Energy
Thursday, September 1st, 2022 11:00 am EDT
The US has traditionally been at the forefront of environmental policy globally. Its leadership was instrumental in bringing the 2015 Paris climate accord into being, but since then, a failure of leadership at the national level has led to America being more of a sideshow than a leader. The Inflation Reduction Act has changed all that.
Joseph Curtin, the managing director for power and climate at the Rockefeller Foundation, told Robinson Meyer of The Atlantic recently, “Genuinely, my view is that this is possibly the biggest thing to happen in international climate diplomacy in decades. That sounds quite dramatic, especially given that it doesn’t have an international dimension. But it establishes the U.S. bona fides on the international stage.”
Meyer says he has had conversations with climate experts both in the US and in other countries recently and that they agree the IRA will permanently alter the world’s fight against climate change, even if it is not yet clear exactly how. Here are his 5 key findings from those conversations.
The IRA Gives America Climate Credibility
For years, America has seldom matched its rhetoric with its action. Congress has repeatedly failed to pass a bill aimed explicitly at reducing US carbon pollution, and executive action through regulations has met resistance in the courts.
But under President Biden, things have been different. In his first 100 days in office, he held a “Leaders Summit on Climate” from the White House, where he committed to cutting the country’s annual emissions by at least 50% by 2030 compared with their all-time high. In international meetings, his administration has encouraged other countries to increase their emissions reduction targets. This is a continuation of America’s approach to climate under previous Democratic presidents, most notably Obama.
The IRA has turbocharged that dynamic. “We definitely needed something for the U.S. to have a modicum of credibility,” said Claire Healy, a former British Labour Party adviser who now leads the Washington, D.C., office of E3G, an international climate think tank. “There’s now a plan. And before, there wasn’t a plan; there was a gaping hole.”
For years, America’s lack of credibility weakened the force of any pronouncements it made about climate change and gave the impression that Americans wanted only to pay lip service to the climate problem. Now its diplomats have a leg to stand on when they spar with their peers from other countries or talk to the world directly. “The U.S. can come to [this year’s UN climate conference] with the position of ‘We’re not only talking the talk; we’re walking the walk,’” Joseph Curtin said.
The IRA & China
The IRA posits that America is locked in a global competition with China and must strengthen its position accordingly. It creates a new national industrial policy designed to reshore certain clean energy industries and nurture US competitors to Chinese EV companies. It joins other efforts, such as the recent bipartisan CHIPS and Science Act, that enact a more muscular US industrial policy than the country has seen in a generation.
That makes the new US vs China competition real in a way that it wasn’t before, Alex Wang, a UCLA Law professor and expert on Chinese climate policy, told Robinson Meyer of The Atlantic. “There’s a lot of discussion from Biden about competing with China, but you’d have to say that it felt like talk, because the U.S. wasn’t acting. This is necessarily a big action. It should make everyone take the U.S. much more seriously.”
Meyer argues the IRA resembles China’s own approach to climate policy, which tries to decarbonize by making strategic investments in certain industries, not by regulating or taxing carbon emissions. “It’s a validation of that approach, which, in a sense, China has been doing all along, for the past 15 years,” Wang said.
Chinese leaders may appreciate the indirect endorsement America has just given their style of economic management. Other countries are paying attention too. “I think that’s positive — that state support is not viewed as a dirty word in the US and hopefully it validates that approach around the world,” he said.
The IRA & Protectionism
The IRA attempts to remake several clean energy industries in ways that will benefit America’s trade balance. Some of those subsidies, such as aggressive solar manufacturing or hydrogen incentives, are available only to American firms making things on American soil and the new law tried to entirely reshore the battery industry.
That made response to the bill by other countries “a bit muted,” said Claire Healy. “Other countries must be looking at this and [getting] worried about those local content requirements” such as the provisions that say EVs will qualify for some subsidies only if the minerals used in their batteries are mined and processed in the United States or countries that it has a free trade agreement with.
The US has free trade agreements with Australia, Canada, and Mexico, but not with Japan, South Korea, Germany, or the United Kingdom. Those countries may now want to negotiate trade agreements with the US, which will wind up integrating US climate policy into the policies of those countries as well. The future may see more agreements like last year’s US-EU steel arrangement, where each jurisdiction agreed to subject its steel industries to higher environmental standards in exchange for looser trade restrictions.
Reducing The Cost Of Green Technologies For Developing Countries
Although the IRA is targeted domestically, it may help set up a green vortex, Meyer writes, that lowers the cost of wind, solar, batteries, and other crucial technologies. Those lower costs will benefit developing countries and make them more likely to utilize clean energy rather than fossil fuels to power their growing economies.
Fabby Tumiwa, an Indonesian climate expert and the executive director of the Institute for Essential Services Reform, an Indonesian energy think tank, said the IRA “is really good for a developing economy like Indonesia due to spillover effects because of lower costs.” Over the past decade, China and Europe have driven the tenfold decline in solar prices which has helped fuel the explosive growth of solar power around the world. Now the IRA might fuel a huge boom in supply and demand from the US, driving further declines.
Indonesia sees access to low cost renewable energy as crucial to its economic development. “In an emerging economy like Indonesia … we see emission reductions” as really having “to come from developed economies. We need more time. So if developed countries like the US and some EU members can make a significant reduction by 2030, I think that is good.”
The IRA & Financing In Developing Countries
In sub-Saharan African and several other regions of the world, “The key issue is not the cost of technology; it is the cost of money,” Saliem Fakir, the director of the African Climate Foundation, told Meyer. What these countries need above all, he said, is access to loans and other forms of financing at rates similar to those the United States and Western European countries can access.
Not only do cheaper borrowing costs make it easier for countries to build more renewables in general, but they also hasten the arrival of the moment when it’s less expensive to build new clean energy resources than it is to operate existing fossil fuel power plants.
This is the inevitable problem with laws such as the IRA that are domestically oriented, Meyer writes. For the past few years, Western governments have announced huge spending bills devoted to solving climate change or recovering from the COVID-19 recession, Claire Healy said, but that money was always meant to help their own economies.
The IRA will be a boon to certain sectors of the American economy, but similar policy initiatives that lower the cost of financing clean energy technology for developing countries could pay big dividends too in the struggle to reduce global carbon emissions.
Perhaps when a few reactionaries get replaced in Congress this fall, there will be enough political will to include a package of loan guarantees that will allow other nations to achieve the same carbon reductions the US aspires to for itself.
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