fossil fuels remain the main source of energy in the world, powering 80% of our energy needs. But as renewable energy technology develops, its use is growing. In 2007, fossil fuels peaked at 68.3% of electricity generated globally, with 18% renewable and 13.7% nuclear. By 2024, fossil fuels generated 59.1% of electricity, with renewables up to about 32% and nuclear down to 9%. The trend line favors renewables, although we need to acknowledge the generation-long duration of the energy transition. The supposed fatal flaw of solar and wind energy is that they are intermittent. One solution to that flaw is battery storage of energy. As renewable energy and battery storage technology advance, prices will continue to come down, taking advantage of the fact that the price of solar radiation is zero. Fossil fuels must be owned, mined, and transported before they are burned. Financial and environmental costs are incurred throughout the production process. The sun and wind are everywhere, and you can’t beat the price. That is a price advantage that finite fossil fuels will eventually fall victim to. Nuclear power also shares, to a degree, the disadvantages of an expensive and dangerous source of fuel. The trend lines are in place; the only question is how long the transition to renewable energy will take.
For those of us concerned about climate change, a shorter transition is better than a longer transition. But the growing need for energy in our high-tech economy will be met one way or another. Artificial Intelligence will not use as much power as now projected, but it will grow and require much more energy than it now uses. The economic need for energy will be satisfied by the lowest-cost, most easily accessed sources of energy. The speed of the transition to renewable energy is not only a function of public policy but also of the development and diffusion of new technologies. Public policy can accelerate the development of new technologies, but its use or diffusion in the economy is largely determined by market forces. Biden’s renewable energy subsidies and Trump’s removal of them both influenced energy markets. Biden encouraged, and Trump is now discouraging, private investment in renewable energy. The psychology of private investment is impacted by public policy. Subsidies encourage investment; their loss can discourage it. Given the wild gyrations of federal policy of the past several years, I suspect investors will avoid dependence on United States federal renewable subsidies in the future. While the absence of subsidies will change the investment environment for American renewables, those investments appear to be continuing.
Subsidies are one form of public policy, but so too is the tax treatment of research and development. As noted above, immediate expensing of research and development and lower corporate tax rates could stimulate innovation in an industry where new technologies are being rapidly developed. It is difficult to predict the probability of corporate technological innovation in the United States because of the Trump administration’s war on American research universities and immigration. Many of the talented scientists and engineers who have built America’s cutting-edge technologies came to this country as international students and studied in the research universities now seeing their federal funding evaporate. Remove foreign science students and basic university science research, and the brainpower available for American technological innovation is significantly reduced. In the brain-based, high-tech 21st-century global economy, the U.S. government is looking backward to the brawn-based economy of the mid-20th century with its belching smokestacks, oil rigs, and macho management. The factories of the future will be automated, cleaner, and far less profitable than the heterogeneous and merit-based places where products and services are designed and created. If we abandon science and technological innovation, we are abandoning the greatest single source of our wealth.
My view is that more advanced renewable energy and EV technologies are coming. They are already under development. The only question is: What role will the United States play in this new energy and transport economy? The wealth and sheer size of America’s economy and our history of technological innovation will ensure that our capacity to innovate will persist. A great deal depends on the survival of the creative and entrepreneurial culture that has long nurtured America’s technological dominance. Resources are needed to fund basic and applied research. Talented immigrants must be encouraged to study and work here. Freedom of thought and expression stimulates scientific creativity. The atmosphere of fear that Trump and his helpers have engendered in universities and immigrant communities discourages technological ingenuity.
My conclusion is that the future of American renewable energy and electric vehicle production and innovation is uncertain. Globally, these technologies are coming. The question is: Will the world’s largest economy be an inventor and manager of these technologies, or will we be consumers of technologies designed and produced abroad? Renewable energy and electric vehicles will help reduce greenhouse gas pollution, but that is a side effect. They will be adopted because they are less expensive, more reliable, and more efficient than fossil fuels and internal combustion engines. Solar energy generation and storage can be decentralized and operate when the grid is down, and the operation and maintenance costs of electric vehicles are already lower than those of internal combustion vehicles. The technologies of the future are clear; America’s role in that future is not.
Views and opinions expressed here are those of the authors, and do not necessarily reflect the official position of Columbia School of Professional Studies or Columbia University.
About the Program
The Columbia University M.S. in Sustainability Management program offered by the School of Professional Studies in partnership with the Climate School provides students cutting-edge policy and management tools they can use to help public and private organizations and governments address environmental impacts and risks, pollution control, and remediation to achieve sustainability. The program is customized for working professionals and is offered as both a full- and part-time course of study.
