America's Landmark Climate Law

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The Inflation Reduction Act will deploy nearly $400 billion over the coming decade to slash carbon emissions.
The law subsidizes clean energy rather than taxing or restricting carbon pollution.
The law explicitly favors clean energy manufactured in the United States and includes domestic manufacturing requirements and large subsidies.
The law secured 51 votes with a broader political base of labor joining environmental groups to support the bill.

Stimulate domestic industries and upskill the American workforce for higher-quality industrial jobs.
Address energy and national security risks stemming from China’s dominance of supply chains for solar panels, electric car batteries, and critical mineral processing.
Lower the cost of clean energy technologies to accelerate deployment at home and abroad.

Domestic-content requirements and subsidies risk alienating allies and sparking trade backlash:
- Electric vehicles must be assembled in North America to qualify for subsidies, and batteries must be made from components mined or processed in the US or its free-trade partners.
- Larger renewable energy subsidies are available if projects use materials, such as steel and iron, sourced from domestic manufacturers.
- Massive subsidies for hydrogen and ammonia made using renewable electricity (so-called green hydrogen) could lower delivered export costs below competitors in the Middle East and Asia.
The European Union and South Korea have indicated they may challenge electric-vehicle restrictions.
Countries may respond with their own protectionist policies (example: Indonesia’s president articulated a goal of banning exports of nickel to build domestic industry).
Firms have expressed interest in relocating green-hydrogen projects to the US to capture subsidies; some existing projects in other countries might be scrapped and relocated.
There are limits to the willingness of the American taxpayer to subsidize energy costs for consumers and businesses in Japan, Germany, or elsewhere.

Globalization is in retreat; powerful forces of fragmentation are spawning new geostrategic alliances and weakening global economic integration.
Following Russia’s invasion of Ukraine, geopolitical drivers are reshaping alliances into new regional blocs, increasing the risk that production requirements tied to the US or allies could further fuel fragmentation.
Trade tensions between the US and China have darkened the outlook for US solar projects in recent years.

To achieve net-zero emissions by 2050, the world must dramatically increase trade in clean energy components and fuels.
Total energy-related trade declines as the system electrifies, but trade in components for renewable energy, critical minerals for batteries, and fuels such as hydrogen must expand rapidly.
According to the International Energy Agency example cited: achieving net-zero emissions by 2050 requires tripling the value of global trade in critical minerals and boosting global trade in hydrogen to 1,500 times its negligible level today.

Ensure the Inflation Reduction Act sparks a virtuous cycle of competition rather than a vicious cycle of protectionism.
Strengthen commitment to the rules-based trading system and cooperation with free-trade partners to diversify clean energy supply chains.
Engage in deft trade policy and diplomacy to avoid trade wars that would stymie the energy solutions needed.
Leverage strong domestic climate action to bolster climate cooperation with other countries worried about competitiveness of their domestic industries.
- Use alliances and preferential trade terms tied to environmental standards (example: Group of Seven agreement referenced).
- Consider mirroring or joining EU approaches such as a carbon fee on imports of high-emitting goods.
- Build on agreements to restrict imports of steel and aluminum that do not meet emission standards.
Strengthen the World Trade Organization and create new mechanisms for economic cooperation and special trading rules that support clean energy.

Jason Bordoff, F&D Magazine, December 2022 — America's Landmark Climate Law

America's Landmark Climate Law
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