The pandemic, the Russian invasion of Ukraine, and the intermingling of national security and economic policy, among other emerging trends, has thrown a wrench in free trade expectations and interdependent supply chains. Against this backdrop are global efforts at energy transition and climate change mitigation. In the United States, the result is a historic effort to onshore low-carbon energy generation and the production of the necessary inputs to decarbonize numerous industrial sectors. How this onshoring is performed will have implications for the localized environment and communities, the nature and competitiveness of the future U.S. economy, and the world meeting the Paris Agreement’s climate goals.
One driving force for onshoring is national and economic security. Critical minerals, for example, and the current limited domestic production and reliance on limited sources of supply in nations that have weaponized these resources in the past are of paramount concern. For example, China withheld shipments of rare earth minerals to Japan during a dispute over islands in the East China Sea. These critical minerals are often key inputs for energy-transition projects and products. The U.S. Department of Energy has numerous programs to address the fact the United States lacks a domestic supply of many minerals that will be critical to a decarbonized energy infrastructure.
Recent federal legislation—the Inflation Reduction Act, Investment and Jobs Act, and CHIPS and Science Act—provides billions of dollars in available tax credits, grants, loans, and other incentives. The purpose of this green industrial policy, in part, is moving manufacturing and production domestically. In the context of the transportation sector and electrification of vehicles, for example, these incentives are being used in a push to onshore both lithium and other mineral production and processing and the manufacturing of the batteries and other components critical to electric vehicles.
Onshoring will result in the construction of new manufacturing facilities, the opening of new mines, and the development of new energy-related infrastructure. There will be some localized environmental impacts. NIMBY opposition to these facilities and infrastructure and the potential delay in environmental-related permitting will be a hurdle to scaling up this shift to meet global climate change goals and domestic energy transition, national security, and economic objectives. While there may be environmental or community concerns related to onshoring, there are also environmental and other benefits, like more sustainable supply chains. Less reliance on carbon-intense shipping methods and closer proximity to end customers reduces greenhouse gas environmental footprints. Domestic production would also allow the United States to curtail association with foreign supply chains that may be replete with human rights abuses, such as child labor.
As a society, we will need to make choices, and there will be tradeoffs to these decisions. In the United States, the current policy is to onshore—to the maximum extent practicable—the production capabilities and infrastructure necessary for meeting climate change, national security, and economic goals.