‘The Biggest Thing to Happen in International Climate Diplomacy in Decades’
The Inflation Reduction Act could change the world in at least five ways.
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Nearly seven years ago, a single mischosen word nearly killed the Paris Agreement.
With only hours left to go on the final day of the talks, American diplomats noticed a discrepancy in the new climate agreement’s text. Where previous drafts of the pact had said that rich countries “should” take the lead on preparing greenhouse-gas reductions plans, the final draft replaced that word with the more definitive “shall.” If the new treaty had created new binding legal requirements for the United States, President Barack Obama would have had to submit it to the Republican-controlled Senate, which would have surely rejected it. After some tense bargaining, a revision was rushed through at the last moment.
The episode reflected just how central the United States has been to international climate diplomacy: Although 174 countries agreed to the Paris Agreement, it was tailor-made to accommodate America.
For decades, climate policy makers have had to navigate two extremes. On the one hand, humanity probably can’t solve climate change without the United States, and the rest of the world knows it. America is simply too big, too rich, and too powerful to ignore. On the other, America has treated the climate with tremendous negligence: Few countries have thwarted global climate policy—or done as much to cause the climate problem—as has the U.S.
That may have started to change this month with the passage of the Inflation Reduction Act. The first comprehensive climate law in American history, the IRA mostly focuses on the domestic economy, aiming to cut emissions by supercharging the development of clean technology.
But it will also influence the international politics of climate change. For the first time since the modern era of climate politics began more than 30 years ago, the United States can credibly claim to be a leader on climate change.
“Genuinely, my view is that this is possibly the biggest thing to happen in international climate diplomacy in decades,” Joseph Curtin, the managing director for power and climate at the Rockefeller Foundation and a former climate adviser to the Irish government, told me. “That sounds quite dramatic, especially given that [the law] doesn’t have an international dimension. But it establishes the U.S. bona fides on the international stage.”
Over the past week, I’ve talked with international climate experts working in the United States and around the world. They agreed that the IRA will permanently alter the world’s fight against climate change, even if it is not yet clear exactly how. Here are five takeaways from our conversations.
1. The law finally gives America some climate credibility.
Fighting climate change has been one of President Joe Biden’s biggest foreign-policy goals. During his first 100 days in office, he held a “Leaders Summit on Climate” from the White House, where he committed to cutting the country’s annual emissions by at least 50 percent by 2030 compared with their all-time high. In international meetings, his administration has beseeched other countries to increase their emissions-reduction targets.
This is a continuation of America’s approach to climate under previous Democratic presidents, most notably Obama. Yet for years, America has almost never matched its rhetoric with its action. Congress has repeatedly failed to pass a bill aimed explicitly at reducing U.S. carbon pollution; its pro-climate regulations have flailed in court. And since April of last year, the Biden administration has continued to promise major emissions cuts by 2030—while being unable to furnish any actual policy that will lead to those cuts.
The IRA has changed that dynamic. “We definitely needed something for the U.S. to have a modicum of credibility,” said Claire Healy, a former British Labour Party adviser who now leads the Washington, D.C., office for E3G, an international climate think tank. “There’s now a plan. And before, there wasn’t a plan; there was a gaping hole.”
For years, America’s lack of credibility weakened the force of any pronouncements it made about climate change, and could (reasonably!) give the impression that Americans wanted only to pay lip service to the climate problem. Now its diplomats have a leg to stand on when they spar with their peers from other countries or talk to the world directly. “The U.S. can come to [this year’s UN climate conference] with the position of We’re not only talking the talk; we’re walking the walk,” Curtin said.
2. It will reshape America and China’s relationship over climate change.
Perhaps the only idea that has defined Biden’s foreign policy more than climate change—and that unified Biden’s and Donald Trump’s approaches to the world—is that America is locked in a global competition with China and must strengthen its position accordingly.
The IRA fuses those two ideas, creating a new national industrial policy designed to reshore certain clean-energy industries and nurture U.S. competitors to Chinese EV companies. It joins other efforts, such as the recent bipartisan CHIPS and Science Act, that enact a more muscular U.S. industrial policy than the country has seen in a generation.
That makes the new U.S.-China competition real in a way that it wasn’t before, Alex Wang, a UCLA Law professor and expert on Chinese climate policy, told me. “There’s a lot of discussion from Biden about competing with China, but you’d have to say that it felt like talk, because the U.S. wasn’t acting. This is necessarily a big action. It should make everyone take the U.S. much more seriously,” he said.
At the same time, the IRA more closely resembles China’s own approach to climate policy—that is, the law tries to decarbonize by making strategic investments in certain industries, not by regulating or taxing carbon emissions. “It’s a validation of that approach, which, in a sense, China has been doing all along, for the past 15 years,” Wang said.
Chinese leaders will take note of the fact that U.S. clean-energy companies may soon compete with their own, he said, but they may also enjoy the indirect endorsement that America has just given their style of economic management. Other countries are paying attention too. “I think that’s positive—that state support is not viewed as a dirty word in the U.S.—and hopefully it validates that approach around the world,” he said.
3. But America’s allies are wary of the law’s protectionist impulses.
The IRA attempts to remake several clean-energy industries in ways that will benefit America’s trade balance. Some of its subsidies, such as its aggressive solar-manufacturing or hydrogen incentives, are available only to American firms making things on American soil, and it all but tries to entirely reshore the battery industry.
That made allies’ response to the bill “a bit muted,” Healy, the E3G analyst, told me. “Other countries must be looking at this and [getting] worried about those local-content requirements,” she said, referring to provisions in the bill that say EVs will qualify for some subsidies only if the minerals used in their batteries were mined and processed in the United States or countries that it has a free-trade agreement with.
But America’s free-trade pacts don’t cleanly overlap with its list of security allies: The U.S. has free-trade agreements with Australia, Canada, and Mexico, for instance, but not with Japan, South Korea, Germany, or the United Kingdom. Representatives of those countries may now want to negotiate with the U.S. to see how they can soften the blow to their own industries, a process that will wind up integrating U.S. climate policy with the larger apparatus of American state power. The future may see more agreements like last year’s U.S.–European Union steel arrangement, where each jurisdiction agreed to subject its steel industries to higher environmental standards in exchange for looser trade restrictions.
4. It will help developing countries by reducing the cost of green technology.
Although a handful of places—such as China, the U.S., and the EU—dominate global emissions today, that won’t be the case in the future. By the middle of the century, some of the world’s most populous countries—such as Indonesia, Pakistan, and Nigeria—will contribute a much larger share of the world’s emissions. (That’s assuming, at least, that they follow the same carbon-intensive development path that China, Japan, and the United States did before them.)
Although the IRA is targeted domestically, it may help set up a green vortex, lowering the cost of wind, solar, batteries, and other crucial technologies for decarbonizing. That would make them easier for poorer countries to purchase, Fabby Tumiwa, an Indonesian climate expert and the executive director of the Institute for Essential Services Reform, an Indonesian energy think tank, told me.
The IRA, he said, “is really good for a developing economy like Indonesia due to spillover effects because of lower costs.” Over the past decade, China and Europe have driven most of those spillover effects: They’re chiefly responsible, for instance, for the tenfold decline in solar prices that has helped fuel that technology’s explosive growth around the world. Now the IRA might fuel a huge boom in supply and demand from the U.S., driving further declines.
In the Indonesian economy, Tumiwa said, those cost declines are crucial, because the cost of energy must be kept low as the country industrializes. One of Indonesian policy makers’ biggest concerns is that “the cost of energy will increase” too much at once, he said. “That will cause the loss of our competitiveness.”
“In an emerging economy like Indonesia … we see emission reductions” as really having “to come from developed economies,” Tumiwa told me. “We need more time. So if developed countries like the U.S. and some EU members can make a significant reduction by 2030, I think that is good.”
5. The IRA doesn’t help with one of the biggest hurdles to global decarbonization.
In sub-Saharan African and several other regions of the world, the greatest obstacle to decarbonizing today is not the cost of an individual solar panel or wind turbine. “The key issue is not the cost of technology; it is the cost of money,” Saliem Fakir, the director of the African Climate Foundation, told me.
In general, renewables can sometimes be more expensive to operate in sub-Saharan Africa than they are elsewhere in the world—not because the technology is any different, but because the financing costs are much higher, Fakir said. What these countries need above all, he said, is access to loans and other forms of financing at rates similar to those the United States and Western European countries can access. Not only do cheaper borrowing costs make it easier for countries to build more renewables in general, but they also hasten the arrival of the moment when it’s less expensive to build new clean-energy sources than it is to operate existing fossil-fuel power plants.
The IRA does nothing to change that status quo, even though this problem has been on the radar of policy makers in the West. Last year, the U.S. and several European countries agreed to help South Africa secure financing for its clean-energy transition, Curtin told me. But so far, the richer countries haven’t yet coughed up the promised capital.
This is the inevitable problem with laws such as the IRA that are domestically oriented. For the past few years, Western governments have announced huge spending bills devoted to solving climate change or recovering from the COVID-19 recession, Healy said. But that money was always meant to help their own economies.
“So if I was sitting in another part of the world, I’d say, ‘Great shakes, you’ve pulled out a pot of money to deal with COVID for Europeans and Americans, then you’ve pulled out another pot of money for climate. Where’s the pot of money for us?’ Where is the offer to those countries to build the modern economy?”