The USA has returned to the fight against climate change with the Inflation Reduction Act (IRA). The European reaction to this recalibration of U.S. climate and economic policy has been mixed.
This study by Tom Krebs examines the IRA from a climate and economic policy perspective and draws a positive conclusion. In addition, the study derives recommendations on how policy makers in Germany and Europe could respond to the IRA, breaking with the market liberal approach of currently practiced economic policy in the EU.
Specifically, at the European level, Krebs suggests the following measures as part of a European response to the IRA:
European projects: Expand the support for strategically important projects in the area of climate transformation while at the same time simplifying the funding process.
State aid rules: Make EU state aid rules more flexible with regard to national programmes to facilitate simple
and SME-friendly support for private investment in renewable energy sources and the decarbonisation of industry.
Good jobs: Strengthening of European initiatives in the field of education and training as well as providing
guidelines for policies that combine investment subsidies with good-work (good-pay) conditions.
Electricity prices: Reform the European electricitym arket to ensure competitive electricity prices in the EU.
Financing: Create additional funding opportunities so that all EU Member States can implement a modern industrial policy.
Trade: Conclude additional industrial trade agreements with North America and other regions; avoid "buy Europe" policies (local content rules) and other forms of protectionism; provide additional EU funding to countries in the Global South so they can develop their own version of modern industrial policy.
Krebs argues that the European response to the IRA should be coordinated at the EU level, but Member States can also help make European industrial policy successful by means of national measures. In particular, the study suggests the following steps on a national (German) level:
Climate-neutral investments: Speedy enactment of tax incentives for climate-neutral investments as laid down in the Coalition Agreement of the current German government ("super write-offs").
Good Jobs: Combine investment subsidies with good-work (good-pay) conditions – additional subsidies for companies that pay union wages; speedy implementation of the planned Federal Collective Bargaining Act (Bundestariftreuegesetz); increase subsidies for on-the-job training and apprenticeship programs.
Electricity prices: Support the European efforts to reform electricity markets and immediately introduce a program that ensures competitive electricity prices for industrial users.
Financing: The funding of measures to conduct modern industrial policy in Germany needs to be secured in line with the constitutionally enshrined debt brake (balanced-budget rule).
Contact: Vera Gohla, Vera.Gohla(at)fes.de
Krebs, Tom
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Konstantin Bärwaldt
Konstantin.Baerwaldt(at)fes.de
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