The United States recently introduced a huge climate change bill which promotes investment in green energy through indirect subsidies. This bill represents one the largest state-level investments in green energy in history and seems to suggest we are moving away neoliberal models of development.
The green-subsidies are included in the broader Inflation Reduction Act which came into force in August 2022 and is primarily designed to tackle climate change through boosting the country’s green energy sector, mostly through indirect subsidies in the form of tax credits.
The main aims of the bill are to reduce carbon emissions and create millions of new jobs in the green energy sector, in industries such as manufacturing solar panels, wind turbines, heat pumps and carbon capture technologies.
The bill is also designed to help the U.S. reduce its reliance on imports from China, in a process it calls ‘onshoring’, and there is hope that it will encourage trillions of dollars in private investment into manufacturing green technologies.
To give a specific example, the U.S. now offers a tax credit of $7500 for buyers of most electric and hydrogen powered cards. However, this is conditional on final assembly taking place in the U.S. or other countries which have free-trade treaties with the U.S. such as Canada and Mexico.
There are also a ‘domestic-content’ rules: the more components and raw materials sourced in America, the higher the tax-credit, but there are no credits available if if critical minerals have been sourced from ‘foreign entities of concern’ such as China, Russia or Iran.
It is estimated that the IRA will help reduce greenhouse gas emissions by 10% more than if it hadn’t been passed.
In the six months since the bill was passed there has already been $89 billion of investment into the green energy sector, and 100 000 new jobs created. Companies such as BMW, Honda, and Tesla have either moved manufacturing of batteries to the U.S. or are considering a move.
The end of Neoliberalism?
This policy shift feels like we are moving away from the neoliberal development model in which nation states do less. Here we have the United States government actively supporting, selectively, green technology.
Maybe climate change is such an important global issue that we need co-ordination at the level of the nation state.
Limitations of the Climate Change Bill
Indirect subsidies are protectionist and they distort the free market.
Even after only six months green tech companies are already pulling out of Europe and seeking to relocate the the United States, meaning that this policy is hurting U.S. allies as well as its perceived ‘enemies’ such as China.
When nation states provide subsidies it can promote something of a ‘race to the bottom’ among competitors, with the EU already considering its own Green Deal Industrial Plan, simplifying regulation for green companies.
The bill potentially violates World Trade Organisation free trade rules, and the EU is challenging it on these grounds.
And let’s not forget, where manufacturing is concerned, green energy isn’t necessarily than green: there is a lot of metal and plastic in wind turbines and batteries, and a lot of toxic-chemical processes that go into their manufacture, and we haven’t exactly figured out a pollution free strategy for storing used-batteries when they are past their use-by date.
In other words, light regulation now might not be an effective way of promoting green development in the greener sense of the world.
While lowering emissions will benefit developing countries more (because they are more exposed to the extreme consequences of global warming) this kind of development is all about developed countries in economic terms.
The bill only passed the senate by one single vote and it had to be ‘disguised’ in a larger ‘Inflation Reduction Act’ which included a range of other measures on healthcare and tax.
There is still plenty of political resistance to state-subsidies for green technology, meaning the bill could be watered down or countered by subsidies for petrochemical industries in future years.
Signposting
This material is mainly relevant to the global development and globalisation module, sometimes taught during the second year of A-level sociology.
Wiki Entry: America’s Climate Reduction Act
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