- Following the EU’s concerns over the Inflation Reduction Act (IRA), E3G and adelphi seek to explain the political economy dynamics behind both the passage of the IRA and the European response, explore scenarios for addressing the current disagreement and chart paths forward for preventing future tensions through greening the global trade regime.
- This briefing analyses a variety of options ranging from the US tweaking the implementation of the law to include the EU in all IRA incentives to the EU bringing the issue before the World Trade Organization (WTO).
- Other scenarios include setting up a transparency mechanism in green subsidy regimes and temporarily pausing WTO complaints while dialogue continue to the EU strengthening its own domestic industrial policy as supported by some member states.
- Regardless of how the two sides address the conflict, the present situation highlights the need for the EU and US to align on a strong transatlantic climate and trade agenda that embraces rule changes to accelerate global decarbonisation.
Story – the IRA and the EU
After years of struggling to pass a climate law, President Biden and Democrats in Congress were finally successful in putting the US decisively on the path to achieving its 2030 climate targets. EU leaders initially welcomed the IRA’s final passage and the US stepping up to deliver on its domestic commitments. But now, the EU and several member states are raising concerns over provisions in the IRA that may discriminate against foreign producers.
E3G and adelphi’s new briefing provides the political context for the passage of the IRA and outlines what is at stake if the disagreement over the IRA is not resolved. The EU and the US have several options on the table to resolve or at least soften, trade tensions around the IRA. But both sides face the difficult task of striking a balance between maintaining the Congressional intent of the law and fairly addressing the EU’s concerns – showing there might not be an easy path forward. The options outlined in the new briefing aim to address the US and the EU’s immediate interests, weigh their benefits and downsides and consider their feasibility. Further, the trade tensions over the IRA underscore the need for a green overhaul of the rules in the international trade regime which the EU and US can tackle together, alongside other major emerging economies and developing countries, to prevent future challenges.
Sarah Jackson, Policy Advisor for transatlantic diplomacy at E3G said:“This latest dustup over the IRA is only the beginning – as we move from setting targets to implementation, trade challenges over climate policies such as green subsidy programmes will become the norm instead of the exception. To prevent future trade tensions arising from climate action, the EU and US can agree on fair play rules that speed up the transition and address competition concerns.”
Mary Hellmich, Analyst at adelphi and Co-Lead of the Transatlantic Climate Bridge said:“Countries can only implement the climate policies their political economies allow. The tensions between the US and the EU over the Inflation Reduction Act highlight that there is no one-size-fits-all for global climate action, and that cooperation on greening the international trade regime is more urgent than ever.”
Available for comment on IRA, US and EU transatlantic trade relations
Sarah Jackson is available for commentary – please contact her directly:
m: +49 (0) 171 302 1113, firstname.lastname@example.org
Mary Hellmich is available for commentary – please contact her directly:
m: +49 (30) 89 000 68 – 456, email@example.com
Notes to Editors
- E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. About – E3G
- adelphi is an independent think-and-do tank in Europe for climate, environment and development. For 20 years we have worked at the local and global levels to find solutions to the most urgent political, economic and social challenges of our time. About – adelphi
- Download the briefing here.
For further enquiries email firstname.lastname@example.org or phone +44 (0)7783 787 863