Detroit Skyline along river

This Great Lakes State Is Surging Ahead in Climate Action

Michigan’s clean energy-led economic development strategy has important lessons for every other state in the country.

Michigan made major progress on its economic revitalization and climate goals this week, with Governor Gretchen Whitmer signing the Clean Energy Future Plan legislative slate. The centerpiece of this package, the state’s new Clean Energy Standard (CES), rightly grabs headlines for its emissions-reduction potential. But the bills reflect a broader story, too — of a clean energy-powered strategy for economic development and industrial dynamism. It is a story of how subnational policy can complement the federal Inflation Reduction Act (IRA) while building on communities’ competitive strengths, one with important lessons for every other state in the country.

The emissions-reduction potential of Michigan’s new CES is massive. The state has found ways to directly complement IRA initiatives, accelerating their uptake and the pace of local deployment. The law creates a government-backed, demand-side guarantee for clean energy developers and investors — a powerfully direct means of accelerating clean energy adoption in a state where only 15 percent of electricity today comes from renewable sources. This policy, on its own, can get the Wolverine State 72 percent of the way to its 2030 climate goals, according to new data from RMI and Energy Innovation’s Energy Policy Simulator. Michigan has now joined a growing list of states to require its utilities shift to 100 percent clean energy by 2050.

Leveraging IRA Funding

Yet with billions of dollars in new federal incentives under the IRA, and continued declines in the cost of clean energy technologies, these targets will be easier and easier to hit. A study from Princeton University finds that with IRA incentives in place, Michigan’s wind and solar capacity would increase to nearly two-thirds of the state’s total electricity capacity even without a CES. Importantly, the modelers note that the primary constraints on reaching these figures are not whether there is sufficient demand, but whether states can address the supply-side bottlenecks to investments in areas like transmission, CO2 pipelines, storage infrastructure, and workforce development.

This reflects the underlying logic of the IRA — the most significant piece of climate legislation in US history. As Brian Deese, the former National Economic Council Director and one of the chief architects of the IRA recently put it, the IRA has shifted the climate policy paradigm by “mainstreaming the policy approach of making clean energy cheap” and by shifting the “dominant economic challenge in climate policy from insufficient demand to insufficient supply.” Put simply, the IRA promotes a new “green industrial strategy” approach to climate policy. This approach emphasizes innovation and incentives at the federal level, and economic development at the state and local levels.

Here, Michigan is leading from the front. The state has proactively worked to attain IRA funding, address bottlenecks to growth in key sectors, and provide attractive incentives for new investment, and has developed a sophisticated strategy to remain globally competitive in key industries.

The sheer amount of and the pace at which clean energy investment is accelerating are tightening the bond between economic development and climate action. Michigan could see as much as $26 billion in federal money flowing to the state through IRA initiatives — plus additional private investments. Over the past five years, the state has seen $19 billion in clean energy investments; since the IRA’s passage, the state has notched an additional $18 billion in clean energy manufacturing project announcements. Michigan experienced the largest manufacturing recovery of any major manufacturing state since the Great Recession; and the largest manufacturing recovery of any state in the union since COVID-19. That’s not a coincidence.

To take advantage of IRA funding, Michigan set aside $350 million for a Make it in Michigan Competitiveness Fund explicitly to win federal resources, joining states like Minnesota, Pennsylvania, and Colorado, which have created similar programs.

Addressing Bottlenecks to Growth

Emerging policy priorities beyond those tied to the IRA aim to address key supply-side constraints. Permitting reform is a prime battleground. Local opposition and regulatory bottlenecks threaten to hold back clean electricity deployment more than price competitiveness as solar, wind, and battery costs continue to fall. To accommodate growing demand for clean energy, policymakers must improve the efficiency of project approvals.

Here, too, Michigan has made important progress. The June 2023 Solar Energy Facilities Taxation Act allows local governments to partner directly with solar energy companies to provide a flat payment in lieu of taxes, streamlining the permitting process and creating additional certainty for local tax revenue. Additionally, the recently funded Renewable-Ready Communities initiative — which builds on an already-successful program — creates a one-time $30 million general fund to incentivize and empower local communities to host utility-scale renewables nearby. Finally, this month’s Senate Bill 0502 creates a statewide permitting process for large solar and wind projects — a response to the rejection of nearly 100 such projects at the local level over the past five years.

Michigan’s prolific spending on economic development incentives has been key to attracting large projects. Since 2010, the state has directed over $2.1 billion in EV manufacturing subsidies — almost 20 percent of its development incentive spending in that period. This spending has accelerated in recent years especially, thanks to the state’s new Strategic Outreach and Attraction Fund (SOAR) for recruiting and retaining “critical industries.” For example, a recent study of a Ford battery plant incentivized using SOAR funds found that it will deliver economic benefits 1.8 times the costs to taxpayers. While a good deal of attention has gone to the apparent pattern of locating manufacturing projects in right-to-work states, our analysis finds these projects are more likely to go to states that prioritize clean energy manufacturing industries through incentive spending with strong underlying manufacturing growth.

Focusing on Strengths

Effective incentives are only one part of effective economic development policy. Michigan has prioritized EV and battery manufacturing for the past 15 years — ever since the first Chevy Volt came off a Detroit Hamtramck assembly line. High-promise programs of late include the Michigan Future Mobility Plan, which aims to prepare more workers for mobility industry jobs, make it easier for residents to use and charge EVs, foster mobility industry workforce growth, and ensure the state continues to lead the nation in EV-related research, development, and innovation. These are the hallmarks of a successful industrial strategy. So too is the Michigan Department of Labor’s new Just Transition Office, which furthers the state’s commitment to creating opportunities for its autoworkers in the transition.

Michigan’s evolving dynamics help us understand the shifting landscape of climate policy in US states. Ambitious clean energy mandates remain a powerful tool in meeting ambitious climate goals, but as the impacts of the IRA flow through the US economy, the ability to address sector-specific supply-side bottlenecks will increasingly determine where clean energy technologies are produced and consumed Michigan has cultivated access to federal funding and progressed on areas like permitting reform to enable its private sector to deploy clean energy at scale and speed. Finally, in an area where Michigan hopes to be globally competitive — EV and battery manufacturing — it is taking impressive strides toward a coordinated industrial strategy that could unleash its clean energy-led economic development potential.