MALINVESTMENT: IRA Subsidies Are Driving Investment Decisions In A Dangerous Direction.

One result of having perhaps the worst possible class of people – politicians – making all these multi-billion-dollar decisions for the rest of us comes clear in the perverse incentives and unintended consequences the policies are now creating.

One of the best illustrations of this is the IRA/EPA policy effort to force 2/3rds of the U.S. transportation fleet to convert to EVs by 2032. The IRA contained the carrot of heavy incentives and subsidies for EV makers and consumers, and the EPA is implementing the stick of new tailpipe emissions and mileage standards designed to crowd most current internal combustion models out of the market.

This carrot-and-stick policy approach comes at the same time the U.S. power generation sector faces an already-severe and growing shortage of the transformers that are integral to any power generation or transmission project. It is now taking up to 4 years to source high voltage transformers, most of which are made overseas and moved via supply chains largely controlled by China.

The obvious problem here is that recharging millions of additional EVs will place an enormous new load on the nation’s power grids, a fact that Tesla CEO Elon Musk says will require at least a doubling of generation capacity in the coming years, and that even the Biden administration admits will require the build-out of 47,000 miles of new high-capacity transmission lines.

But get this: Neither the IRA nor the 2021 infrastructure law included subsidies or incentives targeting transmission or transformers.

Oh.

Just a reminder that all this DC-directed spending won’t deliver the promised results, will deliver a lot of misery or at least inconvenience, and come at the cost of productive investments required for healthy economic growth.