The Inflation Reduction Act (IRA) was the largest and most ambitious climate legislation ever passed in the United States.

After just one year, the legislation has changed the landscape for private investment and public policy in the United States — and around the world.

At the inaugural event for the new Climate Change and New American Economy Series, Brian Deese, MIT innovation fellow and former director of the National Economic Action Council at the White House, and principal architect of the IRA joined Vijay V. Vaitheeswaran, global energy and climate innovation editor at The Economist, to discuss the future of climate and clean energy policy in the wake of the IRA.

Read Brian Deeese’s prepared remarks here. Watch a video of the event above, and read a transcript below.

Dean Costis Maglaras: Welcome, everyone. My name is Costis Maglaras, I'm the Dean of the Business School. I'm just going to take two minutes and basically introduce to you what we're trying to do here. Climate change and our collective response to this phenomenon is going to really transform our economy. It's going to change the energy sector, of course. But transportation, manufacturing, the food system, all aspects of our lives over the next several decades, and we created this speaker series and a lot of other things that we're doing at the school to be able to basically provide incredible information, action-oriented information to the business community. This is one aspect of what we're doing, the climate change and the new American economy, which is going to be a speaker series that we're going to highlight important developments in that space. And then there's all sort of slew of other things that we're doing at the school that hopefully will get to engage all of you as part of your interest.

But I won't take any more time. I think it's incredible to be launching this today with our speakers, and I look forward to more of these in the future. My biggest partner here is Bruce Usher, so he'll kick us off.

Professor Bruce Usher: Hold the applause for our guests. I know many of you, but not all. I'm Bruce Usher, I'm on the faculty here and I head up our climate program work. And you don't need me to tell you that climate change is one of the greatest challenges of our generation, your generation in particular. And you also need me to tell you there's a wealth of information out there on climate risk and climate science and climate policy and what we need to do to avoid climate catastrophe. But what's missing is a greater understanding of the impact on the economy and how we're going to get to net-zero and what that means for business in that transition.

Or to put it more succinctly, we spent 300 years building a global economy driven by fossil fuels. We're now going to spend 30 years decarbonizing that economy. And there's going to be tremendous repercussions for every country's economy, not least the United States. And as the world's largest economy, the challenges and opportunities here will be felt by nearly every business in the country. When Dean Maglaras and I were thinking about this new speaker series and planning this series, we thought long and hard who could kick it off, who would be the right person to introduce this subject? And we concluded that no one has had or perhaps possibly ever will have a greater impact on the American economy than Brian Deese.

In his role as director of the National Economic Council in the Biden White House, Brian was a principal architect of the Inflation Reduction Act. And this act is not only the largest climate change legislation passed here in the United States, it may be the largest legislation passed anywhere in the world at this point. It also may be the most impactful. Brian's joined this evening by Vijay Vaitheeswaran, who's the Climate Innovation Editor at The Economist. And Vijay is, in my experience, and I've seen him many times, one of the best writers and interviewers I know in the climate sector. Our plan this evening is Brian's going to open with a keynote, some keynote remarks, and it's going to be followed by discussion with Vijay. And then they're going to open it up to questions from you and the audience and we'll have some mics, so we can take any question from the audience. This part of the event will conclude at 7:00 p.m., and for those who wish to join us, there'll be a reception upstairs on the second floor at seven. Please join me in welcoming Brian Deese.

Brian Deese: Well, thank you. Thank you Bruce and Costas and to the entire Columbia family for having me and for sparking this conversation. Climate change and the new American economy. I like every aspect of that. Because I think that there probably is no more important conversation for us to have than the ways in which climate change will fundamentally alter the face of the new American economy and be the opportunity for most private enterprise investment innovation in our economy going forward as well. So, what I'm hoping to do tonight is just offer a few thoughts on the front end, and then looking forward to getting in conversation with Vijay and the rest of you as well. And what I thought I would use my time here today to do is to do two things. The first is a quick mark to market, so to speak, on where we are in the wake of passage of quite significant pieces of legislation affecting the climate to include the Inflation Reduction Act, but also the infrastructure bill passed almost two years ago.

And then also, and perhaps more importantly, a look forward on where does climate and clean energy policy now need to go in the post-IRA world. To start with a mark for market, I'll move very quickly here. The IRA, a lot has been said, in some ways it's a very simple piece of legislation. It provides long-term in most cases technology-neutral incentives for private investment with the goal of driving down the cost of clean energy technology and driving up clean energy capacity deployment in the economy. And so while the public incentives make investments more attractive, ultimately the test of this legislation will be the appetite of private non-governmental actors, both businesses, but also rural co-ops, nonprofits and others to put their own capital at risk.

14 months after the IRA's passage, what do we know about that appetite? In one word, strong. In the year ending this June, firms and individuals spent $213 billion in clean energy technologies across the economy. That's according to a new Clean Investment Monitor that we put together and launched last month at MIT. That's up 37% from a year earlier. It's up 165% from five years ago. And now we regularly see the debate in pages on social media or in pages of our newspapers, about whether the IRA will end up being twice as large as we originally projected, or three times or four times as large. Regardless, it's safe to say that the IRA has fundamentally changed the game in terms of private investment in clean energy technologies in the U.S. The IRA has also changed the paradigm for clean energy and climate policy in two other important ways. The first is that the IRA is mainstreaming a policy approach of making clean energy cheap, rather than making pollution expensive. And traditionally, economists, economic policy thinkers have favored making pollution more expensive. It's an elegant way to externalize the externality of pollution.

But taxing carbon has proved not only politically complicated, but also substantively incomplete. For example, if you think about the issue of EV charging and encouraging adoption. An incremental investment in EV charging infrastructure is orders of magnitude more impactful in terms of EV adoption than a marginal increase in the gas tax. And so many people have come around. Not everybody, many people, my friend and former colleague Larry Summers, I think put it succinctly just a few weeks ago saying, "As much as requiring carbon pricing is important, I believe even more important is the dissemination of economically competitive renewable energy." The second the IRA has shifted the dominant economic challenge we face from one of insufficient demand to insufficient supply. For those of us who have worked in this space, this is an abrupt shift.

In the last decade, if you worked on any clean energy deployment issue, take the issue of electric buses, as I did, you immediately run into problems. Too fewer buyers, too little confidence from suppliers, no federal resources to support production. Today the challenge is the opposite. Every municipality wants to buy an electric bus. There are abundant federal resources, and our problem is insufficient availability of electric buses. And so the question now is how do we radically scale supply in the market? And that same dynamic presents across technologies. These changes, the change in private investment, the focus on making technology cheap, and the focus on supply constraints, they reflect dramatic progress. I used to say to my White House team all the time, as we were wading through the implementation of the IRA, "These are high-class problems compared to the pre-IRA world." But they also demand very new policy approaches. The IRA has rewritten the script and our policy and our political playbook need to change as well. What does that mean for going forward?

I want to just touch on two areas where I think we're going to really need to evolve and change our policy approaches. I put these out frankly as ideas. Because I think a lot of what we need and that you all can contribute to is to fill in what it means to operate effective policy in this post-IRA world. I have more questions than answers, but I'm going to tee up a couple of things for us to think about here. Number one, we need an American building agenda. We need to build clean energy systems and infrastructure at historic speed and scale. And number two, we need the equivalent of a global climate marshal plan to make sure that as we drive down the cost of zero carbon technology, we drive up its adoption around the world.

First on building, there's a growing recognition that we have got to build things much faster and fairer in America. You've probably all seen these eye-popping statistics. One of my favorites is we're going to need to build enough solar in the U.S. over the next 15 years to cover the entire landmass of Connecticut, Rhode Island and Massachusetts combined. But building for net zero requires more than new stuff, more than new batteries or electrical wires, it requires actually building new systems. And that needs to start with us getting to yes more quickly on citing and permitting of projects. There are critical details in this space, legislative and administratives, the details matter, and we could get into that in conversation. But I wanted to raise that at the core of this building agenda we also need to build a new coalition to power the building of America's clean energy economy. We're going to need to bring together activists, policy specialists, private sector innovators and investors around this shared objective of building.

And this is going to require dispensing with old and entrenched impulses in our economy and society. The impulse toward localism, which is about protecting local interests at the expense of public goods and the national building effort. And also some of the impulses in the traditional American environmental movement, which for the better part of 50 years was understandably trained at blocking and slowing down pollution-based building for good reasons. But now in this post-IRA world, those instincts need to evolve, and quickly. We need to change this idea of saying no and protecting at the local level to a national effort with local roots that says yes, and then yes again, and yes again to building clean at scale. And we're going to need to do this in build coalitions in new ways. Senator Brian Schatz from Hawaii who's been a leading thinker on this is right when he says, "There is nothing intrinsically progressive about stopping progress."

And I think just as the last generation was called to action by the phrase think globally and act locally, we and the next generation will need to be inspired by something along the lines of, think urgently and build massively. We also are going to need to distribute zero carbon electricity much more effectively and consume it more efficiently. And again, this is a place where the IRA really supports enormous demand. The demand issues on issues like transmission are no longer the problem. The problem now is we need to build a supply side response that is up to the task. We need to eliminate the kind of regulatory barriers that keep us from building that zero carbon electricity transmission system and building a transportation electrification system as well. If you start with the premise that an efficient, safe grid to move clean energy across this economy is an economic and national security priority, a lot of the technical reforms become no-brainers. Dismantling the byzantine interconnection queues that many of you have probably heard about.

Giving FERC the regulator the authority to designate national transmission corridors to build. Mandating proactive scenario-based analysis and long-term planning processes. Mandating the use of grid enhancing efficiency technologies. All of this is hard, but we can make enormous progress on this quickly if we designate it as the national priority that it is. And finally, we need to inject more competition into America's energy markets, so that zero carbon technologies can actually reach the grid and consumers can actually benefit from rapidly dropping prices. And utilities stand behind many of the obstacles to building clean energy today. Their markets are too often uncompetitive. In many cases utilities use entrenched market power to prevent clean energy technologies from competing on a level playing field. And lack of competition is a major barrier to entry for innovative and cheaper climate solutions. I hear this time and again when I speak to investors in this space. A common refrain I hear is, "Yes, permitting is a headache. Yes, siting is a challenge. Yes, supply chain issues are an issue."

But at the core we have uncompetitive energy markets, because if you can't compete and get paid for innovation like a virtual power plant or like demand response to reduce the actual amount of electricity you use, then you're not going to invest. And that results in less clean energy investment and higher prices. I believe that we have spent insufficient time as a country focusing on what the lack of competition has done to our energy markets. And I think in a post-IRA world that needs to change. We may ultimately need federal legislation to drive toward a single comprehensible market that allows consumer competition and choice. But in the meantime, as consumers, we also need to agitate and inject competition into America's utility market. We have seen very interesting strange bedfellow coalitions emerge at trying to address entrenched monopolistic harms in other sectors like tech and agriculture. And I think same is long overdue in the energy market.

The last thing I want to do before we move to next this part of the conversation is talk about the other half of the equation, or in fact the other 90% and growing part of the equation, which is outside of the United States. And here we must be just as bold in enacting new policy that accelerates the global deployment of clean energy. I am not a political messaging person, I generally am a policy guy. I hope that those of you can help me workshop this and we can figure out the right frame to use. But I think that we need an effort on the scale and the vision of a clean energy Marshall plan for the 21st century.

In his special address to Congress in 1947, president Truman explained that quote, "The United States has taken the lead in worldwide efforts to promote industrial reconstruction. For we know that enduring peace must be based upon increased production and an expanding flow of goods and materials among nations for the benefit of all." Today, America is leading with the IRA with an historic and industrial expansion in clean energy that has massive potential to promote global development and prosperity. Our public investments here at home, by driving down the cost of technology could lead to potential savings of more than $120 billion worldwide by 2030. The IRA could ultimately bring emissions reductions in the rest of the world that are two to four times larger than in the United States. But while that potential is in reach, it is not self-executing. Speeding the deployment of clean energy to the world and supporting the developing world's ability to become more resilient to climate change's unavoidable impacts, requires an effort on the level of President Truman and Secretary Marshall's ambition 75 years ago.

And I think this must mean at least three things. First, we need to harmonize different countries' efforts to make clean energy cheap in a way that achieves maximum deployment, more resilient supply chains and avoids unproductive trade disputes. We should be welcoming additional public investment that drives deployment of clean energy. Then we should do the hard diplomatic work of building new frameworks to accelerate and improve those impacts across jurisdictions. On this score, while there's been a lot of column inches and ink about the disagreements between the U.S. and Europe, underneath the surface we're making enormous progress toward this goal. The United States is now pursuing constructive new arrangements, not an old school trade agreement, but new arrangements with Europe, Japan, Korea, Canada plus allied countries through Asia, through the Indo-Pacific Economic Framework. These arrangements should harmonize subsidies across jurisdictions wherever feasible, and ensure full transparency of public investment.

Second, we need to bring our international trade and climate frameworks closer together, so that trade and tariff regimes encourage rapid decarbonization from emissions intensive foreign producers. Industrial decarbonization of things like steel and cement and chemicals is a good place to start, and it has growing bipartisan support in the United States. And you can envision a framework that actually aligns tariffs on producers that fall outside of their own climate commitments while allowing flexibility for different approaches to decarbonization. I believe this month there's an opportunity between the U.S. and Europe on something called the Global Arrangement for Sustainable Steel and Aluminum that could give us a real life template. And this is a model that should explicitly support the least developed countries by reinvesting the proceeds of carbon border adjustments and fees into sustainable development projects or providing special access to clean tech technology and exports.

Third, we need to massively increase the quantity and the quality of finance that deploys low-cost clean technology in the developing world. We need to dispense with the traditional bureaucratic constraints that operate in this environment. For those of you who have spent any time in the climate finance world, you have probably been to one too many conferences about the potential of climate finance. It's time for us to get down to the actual work of scaling climate finance.

Just to start, U.S. development finance capabilities must be scaled and radically today using existing authorities. The Development Finance Corp, the U.S. Development Finance Agency has the capability to do to $10 to $20 billion more climate lending today. The World Bank has the capacity to increase its climate support by 50% today, with a focus on more efficient guarantees, more ambitious risk insurance, more focus on climate infrastructure. The Green Climate Fund has potential but must be overhauled to meet the actual goals that it was intended to hit. And we're going to need new tools like foreign exchange risk mitigation, advanced purchase commitments, intellectual property transfer agreements to knock down and get at the practical impediments to deploying technology in developing market circumstances. We have an opportunity to do this in practice, because the cost of these technologies is falling dramatically. We can go with the grain of the market to scale. And while the politics of reforming our international financial architecture are hard, and trust me, the politics of every single thing I just said in the last paragraph, each of them is extremely hard in the individual.

In the aggregate, it's much more doable than ultimately the politics of unlocking new money, which we will ultimately need. I will end with this. This year in a couple of months we will have what's called the global stock take under the Paris Agreement. In 2015 the countries of the world came together and they said, "We're going to measure our progress against our own climate goals. And then once we measure our progress, we're going to reassess, we're going to take stock, and then we're going to try to set more ambitious goals." Spoiler alert, we already know what the stock take will tell us. That we are not on track to keep global average temperatures below 1.5 degrees or anywhere really close within that range, so we need to increase our ambition. But we also this year know that for the first time we actually have a viable theory of how we could radically drive down the cost of deployable clean energy technologies and then radically scale up those technologies in the developing world.

And I would not underestimate how pathbreaking ambitious and new that that opportunity is. So, our task in my view is clear. We need a new policy framework and architecture to take advantage of this post-IRA world. And we can do it in this decade if we get to work. So with that, we'll get to the work of having a conversation. Great.

Vaitheeswaran: Thank you for those words. I think everyone will have a sense of your outlook on the world, but they should know already, of course, we have with us a legend, Ladies and gentlemen, this is the godfather of American industrial policy in the 21st century. And as such, I want to praise you for having the courage as this is a lion's den of financial capitalism here at a business school.

Deese: If you've seen any cover of The Economist recently, you'll know how enamored the economy is.

Vaitheeswaran: Exactly. Well, as a European institution, we've lived through the '70s and '80s of industrial policy in Europe. And so we have some questions for you and you've been gracious enough to accept the questions from me, but more importantly from all of you when I'm done with my questions. Can you tell us, the scale of climate change, which is also something the last 20 years I've written often about on the pages of The Economist as real and needing ambitious response.

What is it, do you think that the approach that the Biden administration has taken, which of course even one of the key figures involved in, this approach is suited to the task at hand? Because we do know, I think looking across the U.S. and other parts of the developed world, certainly, and you can look at Latin America and other places. Approaches to try to be over ambitious with industrial policy can lead to some problems. And well documented in the literature we get crony capitalism, misdirection, misallocation, lack of efficiency and so on. I don't need to tell a business audience this. So, why does this set of policies rise to the moment in your view, and how do we avoid the pitfalls?

Deese: Two things, one is scale and the other [inaudible 00:24:50]. First, we need climate policy frameworks that meet the scale of the challenge that we're facing. And for any of you who are working in science of climate change and climate risk, I don't need to tell you, but things do not look good. In fact, we are seeing increasingly working strategies in terms of the breakdown in systems that is already going to occur and may well accelerate. So we need a degree of policy scale that can get close to or we can build to the magnitude of the channel. I think that the combination of piece of legislation of the United States has passed over the course of the last years, not only the [inaudible 00:25:33] production, but also the infrastructure built. The lesser degree to build [inaudible 00:25:39] starts to put the United States in a position where we are starting to get to the scale.

When we talk about the scale of the [inaudible 00:25:50] starting to get towards scale, then it comes to design. And I would say a couple of things and we can get into some specific concerns about industrial policy, industrial strategy. The first is that industrial policies and industrial strategies do in America-

Vaitheeswaran: Let's have you switch mics just to make sure everyone hears you.

Deese: In fact, it's been more the norm than the exception in the United States to have an explicit industrial strategy. But of course there are risks. One of the things that I think is the most powerful about the IRA is that if you look, the vast majority of the incentives in the IRA are long-term and technology neutral. If you are a company and you want to operate against those incentives, you now have a long-term certainty to invest against those incentives. The challenges are more acute in areas where you really don't have a market today. So something like hydrogen where the policy tools we're putting in place are a little more ambitious in trying to actually pull forward demand and also stoke supply as well. And there are risks in those contexts as well. But I think at the core your question is, can we attack this problem through a strategy of policy that is designed to radically reduce the cost of clean energy technologies as opposed to ratchet up the cost of pollution? I don't think we have a choice.

I think that it, particularly in the United States, but also around the world, we have seen progress when we focus on strategies that make clean tech cheap very quickly. And that rather than I think kind of bemoaning the question of can we get back to some sort of globally ideal stylized carbon pricing? We should put our arms around embracing what is good about the scale of this approach and try to optimize around it.

Vaitheeswaran: It's a pragmatic answer, right? Every first principle's answer would say, "There's an externality in the marketplace. We should have carbon pricing, ideally some form of global concerted coordinated utopia and unicorns will also arrive." And having advocated this for 20 years I've learned that we need to be practical. So, I'm with you on the pragmatism, but then you did talk about the specifics of the pragmatism. The triple whammy of legislation, the IRA, but before it the bipartisan infrastructure law as well as the CHIPS plus Science Act. They're related in many ways and move in the same direction, I think is mostly carrots, not a lot of sticks. And so, one could argue, while it achieves your goal of being politically feasible and around the world we do see sticks are not very popular, carrots are very popular. It can be much less efficient than it should be. Is there a prospect that we will see some sticks as well? Because if you have nothing but carrots, you also lead to inefficient outcomes.

Deese: I do want to start by saying, I'm a pragmatist and I think this approach reflects pragmatism, but it is not a simple second-best alternative to the policy ideal. If you gave me-

Vaitheeswaran: Is it the first best? This is the best of all policies?

Deese: Every policy approach reflects the reality that we operate in. But I guess the point that I would say, so is if you gave me free rein, to put in place, whatever climate policy I could in the United States. There is no way that a economy-wide carbon price and forget it would be the right strategy to attack climate change at the speed and the scale that we need. And we know, and we've seen a lot of the economics community come around to the fact that particularly as the deployable cost of clean energy comes down for technologies, carbon pricing alone is not actually the most efficient way to scale. And we also know that this is about systems and about humans and how they interact with the world. And so the question of why people don't do cost-efficient energy efficiency improvements in their home is not about the marginal cost of pollution. It's about the fact that people don't want to spend Sundays cleaning out their attics and have somebody mucking around in their attic or otherwise-

Vaitheeswaran: You could take away their gas stove either.

Deese: Well, I guess that's the point, which is we're operating through trying to change and improve a complicated web of human systems. And I think that we need to acknowledge that it's not just that there is a first best and we have to operate because of political constraints. We need to learn from what we know. So that's, I think, an important lesson and that we need to at least incorporate into our thinking going forward.

Vaitheeswaran: That's a fair point. Prices alone are less important than the ability to respond to prices. I think Amory Lovins, the thinker on energy has said that many times, and I take that point on board. Let's talk a little bit about your idea of a new Washington Consensus. I think you've used that phraseology. Can you tell us what you mean by that? What would a consensus include that might be sort of what comes after the IRA?

Deese: Sure. I think that it is important that we recognize that the IRA and this burst of compulsory legislation is happening in the context of a much broader shift in economic paradigms. And I think it's fair to characterize, over characterize that the period from the end of the Cold War till recently pre-COVID was defined by a consistent march toward market liberalism. That was defined in many ways as a kind of a force of nature that was moving in one direction because the sort of overriding economics Trump's-

Vaitheeswaran: Publication ...

Deese: ... politics.

Vaitheeswaran: ... to keep China priced, et cetera.

Deese: And the like. And I think that that approach missed a lot of realities about the ways in which globally brittle just-in-time supply chains embedded in them with very significant costs that ended up being born by consumers or communities. We all live that in different ways during the pandemic crisis. But also that the promise that reducing relative trade barriers has some macroeconomic benefit and then it has a set of harms and we'll harvest the macroeconomic benefit and at some point in the future we'll get to dealing with the harms. Manifest over years and years and years has developed an understandable sense of skepticism that this system was actually operating to the benefit of lots of people in lots of places, including all over the United States. What does a new consensus look like? First and foremost, a consensus to actually invest in and build productive capacity in the United States. Demonstrating a bipartisan willingness and commitment to do the deferred maintenance, to upgrade our infrastructure, rebuild our water systems, deal with communities that have too long been subjected to environmental injustices to do the work of actually building here in the United States.

And then demonstrate that we can do that in a way that then actually harmonize and partners with like-minded countries around the world. Is that easy? Is that simple? No, but I think that there is a viable strategy to do that in a way that actually harvests the benefits of investment at home and can help to harmonize those around the world.

Vaitheeswaran: So, you won't get any argument from me that the U.S. is under invested on infrastructure. Lots of cross country studies across the OECD showed for many years on R&D, on physical human intellectual capital we've been under investing. The concern that I have is that in reversing course as we are doing now, that we trigger a deglobalization move through industrial policy, where we're already beginning to see tit-for-tat actions. That in effect it ends up being a race to the bottom. That we actually in the name of creating domestic industries rather than, for example, protecting those that might have been harmed by globalization's excesses. There was always trade protection built in, but it was never really carried out, right? Numerous administrations never fulfilled the promise of trade adjustment. Instead, if the pendulum swings too far, we end up in a world that actually ends up with much higher cost green supply chains.

That the pace and ambition with which we need to tackle climate change, which you've laid out very well, which I certainly share that passion, I think many people judging by the nodding heads agree, will be slowed down by the protectionism that we're already beginning to see and the gummed up supply chains. And this is actually counterproductive that we're having multiple motives and mixed motives for industrial policy, of which climate is just one of them, when in fact it should be expedient as the motive.

Deese: I think we need to be specific rather than general in the idea that we're sort of seeing either A, a wave of protectionism, or B, a move toward deglobalization. Last year we broke records in terms of two-way trade between China and the United States. China has largely fueled its growth during the COVID period by increasing export level growth. You're seeing a change in the composition, more services, less goods. That in many cases is actually reducing the embedded risks in some supply chains. And so I think that as much as you may be trying to flatter me by suggesting that our industrial strategy in the United States is going to prompt an entire wave of deglobalization, I think that's significantly overstating its impact in the global economy. The industrial strategy in the United States is really designed to do a simple set of things, build capacity in the United States, drive down the cost of deployable clean energy technologies, and at the margin increase more resilient supply chains in those particular areas where we have particular economic or national security priorities.

I think you can do that squarely without prompting deglobalization. In fact, in anything, if what we're doing is we're seeing a reduction in maybe the second derivative, we're not seeing globalization expand at as rapid a rate. That's number one.

And number two, I hear the argument around free trade and protectionism, but I would really encourage people to look very carefully at what in fact the United States is doing. If this is rampant protectionism, then I would encourage you to wait and see what might happen on the back end of the next election if you want to see what actual protectionism looks like. The inflation Reduction Act provides incentives to invest in the United States, and we have not changed relative tariff rates. And in fact, again, if you get beyond the political rhetoric, many of our European allies and our Asian allies recognize that these investments benefit many of their companies as much as they benefit American companies as well.

We have some high profile disputes on things like consumer tax credits for electric vehicles. But I would tell you both in economic and emissions concerns, it does not matter whether you can sell a Mercedes E class in this neighborhood to a high income taxpayer in the United States and get a $7,500 credit or not. We can fight about it, but it doesn't matter from an emission standpoint. And so if we look at what really matters, I don't think that either the IRA is protectionist or that we're going to face a wave of deglobalization, even though I recognize that you're worried about both of those.

Vaitheeswaran: We can get into this even deeper. But there's one other topic I want to discuss before we turn to the audience. I'm going to encourage my audience to get some questions ready. I'll come to you in just a few minutes, but you put another big idea on the table. I want to unpack that a little bit. That is this idea of a global Marshall plan. It's really the topic of vital topic of financing the clean energy transition globally. The U.S. as you rightly said, hopes to contribute to this by innovation spillovers. By reducing cost to what Bill Gates has called the green premium, and hopefully everybody in the world will adopt it. That's a terrific plan, but it's probably not enough, I think you'd agree, hence your idea for some kind of Marshall plan.

This has been some version of this was discussed at a summit President Macron hosted in Paris recently. It'll be a topic of the COP summit of course in Dubai coming up in a few weeks. It's a thorny problem, right? The COP summit, the climate summit run by the United Nations. Heads are going to be butting on whether the rich world will complete a $100 billion pledge that was supposed to have been finished by 2020, which hasn't yet been completed. When by the estimates of the International Energy Agency and others the scale of the problem is multiple trillions of dollars a year, four trillion a year perhaps per annum needed to go into clean energy to achieve net-zero goals by the end of this decade per annum, most of it in the developing world.

So, the politicians are going to be talking about something that's almost irrelevant, other than as an important symbol, nevertheless, virtue signaling. What's your big idea, other than, as you admittedly said, you're not a political operator, you're a policy guy. What's the kind of policy that you think could get us out of the gate on this one? What's a big idea?

Deese: Yeah, look, the scale is breathtaking when you think about it in the realm of the trillions of dollars necessary. But the opportunity is very much in reach. Number one, driving down those green premiums and doing it in five years rather than 10 years, or two years rather than four years, is game-changing in terms of the ability to deploy at scale. And look to utility scale solar as an example. Once you get down cheap, you can deploy at scale, you still have a lot of problems, but you can actually see line of sight to deploying into the trillions of dollars. So, that's number one. And we have to give those policies right. We've been spending a lot of time on that harmonizing industrial strategies in developed market countries where they have the fiscal space and the resources to invest public dollars in doing that. That's number one.

But number two, it is not self-executing and it alone is wholly insufficient. Anyone who stands up and says, "Because the IRA is going to drive down the cost of deployable technology, the United States has done its part in this effort," I think is missing the game. The second big thing that we need to do is we need to radically scale up the finance capabilities that we put on the table to actually make it financially viable to deploy in developing market economies.

Vaitheeswaran: Is this coming from Wall Street banks? Is it coming from the World Bank and IFIs under a new mandate to lend more? Would it be philanthropy? I mean, there's a lot of ideas kicking around. Hybrid finance and novel instruments. I think our colleagues at SIPA with the World Economic Forum put together a proposal for Forex risk that's been kicking around to reduce Forex risk. Lots of ideas. None of them seems to be adequate to move the needle, at least thus far. How do we break this log jam? What's an idea big enough to really champion?

Deese: We need a very significant quantum of concessional finance or non-commercial capital that you can use and to deploy to underwrite a lot of these creative solutions. And a lot of these creative solutions are trying to get around the fundamental issue that you are going to need to be catalytic in trying to extend and deploy technologies in places where they're close to in the market, but not quite there. I guess my point in this context on policy is that we're going to need the developed countries, including the United States, to appropriate more dollars into catalytic or grant or other similar type mechanisms to then underwrite a lot of these strategies. But we have a lot of capacity to do that with the existing tools that we have today. As much as we are going to need to galvanize additional resources, we also have to galvanize the will to actually drive really pathbreaking reforms in places like the World Bank, like the other multilateral development banks, like the Development Finance Corp in the United States to unlock the capability that we have today.

And frankly, the only way we're going to get more resources is if we demonstrate that we have the will to actually do the reforms and use the tools that we have today at much greater scale.

Vaitheeswaran: And there are some initiatives like the Bridgetown initiative and others to try to find novel approaches to unlocking that capital, so maybe there will be some progress, let's hope. I had promised questions to the audience. Let's see a show of hands. Who's got a question? I see an eager lady in the back. Let's get a microphone there. Rules of the road. Please identify yourself and make it a short and sharp question. No long-winded speeches, please. We all hit a gas bag. Okay, the microphone is making its way to you. I appreciate it if you can make your way to the aisle if at all possible, just in the interest of efficiency. Thanks so much. And then we'll move towards the front, because I think I saw a hand closer to the front. Please go ahead.

Grace: Oh, thank you. My name is Grace from Columbia Law School. I actually have a question about transmission system. Because as far as I know, we actually built enough adequate-

Vaitheeswaran: Hold the microphone closer to your mouth please?

Grace: Oh, sorry. As far as I know, we actually built adequate renewable energies, however, our transmission system are overwhelmed, so it's very difficult for connect the electricity from the wind or solar to the family and other buildings. So, how do you think about that?

Vaitheeswaran: Great question. Thank you. Thank you. Yeah, transmission grid overloaded, NIMBY, even bananas, right? Build absolutely nothing anywhere near anybody. That's the American motto. What do we do?

Deese: Yeah, look, building a transmission grid at the core of what I was referring to as American building agenda, right? Specifically on transmission, we're going to need to do a couple of things. The first is, the federal government does need more authority than we have today to actually designate corridors of national significance and then exercise eminent domain or something approximating that to actually overcome the fact that you can have 35 or 40 counties in a string of a long transmission system and any one county can block progress. We're going to need to have more capacity to actually overcome that. I think if you have that in practice, you end up with many more negotiated solutions. At the same time, we have extraordinary opportunity for innovation to make our grid more efficient as we are building out, doing the hard work of actually building transmission systems at scale.

And there are fantastic technologies where there's a lot of innovation at play where we can actually make the grid more efficient, but that's where we do need to reform our utility markets so that investors can actually get paid for enhancements that improve the efficiency of our grid system, and not just making more capital investments and building more lines.

Vaitheeswaran: There have been some suggestions that the Aspen Institute had a bipartisan study on this last year. That perhaps projects that are quite important for climate change could receive some kind of designation, projects of national interest, that it's a designation the European Commission has for certain projects. Germany uses this where unless there's clear reason to stop it, it should be assumed to be on a fast track or a green light, that is flipped the usual calculation of assume to go on a 10-year track of lawsuits and obstacles. And what do you think about that kind of green lighting of a certain category of climate-related projects? Could that work or is that just wishful thinking?

Deese: No, look, I think it's in the zone of what we're going to need. That we do need as a country to designate these quarters of national significance. And we know where they are in large part. And we do need to give the federal government more authority than it has today to actually say, "This is where it's going to be, and the presumption is that." Now, we do operate in a system of laws and a system of checks and balances, and so there are appropriate limits to how uniformly you can do that. But I also will say, we could make some changes that would really change the negotiating dynamic, because if the federal government has the power to do that, but for an extraordinary circumstance, you can find ways to harmonize that.

And look, if we have that will and authority, we can also get much more creative. We have a lot of corridors today where we've already built stuff, highways, railroad tracks, otherwise. In fact, stitching together the transmission systems we need. If I could put a map up here and show you exactly where the 22 transmission lines are, in a number of places you can connect a highway and a rail line and otherwise where you've got 95% of the corridor down. And the authority you need is not to run rough shot over big parts of the United States, but one or two communities or elements where you're holding up a project of national significance, right? And you need to be careful about doing that and you don't want to run a ragged over people's rights, but clearly we need to change the balance of power here so that we can build more efficiently.

Vaitheeswaran: Great. Thank you. Do I see another hand there? Where's my microphone if I may ... Oh, it's on this side. Okay, let's come to this side. Let's see if maybe I see someone in white there. Yep, the white shirt. Thank you. Again, please identify yourself.

Ford: Hi, my name is Emily Ford. I'm an alumni of the Business School. And I am interested in the energy transition. And what do we do with the aging infrastructure? Are we just going to be able to switch? Do we need a crutch? What does that timeline look like? What does that mean for innovation? How do we get through this transition? I think we all agree that the urgency, the scale and the inflection point is now, but how do we make the switch?

Vaitheeswaran: Thank you. Yeah, what do we do with all this dirty capital equipment that we have lying around?

Deese: Well, big parts of that actually represent opportunity to drive the transition more effectively and efficiently. I'll give you a concrete example. The best possible place right now to build new solar or new onshore wind is co-located with an existing coal-fired power plant where you already have an interconnection into the grid, that we were just talking about. If connecting into the grid is a big problem, the places where that is the easiest today are the places where you have incumbent base load fossil production that is already plugged into the grid. Which is why we're seeing some of the largest projects actually happening in places where you have a decommissioned coal plant. In other places the decommissioned coal plant itself is being repurposed, for example, in Wyoming to build small modular nuclear reactors in the same plant where many of the same workers are actually on the job now, because the skills required are actually quite transferable. So, there are opportunities in some cases to actually harness the existing capabilities, assets we have as a country in the United States and try to deploy them.

In other cases this transition is going to be about taking the capabilities that people have and that companies have and deploying them against new problems. So, a lot of the questions around how we're going to build, for example, clean hydrogen are questions about the production and movement of molecules that actually are quite suited to the skillsets of a number of the existing oil and gas companies. Similar with geothermal, which is about drilling holes into the ground, but instead of trying to capture natural gas or oil, to try to capture heat associated with ... The skillsets are very similar. Now, there's a question about whether that means that many of the companies who are existing, operating in the existing traditional fossil fuel space, whether they themselves are going to make that transition. Or whether the people who work at those companies have a lot of skills and might be induced to go work for a new company who has a newer idea and more capacity.

I'm probably more of a buyer of the latter than the former as a theory of change just in terms of what I'm seeing in the economy right now. But I think that's another ... We don't have to prejudge that at the outset and we can let the market sort some of those questions out.

Vaitheeswaran: Just to underline your comments, that there is a momentum growing on what's called the brown to green investment thesis. Which really gets to your question, what do we do with a lot of the dirty capital stock? And rather than only investing in the new the green. Transforming it, and this is something, in fact, I think BlackRock, world's largest asset manager company perhaps known to our speaker today, has even a specific brown to green materials fund, for example, and others as well are in this space. So, I think there's a real opportunity that people will get into to help this transition move along in some of the ways that we've just heard. Let's go to this side. I think there's a microphone and someone with a question. Again, please identify yourself?

Susie: Yeah, I'm Susie, reporter from Korea Economic Daily, and I have two questions. The first is-

Vaitheeswaran: Let's keep it to one question please. We're almost out of time.

Susie: Many foreign companies, including Korea, are making substantial investment based on IRA. And is there any possibility that despite they meeting the investment requirements, they might not receive subsidies due to the fiscal challenges faced by the U.S. Government?

Deese: I think I understood the question to believe, I just want to confirm that. Is there a risk that because of the political environment in the U.S. that the subsidies in the IRA may not be available to companies down the road?

Vaitheeswaran: From other countries, foreign companies?

Deese: Yeah, so I think at the core of that question is the risk that a future Congress might seek to undo part or all of the Inflation Reduction Act? And obviously, that's a fair question and ultimately I can't predict the future on that. There's a chance, of course any future Congress can change existing law. I think it's unlikely, and I think it is unlikely for two reasons. One is, big parts of the agenda here actually were either passed explicitly with bipartisan support, like the infrastructure bill that is actually doing most of the investments, for example, in electric vehicle charging or in hydrogen. Or has a lot of bipartisan support on the ground in the places where these investments are actually happening.

Vaitheeswaran: You can say more strongly, most of the money's going to red states.

Deese: Well, I mean, most of the money going to red states is true, but that could also be reflect states saying, "Great, we'll take the money, but we're not going to support the policy in the future." I think that at core the Inflation Reduction Act is new in American economic policy also in that it is intensely local and place-based. These are investments that are happening in particular communities, and in those communities it changes the complexion of the economic opportunity. And the more that happens, the more that I think this is going to get built into the fabric of our economy. So, I can't predict the future, but I think it's unlikely.

Vaitheeswaran: I see a hand there. Let's have one final quick question. Yes, up on top very quickly, because we just have five minutes, please.

Mike: All right, thanks Mike Schuster, second year MBA student. My question, Brian, well first off, thank you for everything that you've done and for being here. My question is really to get a sense of how concerned are you with U.S. bank regulators Basel III endgame proposal right now? For those of you that don't know, ACO has said that it could completely wipe out the tax equity market, 80 to 90%. IRA obviously is very heavily based on tax credit. So, are you worried that it could get passed as is? What do you think the National Economic Council's role is in massaging it until the final decision in mid-2024?

Vaitheeswaran: I warned you this the best of financial capitalism. You got to get into the weeds here.

Deese: The thing I love about the last part of your question is that now that I no longer am the head of the National Economic Council, I can say that that is definitively somebody else's problem. And the good news is that the current occupant of the National Economic Council is an expert on many things. One of which is finalizing Federal Reserve banking regulations, because it was her prior job. So, all joking aside, they will figure that out in the way that is appropriate. I think that your question, let me take your question and try to broaden a little bit, which is there are concerns about the ways in which we implement adjacent regulation on banks or in tax policy or otherwise that could actually intentionally or unintentionally reduce the economic impact of the IRA incentives that we have in place.

Another one of these places that comes into pact is we have a new corporate minimum tax in the United States, a 15% corporate minimum tax. But if implemented in the way that other countries are doing, it would actually sweep in clean energy tax credits, which reduce the marginal incentive for that. So yes, I think we have to be very cognizant of the unintentional impacts of regulation. The one thing I'll say on this front, one of the sleeper hits of the IRA, and I won't go too long because I could go on for a long time about sleeper hits in the IRA, one of the sleeper hits in The IRA-

Vaitheeswaran: Okay, karaoke session afterward, there's a party upstairs.

Deese: We'll go super wonky after this, moderate wonky, is that it's fundamentally disrupting the tax equity market. So prior to the IRA, the only way that you could really harvest the benefits of some of these production investment tax credits is the tax equity market. You have to take an equity position in the project. It's very complicated. Very few counterparties do it. It's mainly just the large banks. That's why Basel comes into play. The IRA opened up something called transferability, which means that you can actually transfer the tax credits from any entity that has a tax liability, which should create a liquid market in transferring tax credits and really mean that a much broader set of counterparties in our economy can actually transact.

We're already starting to see that, where a typical tax equity transaction traded with a 30% discount, which mean we were basically paying 30 cents on every dollar of public subsidy just for the privilege of having an intermediary transact that. We're already seeing those premiums start to come down and hopefully transferable credit transactions will start to get down into the single digits and maybe lower than that. That's good economically, but it also means that we are broadening the base of potential counterparties beyond just the financial institutions that will be affected by Basel. Which is not to say it's not an issue, we do need to be cognizant of those. But I actually think that the transferability issue will be a much bigger impact on the market than anything that Basel does at the margin.

Vaitheeswaran: I think you'll all agree that our speaker's breadth and depth of knowledge is something that we have benefited from tonight and the country's benefited from from your time in the White House. Let's give a round of applause for joining us today. Thank you.