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Heather Boushey, Chief Economist, Investing in America Cabinet

When the President took office, he identified a number of challenges in the American economy, including decades of rising inequality and the rapidly rising costs of climate change, which disproportionately harms lower-income communities. The President promised to build back better, putting in place a historic Investing in America agenda and prioritizing game-changing investments to enhance productive capacity across the country. But growth without equity is insufficient to empower working people and communities that for too long have been overlooked or left out by federal investment. Combatting systemic barriers and ensuring our Investing in America agenda reaches all communities improves people’s lives while also supporting a strong economy. For the 60th anniversary of the Civil Rights Act, the President is celebrating several achievements that have aimed to address inequality.

Since the beginning of this administration, President Biden and Vice President Harris have taken steps to advance equity and racial justice. From preserving African American history and culture to delivering a historically robust economic recovery for all Americans, the administration’s policies have prioritized equity. The President’s economic agenda does this by spurring investment in all communities – including in disadvantaged communities, and encouraging the creation of high-quality jobs.

This blog describes the economics of how investing in equity both empowers workers today and into the future and fosters stronger economic growth.

Improving racial and economic equity is a path to increasing overall economic growth

Addressing inequality leads to a more dynamic and resilient economy. Increased equity means that everyone has a chance to develop their skills efficiently and deploy their talents most effectively. Conversely, when people are unable to reach their full productivity because of discrimination or systemic inequality, the overall economy suffers.

Looking at these effects across the entire economy shows that the economic costs of inequity are quite high. For example, a study in Econometrica analyzes the changes in demographics of high-skilled occupations between 1960 and 2010. The authors estimate that during this period, improved job opportunities and talent allocation for women and communities of color drove up to 40 percent of the growth in aggregate U.S. gross domestic product (GDP) per person. Figure 1 depicts actual growth and growth in a counterfactual scenario without the increased access to opportunity.

These effects of inequality continue to reverberate throughout the economy. Research from authors at the San Francisco Federal Reserve Bank, Boston University, and Stanford University found that during the 30 year period from 1990 to 2019, the estimated economic cost to the total U.S. economy of racial and ethnic economic inequality was over $25 trillion. This study assumes that earnings were the same across all demographic groups, and then computes the labor earnings contribution to GDP. By eliminating these earnings gaps, prosperity would improve for racial minorities as well as the broader population. For instance, in 2019 alone, the authors find that eliminating gaps by race and ethnicity would have generated an additional $1.15 trillion to GDP.

The strong economic recovery made under President Biden has improved inequality along several metrics. Recent research shows that coming out of the pandemic recession, wage inequality has decreased—making a dent in decades of rising inequality. Using similar methodology to compute indexed real (inflation-adjusted) wages, the Council of Economic Advisers (CEA) found that in the post-pandemic period, low-income workers saw their wages grow by a higher percentage than those of high-income workers. Updated analysis indicates that between 2019:Q1 and 2024:Q1, real wages increased by 14 percentage points more for low-income workers than for high-income workers.

The economy has also made progress on reducing racial inequality. For example, CEA found that between the second halves of 2019 and 2023, real average wages increased 9.5 percent for Black workers and 6.7 percent for white workers, reducing economic inequality across race. The progress also extends to employment status. In April 2023, the Black unemployment rate hit an all-time record low of 4.8 percent (Figure 2). A strong economy produces benefits for workers of color, and as a consequence, improves racial equity.

Focusing on places too often left behind is good for growth

Addressing geographic inequality is another way to foster economic opportunity. Empirical evidence suggests that policies that actively encourage investment in places that are economically distressed generates relatively greater economic benefits. For example, according to one study, the economic benefits of policies that add jobs in targeted places are at least 60 percent greater in “distressed” regions than in “booming” ones.

The President’s Investing in America agenda centers this principle by targeting investments in historically underfunded communities. For instance, the Inflation Reduction Act specifically targets “Energy Communities,” which include communities historically reliant on fossil fuels for employment, wages, or tax revenue. The Energy Community Tax Credit applies a bonus up to 10 percent for production tax credits or 10 percentage points for investment tax credits for new initiatives in those communities. The U.S. Treasury Department reports that comparing before and after the passage of the Inflation Reduction Act, clean electricity investments rose in regions that qualified for this tax credit by an average of $1.4 billion per month more than in the rest of the country.

There are emerging indicators that private investors see the value of investing in communities that had been left behind. Private firms are disproportionately investing in places broadly defined as less advantaged. Prior to the Inflation Reduction Act, 68 percent of announced clean energy investments were in counties with incomes below the national median. After passage, that number rose to 75 percent. More broadly, the President’s economic policies are contributing to equitable growth across communities. As CEA has highlighted, the benefits of the strong economic recovery have been spread relatively evenly across U.S. states. The gap between the highest and lowest state unemployment rates hit a record low 3.2 percentage points in 2022 and was matched again in 2023.

The Biden-Harris administration is also committed to supporting minority-owned businesses. The Small Business Boom Report highlights that since 2020, both Black- and Latino-owned businesses saw a 4-percentage point increase in the share of government-backed Small Business Administration (SBA) loans. This represents a near-doubling for Black-owned business and more than a 50 percent increase for Latino-owned businesses. Over the past three years, total lending to these groups has accumulated to about $12 billion. In addition, in Fiscal Year 2023, a record $76.2 billion was awarded to small disadvantaged businesses, totaling 12.1% of federal procurement dollars.

Empowering workers can promote productivity and growth

Policies that empower workers can reduce barriers for workers as well as improve firm-level productivity. It is well documented that employers have high bargaining power relative to employees in the United States, more than other industrialized nations. Thus, higher unionization rates can increase compensation without reducing efficiency by redistributing labor market power. Unionization and paying workers fairly can reduce inequality, increase wages, and improve productivity. Furthermore, strong labor standards may communicate information about the quality of firms in the context of government contracting. One study demonstrates that companies that violate labor standards are also more likely to have performance problems.

Conclusion

There are many economic benefits to investing equitably and empowering communities. The Biden-Harris Administration is committed to tackling inequality and issues that prevent workers of all backgrounds from reaching their full potential. While progress has been promising thus far, our Administration will continue to make our economy work for all Americans from every background and community.

The post How Investing in Equity Fosters of the Goals of Investing in America appeared first on The White House.

Heather Boushey, Chief Economist, Investing in America Cabinet

Justina Gallegos, Deputy Director for Industrial Innovation, Office of Science and Technology Policy

This represents an updated version of the original December 2023 publication here.

In 2021 and 2022, President Biden signed into law his Investing in America agenda, a series of strategic public investments in industries critical for the long-run economic growth of the United States. These included the largest investment in reducing carbon emissions in American history. The clean energy investments in the agenda—primarily in the Bipartisan Infrastructure Law and the Inflation Reduction Act—include incentives for manufacturing across the clean energy supply chain, investments in demonstration projects, loans and loan guarantees for a variety of clean energy technologies, and production and investment tax credits for clean energy generation. This suite of public sector tools provides unprecedented investment certainty to the private sector, with several provisions of the Inflation Reduction Act extending over a decade.

The most recent available data indicate the President’s agenda has supported robust investment in the construction of manufacturing facilities and strong performance in key targeted industries including solar and wind energy, grid-scale energy storage, and electric vehicles.

This brief highlights progress-to-date towards deploying these clean energy technologies and documents continued achievements in the six months since its original December 2023 publication. It describes how the President’s Investing in America agenda is translating into tangible outcomes and progress towards the President’s climate goals, and it outlines how the deployment of clean energy technologies will lower greenhouse gas emissions, improve energy security, and spur economic growth across the country.

Investment in the construction of clean energy manufacturing facilities is exceeding expectations.

As explained in a 2023 issue brief, the Investing in America agenda is intended to catalyze strategic private sector investments, and initial signs indicate private companies are already responding. Since January 2021, private companies have announced nearly $880 billion in new investment, including over $410 billion in clean energy manufacturing, EVs and batteries, and clean power generation.

One of the first ways these private clean energy investments will be visible in the economic data is through the construction of manufacturing facilities. Indeed, since President Biden took office, inflation-adjusted spending on the construction of manufacturing facilities has more than doubled. This increase has exceeded forecasters’ expectations, suggesting that the Investing in America agenda is catalyzing more private-sector funding than initially expected (Figure 1).

This growth in the construction of manufacturing facilities is strong relative to growth in other forms of construction. For example, inflation-adjusted manufacturing construction spending increased by nearly 40 percent since January 2023. Meanwhile, other types of non-residential construction grew 7.6 percent over the same period (Figure 2).

The Investing in America agenda is driving clean energy deployment.

Other data sources indicate that the public clean energy investments in the President’s Investing in America agenda will translate into unprecedented private sector clean energy deployment in the coming years. In many cases, the acceleration is much faster than forecasters had previously anticipated.

Solar and wind power deployment

A central goal of the Investing in America agenda is to increase the amount of electricity generated from clean sources like solar and wind, which will lower energy costs, improve energy resilience, and cut greenhouse gas emissions. Near-term investments in manufacturing, coupled with incentives like tax credits, are intended to reduce the costs of deploying clean energy at scale.

There has already been notable progress towards expanding U.S. solar and wind manufacturing capacity. For example, since the Inflation Reduction Act was signed into law in August 2022, there have been nearly $17 billion in planned U.S. solar manufacturing investments (a 31 percent increase since December 2023), representing 126 new facilities and/or expansions.

As the manufacturing base expands, solar and wind deployment are projected to grow rapidly—considerably faster than projections before the Investing in America agenda was signed into law. According to the latest Annual Energy Outlook (AEO) forecast[1] from the U.S. Energy Information Administration, the United States is on track to have about 340 gigawatts of solar capacity by 2030—nearly twice the capacity forecasted in the beginning of 2021 (Figure 3).[2] Already, from the beginning of the Administration through May 2024, installed solar capacity on the grid has more than doubled. In 2023, the United States added more utility-scale solar to the grid than ever before in history—and in 2024, planned projects are expected to more than double last year’s record (Figure 4).

Likewise, for wind energy capacity, the latest AEO forecast estimates that the United States will have about 300 gigawatts of wind capacity by 2030, a 43 percent increase from the 2021 projection (Figure 5). For context, this estimated capacity from solar and wind in 2030 would be roughly double the total existing renewable capacity on the grid at the end of 2022.  

Grid-scale energy storage deployment

Energy storage is another essential component of a clean electricity grid. Battery storage—either via grid-scale battery systems or an aggregation of smaller batteries in a virtual power plant—enables the storage of excess electricity from wind and solar power that can be put back on the grid when it is needed the most, helping to reduce total energy costs and accelerate decarbonization.

Incentives from the President’s Investing in America agenda are spurring historic deployment of large-scale energy storage capacity. Following the passage of the Bipartisan Infrastructure Law and the Inflation Reduction Act, forecasts show a dramatic expansion in expected storage capacity, far outpacing previous estimates (Figure 6). Further, deployment is already ahead of even the latest forecasts. Storage capacity had increased nearly twelve-fold since the beginning of the Administration, and, at the end of 2023, capacity was over 40 percent higher than the 2023 forecast. Deployment is expected to advance even further ahead of the forecast in 2024—about double the expected deployment—if all planned projects come online. This would also represent a near doubling of the total storage capacity on the grid (Figure 7).

Electric vehicle sales

The large-scale adoption of electric vehicles (EVs) can lower energy costs, improve air quality, cut climate pollution, and reduce noise pollution. Throughout the United States, it is cheaper to charge a vehicle using electricity than to fill it with gasoline. The average EV in the United States produces fewer emissions than the average new gasoline-powered vehicle, even when accounting for the current electricity mix of the U.S. grid. The Inflation Reduction Act is projected to double the share of clean electricity generation by 2030, further lowering the total carbon footprint of current and future electric vehicles as the grid becomes cleaner.

To reap the benefits of this technological innovation, the Investing in America agenda includes a range of incentives designed to support the EV industry. This includes investments to support EV and battery manufacturing, funding to bolster and support a national network of EV chargers, and consumer tax credits to lower the cost of purchasing an EV. Private sector actors are responding to these incentives. Since the beginning of 2021, firms have announced nearly $180 billion in investment to manufacture EVs and EV batteries—an 18 percent increase since December 2023.

New EV models are offering consumers more options while bringing down prices. Between 2021 and 2023, the number of EV models increased from 34 to 55, with 14 new EV models in the last year alone. Further, since the beginning of the Administration, the number of public EV charging ports has nearly doubled—with about 1,000 new charging ports coming online each week.

EV sales have risen rapidly during this period, from roughly 20,000 sales per month in 2019 and 2020, to over 95,000 per month in 2023 (Figure 8)—a nearly five-fold increase. At the start of 2023, forecasters estimated that beginning in 2026, more than one million EVs would be sold each year, and by 2030, nearly 1.8 million EVs would be sold—more than five times the forecast in 2021 (Figure 9). Actual sales have surpassed these forecasts. More than one million EVs were sold in 2023—three years ahead of the projections made earlier this year and 18 years ahead of the projections made in the beginning of 2021.

Clean energy deployment builds a better economy for Americans.

Manufacturing and deploying clean energy technologies enables the United States to accelerate towards meeting the Biden-Harris Administration’s climate goals. Doing so means reducing the impacts of climate change by cutting emissions, while also improving energy security and reliability and spurring equitable economic growth. Some of these investments are spread out over a decade, meaning many of the associated benefits will accrue over time. Forecasters’ estimates preview some of these benefits to come.

First, more rapid deployment means more rapid progress towards preventing and mitigating the impacts of climate change. According to the most recent U.S. government forecast, U.S. emissions could fall nearly twice as much by 2030 compared to before the Inflation Reduction Act and Bipartisan Infrastructure Law were in place. To the extent that deployment is indeed faster than originally anticipated, these emissions projections would improve even more.

Second, deploying clean energy can improve U.S. energy security and reliability while lowering energy prices. According to the U.S. Department of Energy, by 2030, the share of electricity from clean sources could grow to 80 percent—nearly twice the expected amount before the Inflation Reduction Act passed. Strong growth in domestic clean energy industries supports energy security, reliability, and supply chain resiliency while creating good jobs. Deploying more clean electricity sources will provide opportunities to increase energy system reliability and security by reducing overreliance on traditional fuel sources alone. Increased long-duration energy storage capacity can also reduce outages and improve energy reliability. Meanwhile, new technologies like virtual power plants and other distributed energy resources can improve overall grid reliability. Similarly, the transition to electric vehicles can reduce U.S. consumers’ exposure to macroeconomic shocks from oil price volatility.

Third, investments in clean energy can contribute to long-term, broad-based economic growth. In the aggregate, strong investments in manufacturing construction are contributing to gross domestic product (GDP) growth (Figure 10). In the latest data, private manufacturing facility construction contributed 0.2 percentage points to the total 1.4 percent real 2024:Q1 growth. This is after three quarters of record annual contribution to GDP growth since the U.S. government began collecting these data in 1959.

A recent analysis by the Clean Investment Monitor estimates that for fiscal year 2023, each dollar of public investment from federal tax credits, grants, loans and loan guarantees may have spurred at least $6 of private investment. In the long-run, these public and private investments in clean energy are likely to pay for themselves in terms of the benefits accrued. A working paper estimates that the production tax credit in the IRA will boost U.S. GDP by lowering the cost of electricity, meaning it generates more benefits than it is expected to cost—without even counting the benefits from reduced carbon emissions and air pollution.

Conclusion

In order to meet the Biden-Harris Administration’s ambitious climate goals, the United States needs to deploy clean energy at an unprecedented scale. To lower emissions across sectors like industry, power generation, and transportation, there is a need for generational investments in not only clean power generation but also related technologies like grid-scale energy storage and electric vehicles.

President Biden’s Investing in America agenda responds to this need with carefully designed incentives to mobilize private sector investments, including in clean energy technologies. At the macroeconomic level, there is already strong evidence that private sector commitments are translating into tangible construction projects to build new manufacturing facilities.

In critical clean energy industries, the latest available data indicate that the Investing in America agenda is enabling the United States to outpace previous projections of the rate at which the country would move towards its clean energy goals. Current data suggest the United States is moving rapidly towards a clean energy economy, even faster than many forecasts—both forecasts prior to the enactment of the President’s agenda and, for some technologies, forecasts immediately after the enactment of the agenda—had anticipated.

These investments will ultimately improve the economic and social wellbeing of Americans. Together, these latest data show that roughly a year since the passage of the Bipartisan Infrastructure Law and the Inflation Reduction Act, the President’s Investing in America agenda is already generating benefits—economic and otherwise—to the American people. Looking ahead, the latest forecasts suggest these investments are mobilizing more activity than previously anticipated. Greater manufacturing capacity and deployment of clean energy, energy storage, and electric vehicles translate into lower greenhouse gas emissions, improved energy security and reliability, and stronger economic growth.

[1] The 2023 forecast uses case assumptions frozen in mid-November 2022, so it incorporates the Bipartisan Infrastructure Law and Inflation Reduction Act (except for certain provisions where guidance was not yet available). The 2022 forecast includes the Bipartisan Infrastructure Law but not the Inflation Reduction Act.

[2] This does not include small-scale solar power systems, such as those on residential rooftops, which accounts for 49 gigawatts of additional solar capacity as of April 2024.

The post Building a Thriving Clean Energy Economy in 2023 and Beyond: A Six-Month Update appeared first on The White House.