Europeans can criticize a lot in Joe Biden’s ambitious new climate legislation. But it is better than any realistic alternative.
Relations between the United States and Europe have seen better days. The culprit is an American law. The Inflation Reduction Act is the name of the act that has enraged the European political class, from the French president to the European Union trade commissioner.
Despite what the name suggests, it has little to do with fighting inflation and a lot to do with climate protection. A key component of the legislation is comprehensive subsidies for climate-friendly technologies — subsidies that give American industry an advantage in corporate location over European competitors. Only products manufactured in America can profit from these subsidies. There are exceptions to these rules for Canada and Mexico, but not for Europe.
Critics have a point. But in their critique, they overlook the forces of U.S. economic policy. And they should be happy that the U.S. is doing better than before and finally taking decisive action against climate change.
Certainly, good arguments can be made against how they are doing it. Europeans are faced with the choice between entering a competition over subsidies or accepting that domestic industries will relocate to the U.S. The protectionism behind the law hurts free trade; the costs for that will be borne by citizens on both sides of the Atlantic. There are more elegant and efficient ways to improve climate protection, such as taxing emissions. The social costs of fossil fuels would be built into prices; at the same time, income that could be given back to the people would be generated.
People Are Deterred When Climate Protection Comes with Costs
But the problem is that for decades in the United States, these good arguments have fallen on deaf ears among decision-makers. People in Republican-dominated states have long been particularly skeptical about climate policy. The idea of adding new taxes on top of these policies was even less popular. If climate protection looks at first glance like it will come with costs, it becomes harder to convince people to accept it.
Of course, the U.S. government could have spent several more years pushing for a carbon tax or emissions trading system. Maybe a political majority would have eventually formed of pragmatists who could achieve such a solution. But we have already lost decades in the fight against climate change. The 1.5-degree goal has become as good as unreachable. Every year matters now. Moreover, starting in January, the Republicans will again hold the majority in the U.S. House of Representatives. It was the last chance to get something done before this event occurred.
The legislation has paved the way for significantly lowering emissions in the United States. According to estimates, by 2030, they could decrease by approximately 40% compared to 2005 — and in such a way that even a right-leaning Democrat like Sen. Joe Manchin from the oil state of West Virginia* has something to gain. Without his vote, there would not have been a majority to pass the law.
Why Shouldn’t the Americans Pay for Once?
In the end, even Europeans could profit from the new legislation — in particular if, thanks to American subsidies, green technologies arrive on the market that can also be implemented in Europe. And until then, we will buy products from the U.S. at a discount. Subsidies, especially European ones, played a big role in establishing photovoltaic technology. Today, solar energy is more affordable than ever. Why shouldn’t the Americans pay for the next breakthrough for once?
The new American climate legislation has many weaknesses. But it also represents significant progress in the country that is still the second-largest producer of greenhouse gas emissions. It is the second-best solution that doesn’t really satisfy anyone. Sometimes that is better than an alternative that will never happen.
*Editor’s Note: West Virginia is a leading American producer of coal.