America’s Inflation Reduction Act set off a global clean energy arms race

Seldom in history has one law from one country served as a force for good global disruption
Photo by Jan Kopřiva on Unsplash

One year after the passage of the Inflation Reduction Act (IRA), probably America’s most consequential legislation in decades, it’s worth noting the impact it’s had. Not just on America but around the world.

The IRA is subtly reshaping global politics, global industrial policy, global green investment ambitions and conventional orthodoxy about the state’s role. As Semafor’s Climate and Energy Editor Tim McDonnell correctly noted recently: “The European Union, India, and Canada — after initially protesting the IRA’s arguably protectionist underpinnings — devised their own incentive plans, in effect launching a global subsidy war, while developing countries complain that the law shuts them out of the energy transition”.

The IRA’s domino effect has been quite remarkable. In May, a policy Paper from the Spain-based EsadeGeo Center for Global Economy and Geopolitics said that the IRA had caused the largest global economies to rapidly invest in green energy production and decarbonisation “after decades of failure to transition away from fossil fuels”. The paper was unsparing in noting the criticisms of the IRA, which it said, “openly offers generous subsidies on the condition that companies relocate their supply chain to North America”. In a sense, America was using its enormous “investment capacity”, it said, “to attract clean-tech enterprises away from their countries of origin”.

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Chinese analysts have labelled the IRA “naive”, “deceptive” and “likely [to] provoke a global trade war not seen since the end of the World War II”. And  it’s not just China, which has spent years investing in clean tech, that is seriously concerned. So is the European Union (EU), which feels the IRA unfairly threatens Europe’s share of the global clean energy market. America’s trading partners such as South Korea and Canada have also voiced unease. In fact, South Korea, which has a large stake in the EV industry, lodged a legal complaint against the IRA under the terms of the WTO and the Korea Free Trade Agreement. Canada and the UK have also accused the US of flouting WTO rules.

That said, the IRA is working, spectacularly, both for America and the planet. It’s got the geopolitical adrenaline going, sending countries into a competitive spiral for the clean, green investment market.

In February, European Commission president Ursula von der Leyen unveiled a new energy plan, just eight weeks after she called for “our European IRA”.

India too has responded with a budget that places “green growth” and subsidies for domestic renewables production at the heart of its economic plans. Not that India isn’t disapproving of the IRA, with its G20 sherpaAmitabh Kant, describing the US law as “the most protectionist act ever drafted in the world”.

It is.

And disruptive too.

But good disruptive in the sense that it has set off a “clean-energy arms race”.

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