Inflation Reduction Act Draws All Attention At WEF 2023
The Inflation Reduction Act (IRA) passed by the United States Congress and signed by US President Joe Biden in August last year has become the signature legislation of his presidency. The Act, among other things, will throw USD 369 billion of subsidies and tax credits over a decade on clean energy, hydrogen hubs, electric vehicles, carbon capture and storage.
The Act makes for the largest financial package for climate spending in the United States' history. Politically as well, the Act was crucial for President Biden because for months, one of his landmark policy proposals, known as Build Back Better (BBB), got stalled in the US Congress and the IRA, in effect is a slimmed-down version of it.
At the 2023 annual meeting of the World Economic Forum in Davos, the IRA caught the attention of the world and corporate leaders with diverging views and deliberations on the legislation. International Energy Agency Executive Director Fatih Birol lauded the IRA as the most important climate agreement since the Paris Agreement of 2015.
Energy industry leaders at the Forum in Davos echoed similar sentiments concerning the legislation. Vicki Hollub, CEO, Occidental Petroleum, hailed the IRA as one of the most transformative bills in the world, adding that it is an important legislation because it provides subsidies for electric vehicles and lithium and not just for carbon capture.
Leaders also described the legislation as an essential tool for providing certainty at the policy level. "It is going to have some impact in terms of stimulating investment through the funding available, but it presents a symbolic significance as well of providing a level of certainty and confidence for companies to invest," said Mike Henry, CEO, BHP Group.
However, within the European Union, the legislation has received some miffed responses, with the European Commission citing "serious concerns" about the design of the financial incentives in the package.
This was evident on Day 2 of the Forum in Davos when European Commission President Ursula von der Leyen said that her institution was drafting a new law, the "Net-zero Industry Act", to make the bloc the home of clean tech and innovation.
She said that to keep the European industry attractive, there is a need to be competitive with the offers and incentives currently available outside the EU, taking a dig at the IRA.
While the bloc has at large welcomed the IRA and Biden Administration's commitment to the energy transition, some fear that it may disadvantage their companies. Not just countries within the EU but some strong US allies such as Japan and South Korea see the IRA as taking investment and production away from their domestic industries.
The European Union's response to the IRA will be watched in the days ahead as some within the bloc fear that a hardline response could provoke a trade war which could eventually sideline the larger objective of financing the transition to a low-carbon economy.
