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33 N.Y.U. Env't L.J. 1 (2025)

handle is hein.journals/nyuev33 and id is 1 raw text is: THE LAW AND ECONOMICS OF SUBSIDIES DAVID M. DRIESEN* & DAVID C. POPP** IN TR O D U C TIO N .................................................................................................1 I. MOVING FROM CARBON PRICING TO SUBSIDIES ......................................5 A . C arbon P ricing ......................................................................... . 5 B. Traditional Regulation and Subsidies Prior to the IRA...........10 C . Th e IR A .................................................................................. . 14 1. Scope and A m bition ....................................................... . 14 2. Form of the Subsidies....................................................... . 16 3. Labor Protections............................................................. . 18 4 . T axation ......................................................................... . 19 II. THE ECONOMICS OF SUBSIDIES............................................................ 20 A. Disadvantages ofSubsidies .................................................... 21 B . Advantages ofSubsidies.......................................................... . 24 C. Implementing Subsidies Effectively......................................... 26 III. THE POLITICAL ECONOMY OF SUBSIDIES .............................................27 A. The Economic Dynamics of Carbon Pricing...........................28 B. The Economic Dynamics ofSubsidies ................................... 32 1. The Potential for a Race to the Top..................................32 2. When Will Subsidies Create A Race to the Top?.............35 3. Potential of Protectionism to Snarl Supply Chains and Hinder C ooperation ................................................................... . 35 C O N CLU SIO N ........................................................................................... . . 37 INTRODUCTION In 2022, Congress passed the most ambitious climate legisla- tion in its history-the Inflation Reduction Act of 2022 (IRA).1 The * University Professor, Syracuse University at Syracuse University College of Law. He would like to thank Daniel Farber and the participants in the Society for Environmental Law and Economics and the American Law and Economics Associations annual meetings for helpful comments. ** Caroline Rapking Faculty Scholar in Public Administration and Policy, Center for Policy Research, Maxwell School of Citizenship and Public Affairs, Syracuse University and NBER. 1 See Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1818 (2022) (codified as amended mostly in scattered sections of 26 U.S.C.A.) 1 Imaged with Permission of N.Y.U. Environmental Law Journal

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