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Brooks Wilson's Economics Blog: The Batteries Tradeoff: American Jobs Vs Clean Environment

Monday, May 18, 2009

The Batteries Tradeoff: American Jobs Vs Clean Environment

Economics involves tradeoffs.  The tradeoff is not one I believe[1], but based on goals stated by the Obama administration: clean energy and domestic job creation.  Two pieces of legislation exemplify these goals, one passed, the other pending.  The stimulus package, formally known as the American Recovery and Reinvestment Act, provides $190 billion of funds for green energy research and development, including batteries.  Pending legislation would provide funding for 100,000 U.S. made plug-in hybrid cars.  Both bills include buy American provisions.  Richard Waters, describes the current battery market (Battery makers view for US aid," Financial Times, May 17, 20090.  The emphasis added is mine.
A handful of US battery makers is scrambling for government support ahead of a deadline this week as the US struggles to win back lost ground from Asian competitors in one of the world’s next important technologies.

The race is also the first test of how the administration will use the near-$190bn in stimulus money earmarked this year to support “green” technologies, from alternative fuels to energy-efficient building materials.
Advanced batteries are seen as a strategic technology, given their importance to electric and hybrid vehicles, and their military applications.

As with the chip industry two decades ago, the US has lost the lead to manufacturers in Asia that have invested in high-volume manufacturing.
Currently, buying American batteries is more costly, implying that companies that use them in their products will be selling them at a higher priced input than they would if they could buy foreign batteries.  The supply of alternative fuel vehicles will grow more slowly and pollution, decline more slowly than otherwise.

[1]  I do not agree with the notion that forcing governments, or economic agents to buy American produces jobs.  It moves jobs from one sector to another.  I also do not believe that it is easy to isolate "green" sources of energy as the production of energy necessarily produces pollutants.  We only select the pollution type that we find less objectionable.

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