The U.S. came to last year’s United Nations climate conference in Sharm El-Sheik Egypt riding high. Finally, the country had passed the Inflation Reduction Act, a $369 billion dollar spending package designed to put the country on a path to eliminate its carbon emissions.
But, a few short months later, administration officials and members of Congress faced a range of questions and complaints about the landmark law. Why doesn’t it include funding to help countries most vulnerable to climate change? Could a future Republican Party undo it? Perhaps the most biting question came from allies: why does the law throw some of the U.S.’s closest partners under the bus?
One South Korean official called the law a “betrayal.” In the midst of the conference in Egypt, the EU dropped an extensive document complaining of “problematic” tax provisions that would harm the bloc’s industry. Japan said the law might stop its car companies from investing in the U.S. In December, Amitabh Kant, the Indian government official charged with leading this year’s G20 summit, joined the chorus, telling me the law represents “the most protectionist act ever drafted in the world.” He called on the U.S. to rethink provisions that favor U.S. manufacturing and “find a way out for its trusted partners,” including India.
The attacks are, on their face, startling. The U.S. has faced criticism for decades for failing to implement policies to cut its emissions and address the scale of climate change. Now it is being attacked for doing just that.
But the pushback is also an inevitable consequence of America’s long-awaited and full-throated embrace of climate policy. Building a clean energy economy from the ground up was always going to require new materials, supply chains, and manufacturing facilities—and new trade rules to accompany them.
Now, the attention turns to how the U.S.—and its partners and competitors—reconcile climate and trade considerations. A deft handling would support new investments in climate technology from governments across the globe, creating jobs and expanding economies at the same time. A poor handling would doom both the economy and decarbonization efforts. “We obviously need to manage this so it doesn’t go off the rails,” says Alden Meyer, a senior associate at the international climate think tank E3G. “But clearly part of the context here is that there is enough to go around in terms of growing markets, growing technologies.”
You would be forgiven for being surprised that the world turned against the IRA. For years, decades even, countries called on the U.S. to pass big climate legislation. And activists welcomed the law as a giant leap in the right direction when Biden signed it in August.
But the immense legislation—unveiled in July and passed by Congress shortly thereafter—came so quickly that foreign friends and foes alike had little chance to process its substance. When they did, they found lots not to like. The law contains a range of subsidies for things like the production of clean hydrogen, electric vehicles, and renewable energy components that incentivize manufacturers to set up shop in the U.S.
“Any policy you devise, like we did with the Green Deal, like the IRA right now, has the potential of creating tensions because you’re taking things in a different direction, which was not envisaged when you entered into trade agreements,” Frans Timmermans, the top EU climate official, told me in September. “So it’s logical that there might be issues that need to be debated.”
The tone grew only more concerned from there. In my conversation with Kant, he returned to the IRA multiple times without prompting. “You don’t [decarbonize] by being uncompetitive and doing something which you’ve been against all your life,” Kant said of his message to U.S. officials. “You believed in market forces and now you do this?”
The U.S. has mounted a response on multiple fronts. Officials, from President Biden on down, have met with their counterparts to reassure them. During French President Emmanuel Macron’s state visit to the U.S., Biden suggested that there might be “tweaks” to the law to satisfy Macron’s concerns. With that in mind, the Biden Administration has sought to take the edge off the law in its implementation. Guidance released by the Treasury Department in late December suggested that the U.S. would try to take a flexible approach as it implements the IRA’s auto provisions.
But for the most part the U.S. remains adamant that the law is actually a huge boon to other countries. The enormous American investment in the IRA will bring down the cost of clean energy technology not just for the U.S. but also for the rest of the world. In doing so, officials say, the U.S. is footing the green energy research and development costs bill for everyone else.
“It falls upon the most able countries in the world, including the United States, to make the investments that will commercialize these technologies and lower their costs for the rest of the world,” said John Kerry, the U.S. climate envoy, in November. “By the time 2030 approaches, folks, we’re going to have made clean technologies much more accessible, much more affordable for the rest of the world.”
Whether they like it or not, foreign leaders will ultimately need to accept that the law isn’t going to change much. John Podesta, who is charged with overseeing the implementation of the IRA, said in November that he was “fully engaged” in discussions regarding the concerns, but added that “the law is the law.”
What happens next? Some officials in Europe have called for the EU to match the IRA’s approach rather than trying to fight it. India is pursuing a “Make in India” program to bolster its own domestic clean energy manufacturing. Greater production of clean energy technology is, of course, a good thing. But policymakers need to make sure that these developments amount to a race to the top rather than a race to the bottom. To do that will require officials to have serious conversations in multilateral forums about new rules of the road that will allow for the development of domestic clean energy manufacturing while still encouraging global trade.
“Whatever we do, let’s not have a confrontation on these issues,” said Timmermans. “Let’s solve them. So that we’re all on the same page.”
Kant says the G20 forum which he is leading this year on behalf of the Indian government is an opportunity for the world’s largest economies to discuss these issues. Kant is particularly keen on developing rules of the road for so-called green hydrogen, a fuel source that many hope could provide a clean fuel source for industry.
Conversations are also happening at the World Trade Organization and between individual countries. The intersection of trade and climate will certainly be on the agenda at the World Economic Forum in Davos next week. All the better. “What is the best space?,” asks Meyer. ”We need a multitude of spaces where this conversation can develop.”
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