Suddenly, the US is a climate policy trendsetter

It wasn’t long ago that Europeans were lamenting the United States’ lack of progress on climate. Now they’re racing to keep up.

When President Joe Biden signed the Inflation Reduction Act in 2022, he wasn’t just altering U.S. domestic energy policy. The law’s tax credits for domestic manufacturing and clean-energy project construction changed the global calculus of where companies should operate. Now even U.S. allies are scrambling to hang on to a piece of the booming clean-energy industry.

In mid-March, the European Union proposed policies to ensure the bloc’s clean-energy manufacturing base grows enough to meet 40 percent of its deployment needs by 2030. On Monday, France’s finance minister unveiled a set of tax incentives and subsidies to encourage clean-energy manufacturing in the nation and ​“reverse a long-term disindustrialisation trend in the country,” Reuters reported. Lapsed EU member Great Britain weighed in too, but mostly to express distaste for this ​“distortive global subsidy race” with allies.

Back in North America, Canada proposed a budget last week that explicitly models itself on the Inflation Reduction Act, with 15 percent tax credits for clean power plant construction and 30 percent tax credits for ​“the cost of investments in machinery and equipment” to produce clean technologies or the critical minerals they depend on.

“A couple years back, you would not see this situation coming at all,” said Lars Nitter Havro, who manages energy transition analytics at Norway-based Rystad Energy. ​“The U.S. is very serious about bringing home that supply chain. It’s raised the bar substantially, globally.”

These other nations aren’t complaining about having the U.S. back in the Paris Agreement. But while the world may benefit from reduced carbon emissions, specific regions and countries stand to gain jobs and tax revenue if they can play host to the manufacturing and installation of clean-energy technologies like solar, wind, batteries and hydrogen electrolyzers. Now the U.S. is dangling $369 billion in incentives to woo companies to focus new investment in North America, luring them away from Europe.

This realignment of corporate activity is already happening. Norwegian battery manufacturer Freyr, for instance, was planning a ​“Giga Arctic” factory in Mo i Rana, Norway. But after the Inflation Reduction Act passed, Freyr slowed development to seek national or European subsidies and sped up development at its ​“Giga America” factory in Georgia, Havro said.

Similarly, Tesla told Reuters that after beginning operations at a new factory in Germany in March 2022, it is refocusing battery cell production in the U.S. to take advantage of Inflation Reduction Act provisions. The law offers a full $7,500 tax credit for new electric vehicles if the batteries and their critical minerals are at least partially sourced from the U.S. or its free-trade partners. The EU and the U.S. do not share a free-trade agreement, Havro noted.

The White House has tallied up $200 billion in new corporate investments in clean-energy projects, EV plants and battery manufacturing since the Inflation Reduction Act passed.

For Europe in particular, the stakes go beyond jobs and tax revenue. Even before the U.S. updated its energy policies, Europe was striving to speed up clean-energy adoption to reduce dependence on Russian energy following the invasion of Ukraine. That would entail increasing renewable installations from around 59 gigawatts annually today to 90 gigawatts per year.

European developers already faced ​“extremely long” timelines to obtain permission to build clean-energy projects on the continent, Havro said. U.S. developers run into their own problems with permitting, to be sure, but now the U.S. is offering developers as much as half off their investment costs to build on its shores instead.

“It’s so much easier for developers to come to the U.S. now than it was in the past,” said Havro. ​“Compared to EU bureaucracy, it’s refreshing to have genuine support.”

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