Last August, when the United States passed the curiously titled 2022 Inflation Reduction Act (IRA), most economists knew the law would, in fact, have a minimal impact on inflation. The real impacts would be felt in matters related to climate change and clean energy. The IRA would help the United States nearly halve its carbon emissions from 2005 levels by 2030, provide massive tax credits to programs investing in clean energy, and foster competition through grants for carbon-reduction efforts.
Needless to say, the Biden administration’s passage of the IRA represented a sharp turn from the Trump-era apathy toward climate change. Around the world, companies, countries, and campaigners cheered the prospect of a United States that was leading the way with progressive climate policies.
It took only a short while, however, for complaints to emerge. The IRA included some $400 billion in subsidies for green initiatives, but only for companies in the United States. (A European company, for example, would have to relocate to America.) Business complaints about the law found their way to governments, leading to angry exchanges between European and U.S. leaders. Was the United States’ climate policy protectionist? Would it spur global investment, or spark too many disagreements with allies in Europe and Asia?
Last August, when the United States passed the curiously titled 2022 Inflation Reduction Act (IRA), most economists knew the law would, in fact, have a minimal impact on inflation. The real impacts would be felt in matters related to climate change and clean energy. The IRA would help the United States nearly halve its carbon emissions from 2005 levels by 2030, provide massive tax credits to programs investing in clean energy, and foster competition through grants for carbon-reduction efforts.
Needless to say, the Biden administration’s passage of the IRA represented a sharp turn from the Trump-era apathy toward climate change. Around the world, companies, countries, and campaigners cheered the prospect of a United States that was leading the way with progressive climate policies.
It took only a short while, however, for complaints to emerge. The IRA included some $400 billion in subsidies for green initiatives, but only for companies in the United States. (A European company, for example, would have to relocate to America.) Business complaints about the law found their way to governments, leading to angry exchanges between European and U.S. leaders. Was the United States’ climate policy protectionist? Would it spur global investment, or spark too many disagreements with allies in Europe and Asia?
To answer those questions and much else, I spoke with Jonathan Pershing on FP Live. Pershing is the program director of environment at the William and Flora Hewlett Foundation. From 2021 to 2022, he served as deputy special envoy for climate at the U.S. State Department. Over the years, he has advised four U.S. presidents on climate policy. FP subscribers can watch our complete 40-minute discussion on the video box above. What follows is a condensed and edited transcript.
Foreign Policy: Let’s begin with the Inflation Reduction Act. The name implies that this was about curbing inflation, but it was also a package that brought with it immense amounts of investment into climate initiatives. How significant is it in the fight against climate change?
Jonathan Pershing: It’s actually a huge deal. It’s termed the Inflation Reduction Act because it has consequences for how we invest in the future. It has enormous implications for what the United States will develop. Where will our industry go? What kinds of expectations do we have around the transport sector? What kinds of cars will we drive? Will the power come from a coal plant or a solar station? All of those things are part of this package. It’s big, it’s sweeping, and it speaks for the first time to a fundamental and comprehensive overview of how you address both climate and the American economy going forward.
FP: When I speak with diplomats and businesspeople from Europe and Asia, they are increasingly critical of the Inflation Reduction Act. They say that it represents unfair competition. How do you respond to criticisms that the IRA is essentially protectionism?
JP: So, I started in a very different place. I started from the question of what other countries would do if they were seeking to reduce emissions. And frankly, as they look at competing in the 21st and 22nd centuries, I think the Inflation Reduction Act is a pretty good and likely replicable answer across the board. So, what do you think about? You think about investing in the new technologies of the future—electric cars or battery technology. You think about the infrastructure that’s going to be required to make those accessible and affordable by communities. And you think about the jobs that will be created. You don’t, as a politician in any given country, start your evaluation by saying, “I’d like to build jobs in Korea.” “I’d love to build jobs in Japan” or “I’d like to build jobs in Brazil.” You say, “I’m going to put this forward, and my political constraints and my political obligations are to build my jobs at home.”
I don’t think any country doing something on climate will do it differently. We’ve seen China with the same policy, aggressively building out its own programs for solar and for cars. We’ve seen the [European Union] with similar policies as it seeks to evaluate not just how to manage its constraints on Russian gas, but also in developing its Green Deal, where it has substantial structures designed to promote European industry. We’ve seen it in the Canadian context.
I don’t think it means to be protectionist by building out a domestic program. Having said that, there are clear constraints. It clearly is going to drive competition. It will clearly probably drive additional subsidies in Europe and around the world as the United States seeks to capture pieces of that market.
[FP subscribers can watch the other side of this debate, too. Frans Timmermans, Europe’s top climate negotiator, explained to FP Live how Brussels navigates a complicated relationship between Washington and Beijing.]
FP: The IRA is clearly going to help mitigate climate change. The paradox there—and the reason why other countries seem upset—is the roller coaster nature of what that does to their industrial policies, and the pressure that it creates for them domestically.
JP: I don’t dismiss lightly the consequences of any country acting in its own interest. There is a consequence. We would be foolish to ignore what that looks like.
I’m not sure that any country can develop an adequate policy unless it first serves its domestic constituents. That’s what the IRA does. One of the things that’s most evident in climate discussions is the urgency for action. If we wait a decade or two decades until things might move on their own, we’ll miss the window. You tend to accelerate in politically expedient ways. That’s what’s being done here. But there is also a race to the top, competition between countries. It needn’t be bad if what ends up happening now is that we accelerate the transition, and I believe it is already happening as the EU puts its own support systems in for European programs, as China puts in support systems, as India puts in support systems. That’s exactly what we want.
There is going to be pain, there’s going to be cost, but there’s going to be big advantages. And we will take collective advantage of that speed, hopefully in time to change the emissions trajectory.
FP: What hurdles do you foresee in the next year given Republican control of the House? Are there areas that the GOP may agree with the Biden administration on climate initiatives?
JP: On the side of potential agreement, the Republicans have historically been a party that’s been very interested in investment in R&D. The bill provides for substantial portions of that. We ought to look not just at this Inflation Reduction Act, but also at the CHIPS and Science Act and the infrastructure bill. Those other two were heavily bipartisan, so there’s a lot of support for many of those programs.
On the flip side, there are real constraints, and aspects that we see the Republicans not happy about. The IRA did not have Republican support as it moved forward. It was dominated by a Democratic program, a Democratic president without bipartisan engagement. There’s been resistance to the proposal to move away from fossil fuel and toward renewables. There’s been resistance on some of the tax provisions that will actually cost the government money.
I think that this might change over the next few years. It might look more like the bills the United States passed on health care, where at the beginning there was strong Democratic support, but no Republican support. Today you find that Republicans and Democrats would really not want to remove those kinds of programs. As we move forward and build jobs at home in Republican and Democratic constituencies, I believe there’ll be much more commonality of purpose and agreement that these are going to be competitive advantages, and they’ll play out in districts as well as for the nation.FP: It’s becoming increasingly clear that the United States and China are on a path toward some form of decoupling. How does that impact climate diplomacy between these two countries?
JP: As you mentioned in your introduction, climate policy is foreign policy. I think that’s increasingly true as we see global damages, but also as we see the interconnectedness of the energy system and of the responses to constraints on that system.
Having said that, you also can’t extricate one problem from another. Our lack of trust in our Chinese colleagues collectively makes it much harder to negotiate agreements that might be in both of our interests. When I was in the government and working with [Climate Envoy and former Secretary of State] John Kerry, I think on the Chinese side, the work that’s been done by Xie Zhenhua, China’s special climate envoy, our long-standing relationships made certain agreements possible. However, they were enormously more difficult because of the tensions between our nations. I don’t think the tensions get resolved. I am deeply hopeful and, in fact, relatively optimistic that we will find ways to work on the climate problem, notwithstanding those tensions. I go back a long way in history. We actually worked on the START treaty while we had unbelievable disagreements with Russia. It’s not impossible to do this.
FP: In interviews with me and elsewhere, John Kerry has spoken quite warmly about his relationship with Xie Zhenhua, who you just mentioned. What’s it like to negotiate with the Chinese against the backdrop of this wider competition and yet this imperative need to cooperate?
JP: We all are aware of how closed China was in the last three years because of COVID. The Chinese, notwithstanding that, were open to our visiting with the Chinese delegation in China. We had in-person meetings. We had to go through some procedures to try to manage security and safety, and they put us in a separate venue so that they could ensure COVID didn’t spread, but they invited us in. We went twice to China during the year that I worked with Secretary Kerry in the first year of the Biden administration. That kind of exceptionalism for this agenda, to me, is the kind of thing that suggests that, yes, there are tensions, but you can still work on something like this. And envoys with good intent can be given authorization by their heads of state, and it went to that level in order to make change happen. So that leads me to be more optimistic that you can still find pathways.
FP: What emerged out of those discussions that you were just describing?
JP: The Glasgow agreement that ultimately was adopted a year ago is what emerged. What you ended up with were commitments to reaffirm significant reductions by nations, commitments to reaffirm the work on technology, commitments to reaffirm domestic programs that would be captured in a global agenda. Had China blocked that, Glasgow would not have happened. China not only didn’t block it, they facilitated it, together with the United States. We pushed aggressively to promote it. We had domestic programs and China had domestic programs. I think both of us were pressured a bit by the other to think about what we would do. We didn’t want to lose global influence; they didn’t want to lose global influence. These exchanges gave us a better outcome and made a global agreement possible.
FP: One of the ongoing disagreements with China is whether it contributes to the global “loss and damage” fund that was agreed upon at COP27. Have your views evolved on this topic, with America having gone from holding out for years to then agreeing at Sharm el-Sheikh to sign off on this?
JP: As time has passed—and it has been clear that we have not done as much as we needed to—the share of loss and damage has grown. From a place where we didn’t have to worry about it to today, where we must worry about it, we have a very different outcome. So, I think the Sharm el-Sheikh conclusion is very much a function of the failure of the global community to do enough in the last 30 years.
I don’t believe there will be massive transfer payments made between the United States and other countries. Certainly, on the margins, there will be—but we’re domestically oriented both in terms of the legislative process and the political process. Our primary focus is not global, even though perhaps we ought to do more. We don’t, and, therefore, I don’t think a transfer payment is right.
Having said that, there are clear capacities for assistance. Clearly, it matters to the United States what happens in disaster-prone regions, which then create destabilized regions, conflict, refugee crises, and food crises that ripple into the global economy. Those are things we do care about. We can elevate our funding.
We can also work on things like insurance programs that work for places such as the Caribbean, which are faced by regular storms. And thirdly, we’ve got the international processes of the World Bank and the [International Monetary Fund], and we have a variety of funds that have not been turned to this task but that would be not a huge new expense for the United States. There are a variety of legitimate, coherent, and substantial actions that are available to us.
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