The true significance of major national development efforts—the transcontinental railroad, the New Deal, the Great Society—is knowable only with hindsight. So it will prove to be with the Inflation Reduction Act (IRA). What is certain is this: It is the most ambitious piece of climate legislation passed by any government in history. Whether history will place it in the esteemed company of those previous efforts that have reshaped America’s trajectory remains to be seen and will depend on whether we can sharpen our understanding of its political economy, tame its headwinds, and hasten its international dimensions.

The IRA’s basic logic goes something like this: After decades of treating fossil fuel emissions as an externality to be addressed through putting a price on carbon and otherwise “leaving it to the market,” it became clear this strategy was neither politically viable nor sufficient to decarbonize in the time we have. So began a shift in mindset to seeing emissions not simply as a market failure, but as a problem of political economy, industrial organization, and technological innovation—one better solved through public investment that crowds in private investment into clean energy industries and, thanks to accompanying labor provisions, creates specifically good jobs. That this investment, in seeking out cheaper land and labor, would flow to rural areas and red states was a feature, not a bug; these are the areas of the country most skeptical of climate efforts, and giving them an economic stake in a low-carbon economy might ease the uphill politics in bringing it about.

This shift in mindset amounts to a trillion-plus dollar bet that the country can use the clean energy transition not as mere climate policy, but as the vehicle to heal some meaningful share of the country’s economic woes, and possibly, in so doing, demonstrate that democracy generally (and Washington specifically) can still do big things on the problems of the day.

Implicit in this wager are several decarbonization, economic, technological, and political economy aims. Best estimates across most of these fronts are encouraging. The IRA will likely reduce emissions in the United States by roughly 40 percent from 2005 levels this decade, and by as much as 48 percent come 2035. The some $1.2 trillion in public investment will likely unleash another $3 trillion in private green investment. This should mean roughly nine million jobs over the next decade in clean energy. Families can expect to save as much as $112 on energy costs each year by 2030, based on Rhodium Group estimates.

These investments will also sharply lower clean technology cost curves for the entire world, much as Germany’s early investments in solar in the 1990s proved to be game-changing for solar cost competitiveness and deployment globally. By some estimates, the IRA could lower the cost of certain clean energy technologies by up to 25 percent globally. Separate analysis by the Rhodium Group finds that the IRA will ultimately reduce carbon dioxide emissions by 2.4 to 2.9 tons outside the United States for every ton it reduces within it.

In short, the projected economic, decarbonization, and technology benefits of the IRA are compelling. Realizing these projections, though, depends not just on the federal government’s ability to execute; it also rests on the logic of the IRA’s political economy panning out—namely, the notion that as clean manufacturing jobs arrive and electricity bills fall, public support for these and future clean energy efforts will strengthen. But will it?

The Uncertain Political Economy of the IRA

This political economy story sounds plausible. Certainly, no one has forwarded a better alternative for broadening public support for the IRA and successive efforts. But the evidence base is scant (it is likely too early to know), and the underlying logic needs sharpening.

Polls are of little help. Those looking for points of optimism can find them. For example, 71 percent of registered voters in South Carolina support development of renewable clean energy in the state. The same is true, though, for pessimists: In a 2022 Pew survey, just 23 percent of Republicans considered climate change a major threat, a share roughly identical to ten years ago. A Pew survey from January found that Republicans rank the issue last among their priorities, with just 12 percent describing it as a top priority.

Polling aside, one concern is that the U.S. political cycle is simply too short to test this theory. Announced investments are one thing. Newly constructed factories or utility solar installations are quite another. Most will likely take 24 months from conception to operation in the best of economic conditions (and, as noted below, interest rates above 5 percent do not make for favorable economic winds). The dearth of ribbon cuttings to showcase during President Biden’s reelection bid was thus probably unavoidable, and the November elections may well decide the fate of the IRA before it has a chance to improve the country’s politics on climate.

Even if the IRA has enough runway to test the optimists’ assumptions, another concern is that the precise political economy mechanism(s) for this “green flywheel” are underspecified—that is, just how this political support might coalesce remains hazy. Is it really that these benefits are meant to have meaningful salience to right-leaning voters? If so, the law’s low public salience is one reason to worry (according to one August 2023 poll, more than 70 percent of Americans know little or nothing at all of the IRA). Even if the IRA’s material incentives and investments were able to sway public attitudes among conservatives, Republican leaders’ ample track record of staking out positions at odds with their electorate’s beliefs and paying little political price might be cause for concern. Is this meant to play out only in purple states, some of which (like Wisconsin and Pennsylvania) are underweight in IRA-linked private investments, or also in deeply red states, where there is no shortage of these investments but where negative attitudes might be more entrenched?

Or, perhaps more likely, the mechanism for broader political support will come less through voters and more through state and city leaders who like these federal dollars enough to pressure their congressional delegations to keep them flowing; and through clean energy industry voices, whose presence is growing quickly, and who will argue for their interests in Washington as effectively as any large U.S. industry.

It is vitally important to get clearer on which of these versions—persuading voters or relying on public- and private-sector leaders—we’re betting on, not least because they imply starkly different strategies for the array of advocates, policymakers, and funders working to maximize the IRA’s economic and climate impacts and deepen its root structure of support. One feature common to both versions is how heavily they rely on finding purchase among conservatives and industry, which is not a point of strength for the bulk of the left-leaning ecosystem implementing the IRA. Thus far, it shows. The ecosystem implementing the IRA remains underweight on effective surrogates and messages for these right- and industry-leaning audiences.

Finally, this political economy story might be sound and well executed but ill-timed, caught by an unlucky set of confounding other variables. IRA implementation could well produce a bump in public support for decarbonization—but one that is nonetheless overpowered in the voting booth by highly salient issues like inflation, immigration, or even foreign policy. Had it been tested in quieter times, in other words, the extent to which it might shift the political needle for the better could well be different.

Green Shoots and Headwinds

What the IRA’s precise political economy mechanisms are, and how well they will hold up, is but one (large) factor in the act’s ability to realize its longer-term potential. Federal, state, and often local officials must do their part, too, and the Biden Administration deserves high marks for the breakneck speed at which it has moved the IRA’s grant dollars and implemented its regulations. And what we know of the economic data thus far suggests reason for optimism that things are on track. Investment in manufacturing construction is sharply up, as are jobs in clean energy. A joint MIT-Rhodium Group analysis found $225 billion in new investment in the manufacture and deployment of clean energy, clean vehicles, building electrification, and carbon management technology in the United States across the IRA’s first year, a 38 percent annual increase. A record $64 billion of this investment occurred in the third quarter of 2023, up 8 percent from the previous quarter and 42 percent compared to the same period last year.

But there are real headwinds that could derail this momentum. The main barriers are well known and oft-lamented. The scale of what needs building—from 75,000 miles of new transmission lines to mines capable of supplying the United States with hundreds of thousands of new tons of critical minerals per year—is staggering. Getting there will ultimately come down to social license—public acceptance of the business practices needed to alter the physical landscape at this magnitude. Siting and permitting, in other words.

Siting and Permitting

The growing push for legislation to accelerate siting and permitting is essential and has been well covered in the press. Alongside this legislative debate, the IRA already contains the tools that could well create new sources of public wealth while also addressing the social license question. “Community benefits agreements” (CBAs), which are incentivized but largely not mandated by the IRA, essentially allow the host community a foothold to negotiate for some share of the economic upside of a given project. Traditionally, CBAs have been confined to modest asks such as playgrounds, but there is nothing preventing more structural requests (e.g., labor neutrality agreements that strengthen the likelihood of unionization, or profit-sharing). It stands to reason that CBAs that provide more meaningful economic benefits could well increase the likelihood of community approval.

“Direct pay” provisions, another novelty of the IRA, allow for entities without tax liability (for example, municipalities, co-ops, and other nonprofits) to take advantage of the law’s clean energy tax credits. This turbocharges public ownership options as a means of wealth creation. Rural communities in states like Tennessee have used the revenue from community solar installations to preserve ambulance services. By replicating versions of this story across the country, both CBAs and direct pay could well offer one solution to the earlier question of how to find purchase in red and rural areas. If a community- or utility-scale solar installation is what preserves emergency services in your county, you need not be moved by the climate benefits to go along.

Monetary Policy

Second, the United States has settled into a tight monetary policy that the Fed appears in no hurry to unwind, even as inflation is now largely and happily finished. Despite inflation receding, interest rates remain at 22-year highs. Continued labor market and GDP resilience, and lingering concerns about supply chain disruptions (shipment through the Red Sea, most recently) will feed the Fed’s natural urge to cut slowly. While the majority of the economy may well manage just fine through the realities of higher rates for longer periods, those rates could well prove lethal for the subset of capital-intensive clean energy investments the United States just passed historic legislation to create. A 2022 analysis found that higher rates would drastically increase the cost of electricity from clean energy sources while only slightly raising the cost of gas-powered electricity. If the Fed maintains unnecessarily high interest rates, it is unclear if another investment window of such once-in-a-generation proportions will come anytime soon.

Further strengthening the case for swift cuts is the fact that these investments are themselves deflationary over the medium term, removing one of the leading drivers of inflation—namely, oil and gas price spikes.

China Back at It

Compounding historically high financing costs, the Chinese government is tripling down on subsidizing overcapacity in several IRA-relevant areas, from solar and wind to much of the electric vehicle supply chain. China has built production capacity in electrolyzers—machines used to make green hydrogen fuel—to more than four times current global demand. It has cornered the market on green shipping fuels. This overcapacity, combined with a favorable exchange rate thanks to China’s ongoing economic weakness, means a glut of artificially cheap Chinese goods further straining the economics of many already announced and potential IRA investments. This suggests the need for further trade measures to protect these investments from Chinese overcapacity. The best way to do this is to replace the Trump-era legal justification for broad tariffs against China—which invokes section 301 of the 1974 Trade Act—with a new, “green” 301 claim (also aimed at China). Section 301 investigations are useful in dealing with often protean Chinese trade abuses because the law grants the President broad powers to combat unfair trade practices, and allows for a range of remedies, including but not limited to tariffs.

Supply-Demand Mismatches

To these three headwinds we must add a fourth: the difficulty of building entire EV, solar, wind, hydrogen, etc. supply chains all at once, as supply and demand variables for the often dozen or more intermediate products and processing steps are notoriously tricky to match up. A lack of EV chargers is among the factors slowing the growth of EV sales, and softening EV sales growth in turn softens lithium prices, which then deter the investment needed to head off looming lithium supply shortages in three to four years. (Lithium is a crucial ingredient in most electric batteries.)

This is a known problem, and solutions exist—government procurement and production, price insurance, guaranteed offtake (a commitment from a buyer to purchase a given volume of product), strategic stockpiling, and contracts for differences (risk-sharing agreements that create price certainty), to name a few—but they are currently underdeveloped and not well understood as parts of a larger whole. We need to augment and organize them into a larger taxonomy of “market-shaping” tools, and then push their adoption across the various agencies of government, which need to understand their new remit as market shaping at every node of a given green supply chain to ensure that underdevelopment in one area doesn’t stymie the whole sector.

The IRA as Inspiration

The full legacy of the IRA will depend in part on the extent to which it inspires the rest of the world to follow suit, either on the narrow question of a better route to decarbonization or on the larger question (addressed below) of tapping a successor to neoliberalism. National Security Advisor Jake Sullivan issued a call to this effect last spring: In a major address, Sullivan sought to resolve the diplomatic tensions sparked by the IRA by calling on the United States’s partners to join in and develop tailored IRA-like efforts of their own. He went further—not only would the United States endorse others following suit, but it would also overhaul much of U.S. foreign policy to make the United States an active source of help.

But this, as Sullivan effectively admitted, would be a years-long project. Authorities at agencies like the Development Finance Corporation (which provides loans and risk insurance for overseas infrastructure) need to be expanded, as do laws like the Defense Production Act. New multilateral arrangements need to be attempted: For example, if the European Union is unable to find common ground with the United States on a clean steel arrangement, the United States should shop for a different negotiating partner, perhaps Australia, Norway, or Canada. I’ve written elsewhere on the need for a critical minerals arrangement that includes both net importers and exporters, as well as measures like price insurance, more generous profit sharing, tariff reductions, strong labor and environmental standards, technology and recycling incentives, and more.

With the Administration now into its final year, these efforts need faster progress. A good first step would be returning to Sullivan’s vision and translating it into an earnest plan, backed by clear targets (e.g., building out certain quantities of green supply chains with allies) and a push for resources—a kind of “arsenal of democracy,” built together by the United States and its partners, all squarely focused on ensuring its members do not simply trade dependence on Middle Eastern fossil fuels for dependence on Chinese clean energy. Surely such an effort would be deserving of 1 percent of the U.S. defense budget (or roughly $8 billion).

But perhaps the most profound legacy of the IRA will be the way it has reframed the problem of climate change—away from a market failure to be remedied through an explicit price on emissions to instead a problem of politics, industrial organization, and technology. This shift matters for more than just the immediate decarbonization and economic gains it enables. Just as FDR’s New Deal offered a proving ground for Keynesianism, the IRA (together with the Bipartisan Infrastructure Law and the CHIPS and Science Act), may well do the same for a post-neoliberal consensus.

Whether this happens depends as much on those attempting to shape this consensus as on the implementation success of the IRA. As journalist Eric Levitz has observed, it requires a better debate than the one that has so far transpired on “everything-bagel liberalism” (referring to the charge that progressives tend to load a range of social and economic goals onto a given effort until it risks collapsing under its own weight). Whatever else such an improved debate entails, progressives need to reckon more squarely with tradeoffs and timelines surrounding the outcomes they claim to want to bring about. So, too, those on the side of “building faster” too often miss how the problems go deeper than just excessive regulatory red tape. Often, what’s needed is less clearing of regulatory underbrush and more a wholesale rethinking of the underlying theory of regulation. Take utilities and electricity markets, for instance, where ideas of regulated monopolies and conceptions of public interest need to be fundamentally rethought to address problems of fossil emissions, the economics of energy transition, and industry capture.

The outlines of this new consensus are coming into view. Partly, it is what Ezra Klein has called “a liberalism that builds,” and what Dani Rodrik has called “productivism”—albeit both at home and abroad. Unlike Keynesianism, it focuses less on stimulating demand (through redistribution), as Rodrik notes, and more on the supply side (mounting public investments in upstream infrastructure). But it cannot stop there. This new consensus must also write power, both economic and political, back into the script, deploying antitrust to curb monopolies, unabashedly promoting unions, and making place-based investments to heal the communities hit hardest by decades of unfettered free markets and globalization. We should guard against triumphalism. But if we can do these things—marry these two ideas into a new governing wisdom on the big questions of markets and capitalism, address the IRA’s not-small headwinds, and sharpen our understanding of its political economy—there is also reason to hope that history will footnote the IRA as the central example of this new consensus.