The effectiveness of green place-based industrial policy: Evidence from the Inflation Reduction Act.

Abstract

Governments across the globe are turning to place-based industrial policies to make the green transition more equitable and politically palatable. The United States' Inflation Reduction Act exemplifies this approach through its "Energy Community" provisions, which offer additional tax incentives for clean energy projects in regions reliant on fossil fuels. We use spatially granular data on renewable energy investment, employment, and voting, and document that these incentives substantially increased local solar investment, but we do not find significant impacts on wind investment, job creation, or political preferences. Estimated abatement costs are well below the social cost of carbon and lower than those of other major U.S. climate policies. The results suggest that place-based green industrial policies can effectively direct clean energy investment toward disadvantaged regions, but their capacity to generate broader local economic or political benefits may be limited.