Transformation Quarterly

By Constance Chucholowski

The U.S.’ Inflation Reduction Act (IRA) set a new climate policy standard. The historic investments in the IRA are unlikely to be rolled back as the result of a split Congress following the November midterm elections. The EU – namely companies impacting climate change or vital for driving climate change mitigation – should not hold their breath for Republicans to turn back President Biden’s climate policy win soon or even after an uncertain 2024 Presidential election.

Instead, they should prepare for how the IRA has disrupted the multilateralism necessary to take meaningful climate action. Because, where the IRA’s “accidental” protectionist woes may force increased climate action by the EU or stronger trade integration between the U.S. and EU, protectionist principles under a possible Trump Administration 2.0 would almost certainly be purposeful.

The IRA is an historic piece of legislation for its depth – it includes $396 billion worth of investments and is intended to reduce CO2 emissions by 40 percent below 2005 levels by 2030 – for its breadth – it joins a clean energy future and energy independence, climate action, and climate justice – and for its process – the Biden Administration and Congress negotiated support for the bill over many months, taking the narrow opportunity to secure legislation instead of less future proof regulation. Going forward, The Treasury Department will be quintessential in determining how to deliver the IRA’s $270 billion in tax incentives.

Despite immediate threats by Republicans to overturn the IRA, it is unlikely that the Republican House Majority-elect will succeed. Certain IRA provisions are popular with the Republican base; investments in clean energy and manufacturing may soon prove a boon for more conservative communities. In this case, it will become politically unpopular to withdraw subsidies that are directly driving job growth. Ultimately, the Biden Administration must act quickly to implement the IRA both to realize its climate impact and prove its economic Raison d’Être.

More imminent than Republicans rolling back the IRA is the dispute between the U.S. and EU resulting from the protectionist character of the IRA’s electrical vehicle subsidy scheme. On the one hand, the measure has the potential to motivate the EU and member states to develop long overdue ambitious climate change policies. On the other hand, the IRA’s challenge to multilateralism – necessary in the fight against climate change – will impact progress toward global CO2 emissions reductions.

U.S. climate policy is unlikely to take an immediate hit as a result of the Republican majority in the House of Representatives beginning in 2023. However, should Republicans return to the White House in 2024, the EU should be prepared for further protectionist policies that directly hamper climate change action. Where President Biden signaled the IRA did not intend to lock out allies, and a U.S.-EU solution to subsidies (as of Dec. 2nd) appears near, a future Republican administration will be intentional about its protectionism vis-a-vis the EU.

Constance Chucholowski, Chair of the Democrats Abroad in Berlin, is a public affairs communications advisor as well as the founder and managing director at Candid Public Affairs.

Photo: iStock.com/cezars