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When U.S. President Joe Biden signed the Inflation Control Act into law, he enacted the largest climate change investment in U.S. history. This is a landmark moment for a country that puts more carbon into the atmosphere than any other country except China.
Biden told world leaders at the UN’s COP27 climate summit, “Our Department of Energy promises that the new law will reduce US emissions by about 1 billion tons by 2030, creating new opportunities for clean energy economic growth.” I estimate that it will unleash the times,” he said. in November.
However, the director Approximately $370 billion World leaders have argued that the package unfairly favors American companies in federal funding to rapidly build clean energy infrastructure, and they it’s no use But to respond with their own big incentive.
Last week, the European Commission Green Deal industrial plan announcedThis will clear more than $270 billion in existing funds, reduce bureaucracy, and provide tax breaks for net-zero investments. The package was discussed at his EU summit this week.
Europe “will expedite targeted, temporary and proportionate support, including tax credits, in areas that are strategic to the green transition and adversely affected by foreign subsidies and high energy prices. The EU leader said in a statement on Friday.
Hundreds of billions of dollars of government funding could help countries meet their emissions targets. seems increasingly elusiveBut the emergence of a TIT-FOR-TAT approach to green subsidies has also raised concerns about a new era of protectionism, where competing industrial policies will not loosen global ties, undermine trade and reduce needed cooperation. This is fueling the concern that
Here’s what you need to know about rivalries and their potential consequences.
A subsidy is a financial benefit given by a government or public agency to a company that wishes to help, theoretically because the work is of public benefit or strategic importance. will be split.
This can take the form of tax breaks, cash grants, or loans at below-market interest rates. Even government-procured deals can act as subsidies if government agencies offer to pay extra for goods and services that could have been obtained cheaper elsewhere.
“The idea is that governments can do things that markets themselves aren’t doing,” said Stephanie Ricardo, professor of political science at the London School of Economics and author of the book on subsidies, Spending to Win. rice field. “Either there are technologies that are not being developed and adopted, or there are industries that are not growing at the rate they should.”
Critics argue that governments with their own political motives are not good at picking winners and losers. But since the pandemic, states have played a much bigger role in the economy, with advocates saying subsidies are playing a key role in tackling the climate crisis.They also found that fossil fuel producers benefited from them decades.
One of the biggest hurdles in tackling climate change is the ‘green premium’, or cost differential. Products or services that use clean energy and products or services that use significant emissions.
This premium is expected to shrink as clean energy technologies become more sophisticated and the infrastructure to produce them expands. But in the meantime, businesses are discouraged from choosing greener options.
That’s where companies think government help can help. They see this as a means of increasing private sector activity and lowering costs.
Nils Aldag, CEO of Sunfire, a German company developing green hydrogen production technology, said: “They need that market opening.”
Most of the funding the IRA allocates to clean energy initiatives comes in the form of tax credits.An estimated $43 billion is AVAILABLE FOR CONSUMERS, $216 BILLION FOR BUSINESSES According to McKinsey.
US households can now claim up to $2,000 in credits. Installation of an electric heat pump, for example. Up to $7,500 in credit is available to purchase a new electric vehicle, which may require rewiring of the supply chain. This may require rewiring of the supply chain given that the covered vehicles must be manufactured in North America and the batteries and components must also be sourced from North America. A $2 billion grant is included to expand domestic manufacturing capacity to meet increased demand.
The law also provides generous tax incentives for companies investing in green energy projects, from wind farms and solar power plants to battery storage facilities and renewable hydrogen production. Companies have already announced at least $40 billion in capital investment in such projects, as well as 20 new facilities or facility expansions, according to the American Clean Power Association, an industry group.
European leaders applauded the new US leadership on climate, but the IRA “Super Aggressive” even discriminatory. They fear the IRA will encourage homegrown green energy companies to invest in the United States rather than their home markets, resulting in lost expertise, jobs and tax revenue. Status quo domestic firms may fall behind as US firms leverage subsidies to ramp up operations quickly.
Heike Freund, COO of Marvel Fusion, a German start-up that is developing technology to generate clean energy from nuclear fusion, said, “Many investors have asked us why we are still here. I am asked if
The European Union also claims that the IRA’s terms for the electric vehicle tax credit violate World Trade Organization rules.
“This nationalist approach creates tension when it comes to local content requirements in anti-inflation legislation,” said Simone Tagliapietra, senior fellow at Brussels think tank Bruegel.
The European Union’s protests were the loudest, but it’s not just the European Union that worries. The UK, South Korea and Japan have also expressed concerns.
One of the challenges for European leaders is how to relax the rules on state aid without creating new competition for subsidies among member states. That could weaken a core pillar of Europe’s huge internal market.
Meanwhile, government officials are lobbying the US to reconsider parts of the IRA.
“There is still a good chance that an agreement will be reached that will allow the participation of European industry. [in]and are not exempt from the Inflation Reduction Act,” said German Economy Minister Robert Habeck. told reporters I visited Washington this week with French Finance Minister Bruno Le Maire.
The White House has stressed that the IRA will benefit all countries by reducing the cost of green technology. Negotiations with foreign partners are said to be underway.
“Europe and other allies need not fear the anti-inflation laws and the gains are considerable,” Biden’s chief economic adviser Brian Deeds said.
Increasing funding for clean energy production and green technologies is essential, but the battle for subsidies focuses too much on geography and not enough on the big picture. You run the risk of not being able to.
Aaron Cosby, a senior associate at the International Institute for Sustainable Development, said the world would likely meet its emissions targets even if the Gigafactory, which was to be built in Germany, was simply built in South Carolina. said no.
The battle over green subsidies comes at a time when geopolitical tensions are pushing countries to focus on localizing production not only of green energy, but also of sensitive technologies such as computer chips. When outlining a new industrial plan, the European Commission said China’s subsidies to the net-zero sector have “long been doubled from EU subsidies” relative to the size of the economy. .
This could accelerate the restructuring of supply chains and the global economy in the long term as national interests take precedence over efforts to open markets.
WTO Director-General Ngozi Okonjo-Iweala has cautioned against the change, arguing that an arms race for subsidies could hurt global trade at the moment it needs to spur growth. ing.
“Let’s not make it in time [a subsidy war] The cost to the global economy is real,” Okonjo Iweala told CNN’s Richard Quest in January.
— Ella Nilsen contributed to the report.
