U.S. climate spending comes with a global perk: regained respect

Chief Europe Correspondent

The United States’ decision to pour hundreds of billions of dollars to prop up clean energy may have given the country more than what money can bring: an opportunity to renew its credibility at November’s international climate negotiations.

After years of inaction and mixed messages on the global stage, U.S. allies are cheering now that the world’s largest economy is finally starting to catch up in the fight against climate change.

But after the applause comes a second message: more is needed.

“It’s a very big step; I’m thrilled with this,” Morten Petersen, vice chair of the European Parliament’s Industry, Research and Energy Committee and a Danish MEP from the liberal Renew Europe group, told Cipher. “It shows commitment to the climate cause, and finally we see the Biden administration coming through with it.”

The Inflation Reduction Act (IRA), which U.S. President Joe Biden signed into law on Tuesday, contains nearly $370 billion in clean energy spending. As Cipher reported last week, it’s the single biggest investment in this area in U.S. history, and it’s expected to accelerate the deployment of clean energy technologies across every major sector of the U.S. economy.

Petersen, who attended last year’s United Nations climate negotiations in Glasgow, Scotland, known as COP26, said the lack of U.S. leadership during the talks was “visible and tangible.” That could turn around at this year’s round of talks, or COP27, which will take place in Egypt in November.

“We all know what the Americans are capable of when they get their act together,” he said.

A European Commission spokesperson told Cipher in a statement that the IRA “will play a crucial role in speeding up the United States’ economic transformation away from fossil fuels.”

Climate negotiators around the world also breathed a sigh of relief, as Climate Home News reported this week.

Independent analyses estimate the new law would cut U.S. emissions roughly 40% below 2005 levels by 2030, a significant step toward achieving President Biden’s goal of slashing emissions at least 50% by then.

These projected emission reductions “give the US more credibility [on the international stage] and will hopefully help lessen the perception of hypocrisy that has so hampered productive conversations to date,”
Katie Auth, policy director at the Energy for Growth Hub, a research network focused on ending global energy poverty

Tom Rowlands-Rees, head of research for North America at BloombergNEF, echoed those thoughts.

“The U.S. is historically the world’s biggest emitter of greenhouse gases and the world’s largest economy,” he said. “In terms of global climate negotiations, if the U.S. is not on board as a credible partner, then it’s very difficult to bring others on board.”

But beyond the immediate soft power boost the U.S. can enjoy on the international stage, there’s also pressure to do more.

While the IRA is “a very useful step forward, it’s not enough on its own,” said Alex Scott, climate diplomacy and geopolitics program leader at environmental think tank E3G.

“More policy and ambition will be needed,” she said, especially in ramping up  financial support for developing countries to meet their own decarbonization goals, where the U.S. is falling behind.

This is the same message reflected in the French and German press, with one French headline stating: “More has to be done for the climate, Mr. Biden.”

Although the IRA is the U.S. government’s largest-ever package of tax credits aimed at tackling climate change, China and the European Union are spending as much or more on reducing emissions and moving away from fossil fuels, according to data compiled by BloombergNEF.

Direct-number comparisons are tricky because both China and the EU use a mix of policy tools for their decarbonization goals, such as carbon pricing and target setting, while the U.S. opted for subsidies.

Petersen said he hopes the EU’s regulatory policy choices to boost renewables, reduce consumption and increase energy efficiency in buildings “can inspire the Americans to adopt similar measures because that would increase the competitiveness on both sides of the Atlantic.”

Auth, meanwhile, said incentivizing decarbonization through subsidies is something the U.S. should include in its foreign policy to nudge other countries to do the same.

In the long term, the IRA’s support for next-generation technologies such as clean hydrogen, carbon capture and geothermal energy “will help lower costs and ultimately expand what’s available and economically viable in lower-income markets,” she said.

The bottom line, Scott said, is “there are benefits to countries being able to share with each other the pitfalls and successes in their climate change policy responses.”