New legislation for the energy transition is already transforming economic activity across countries and will be a major talking point in New York during debates at the UN General Assembly this week.
Three years after President Biden’s Inflation Reduction Act (IRA) launched billions of dollars in green energy and infrastructure investments, global leaders are considering whether the energy transition should be driven by competition or cooperation.
On Tuesday morning, several leaders highlighted the shifting balance of global power due to shifting economic dynamics, with Brazilian President Luiz Inacio Lula da Silva speaking of a “rapid change in the international situation” and President Biden describing it as a “turning point in world history.”
“Our task is to ensure that the forces that unite us are stronger than the forces that divide us, and that the principles of partnership that we gather here to defend each year will withstand the challenges that the center will once again raise,” Biden said.
UN Secretary-General Antonio Guterres said “enormous transformation” was underway, warning that “the current order will always feel fixed until it isn't.”
“Instability around the world is a by-product of destabilizing power relations and geopolitical fragmentation,” he said, referring to multiple regional conflicts and global hotspots.
Biden's IRA is aligned with parallel efforts at power centres around the world, such as the European Green Deal and various Chinese development and financing projects. Europe's answer to the roughly $800 billion IRA was the $750 billion Green Deal passed last year.
According to a Senate Democrats' bill summary, the IRA would invest $369 billion in “energy security and climate change.” It would also create a 15% corporate alternative minimum tax, which recently began implementation at the Treasury Department and is expected to raise between $250 billion and $313 billion in revenue.
The IRA was projected to reduce the budget deficit by $300 billion over the next decade.
The switch from internal combustion engines to electric vehicles, a shift in the mix of energy production and use, and many other industrial projects are expected to eventually reduce global carbon emissions and slow global warming, but UN member states are lagging behind in meeting the targets.
The Washington, DC-based environmental group predicts that 2023 will be the “highest emissions year on record.” Brookings Institutionciting data World Emissions Clock.
“The world is projected to emit about 59 gigatons of greenhouse gases in carbon equivalent, or roughly 2,000 tons per second,” Brookings Institution researcher Homi Kharas and his colleagues wrote in a November analysis. “The average global citizen currently produces about 7.4 tons of these emissions,” the analysis noted, though of course per capita emissions are biased toward more industrialized countries.
New and emerging technologies, promoted by various national and international legislation, are transforming various industries, but development experts told The Hill this week that we are yet to see a coordinated impact of these technologies on supply and value chains.
Rémy Riou, a French civil servant and CEO of the French Development Agency, commented on the “stickiness of existing value chains” in an interview this week.
“We need to shorten supply chains,” he said, warning that excessive fragmentation of production and distribution pipelines could have adverse effects on international security. In the wake of the economic shutdowns caused by the pandemic, there has been considerable discussion about expanding economic supply lines through “friend-shoring” or “near-shoring” away from traditional East Asian production bases.
“[We] “I don't want too much division,” Rio told The Hill, adding that “regional gains are coming back.”
Biden's inflation-fighting law works primarily through tax credits for a range of businesses and industries, supplemented with individual tax credits and direct investment — a legislative approach that drew some criticism at the United Nations on Tuesday for exacerbating financial inequality and leading to wealth stratification.
“At the national level, some governments are exacerbating inequality by giving huge tax cuts to corporations and the super-rich, while underinvesting in health, education and social protection,” Guterres said.
This point was echoed by Brazilian President da Silva.
“The super-rich pay relatively much less tax than the working class. To correct this anomaly, Brazil has advocated international cooperation to develop a minimum global tax standard,” he said.
U.S. officials argue that weaving the green transition into tax code and encouraging private enterprise is a good way to insulate the transition away from fossil fuels from political pressure.
“This is tax law now,” White House economist Lael Brainard said in May. “These rules are complicated, they took a very long time to write, and they take a very long time to fix.”
In addition to legislative measures for the energy transition, development banks are also stepping up with more explicit financial initiatives to support the energy transition.
“[Multilateral Development Banks] “We're starting to take the climate into account,” Liu said, adding that “the winds are shifting.”
Republicans withdrew from the Paris Agreement when they won Congress and the White House in 2016, but that withdrawal was quickly reversed when Democrats took power in 2021.
With a potential revision of the green transition and recent moves towards clear industrial policy that will be an issue in the 2024 election, US companies are showing a higher level of interest in this election than in the 2020 election.
According to data released Tuesday by the Chamber of Commerce, 71% of small businesses say they are more interested in the 2024 election compared to the 2020 election, with 42% saying they are “much more” interested.
Businesses have also told lawmakers they are ready to take a more hands-on approach to the legislative process, after recent budget disputes in Washington led ratings agency Fitch to sharply downgrade the U.S. credit rating last year.
“Small business owners are more concerned about the 2024 election than they were about the last presidential election, and they say it's important that political leaders come to Washington prepared to compromise and get things done,” the chamber said in a statement Tuesday.
