“The US Inflation Reduction Act raises questions about the European Union’s climate strategy”

En 2019, the European Union (EU) seemed assured of being able to count on cheap and abundant Russian gas for a long time. It is in this context that it launched its Green Pact. From this initiative, it first expected the assertion of global leadership on the climate, but it also hoped to gain competitive advantages in the products and industries of tomorrow.

The bet was worth taking, but the transition strategy relied heavily on gas: this would initially replace fuel oil and coal, and, while waiting for hydrogen and electricity of renewable origin have found their economic model, it would be used in periods without sun or wind.

But, today, the interruption of Russian deliveries forces the EU to go without gas much more quickly than expected. Falling demand and the use of liquefied natural gas have made it possible to avoid shortages, but the cost of energy for industrial uses is now twice as high as on the other side of the Atlantic. Europe therefore faces an aggravated and very probably lasting problem of competitiveness.

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The other change in the landscape is the turn taken by the United States with the Inflation Reduction Act (IRA) of 2022. To end the blockage that prevailed in Congress, the Biden administration and the Democratic majority made the choice of a climate strategy that relies exclusively on subsidies. There are no plans for carbon taxation, regulatory obligations or the elimination of fossil fuels. The administration is betting that, if companies are sufficiently encouraged, they will invest in green technologies.

Lowered ambitions

The IRA thus provides, in terms of climate, subsidies and tax credits amounting to 400 billion dollars over ten years, according to estimates by the Congressional Budget Office, and perhaps double, according to those of the Credit. Switzerland – the total cost will depend on the success of the arrangements put in place. The largest part consists of subsidies for renewable energies, but also introduced support for the greening of manufacturing production and the purchase of electric vehicles by individuals.

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The IRA vote is obviously good news for climate action. The law will accelerate the United States’ shift towards decarbonization and, because it does not include prohibitions or taxation, it is unlikely to be challenged by a reversal of a majority in Congress.

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