The International Implications of the Inflation Reduction Act
When President Biden signed the Inflation Reduction Act into law, there was widespread praise across the United States. The Act is seen as an important step towards the US fulfilling its own climate action commitments while encouraging other countries to be more ambitious in their own.
But what about the international implications of the Act? What impact will it have abroad?
In this podcast, Ani Dasgupta tells Nicholas Walton that the Act will have three main international implications. First, it will galvanize American climate leadership. Second, the size of the US economy means that it will lead to significant progress in key low-carbon technologies. Third, it demonstrates to other countries how effective climate action can be done in a way that emphasises opportunities rather than costs. Listen to find out more.
“This particular bill actually invests in specific things to move the economy from where it is to a much more greener economy. It’s transitioning the economy. So the investments it makes in energy, in technologies, even food systems — those investments actually show how you transition an economy. This is a lesson that India would need, South Africa would need, China would need.”
- Ani Dasgupta, President and CEO, World Resources Institute
- WRI Climate program
- WRI statements on the Inflation Reduction Act
- Six benefits from the US Inflation Reduction Act
- US Climate policy
Nicholas Walton 0:05
Hello, and welcome to WRI's Big Ideas Into Action podcast. In this episode, we take a look at the Inflation Reduction Act signed into law by President Biden. It's widely seen as good news for climate action in the US. But what of the rest of the world and why?
Ani Dasgupta 0:20
This particular bill actually invests in specific things to move the economy from where it is, to a much more greener economy. So this is a lesson that India would need, South Africa would need, China would need.
Nicholas Walton 0:33
Hello, I'm Nicolas Walton, and this is the World Resources Institute's Big Ideas Into Action podcast. When President Biden signed the Inflation Reduction Act into law, a cheer went up across the United States. The act is viewed as a serious bit of climate action legislation. And already much ink has been spilled by pundits and journalists explaining what it does and why this is good. Instead, in this podcast, we're taking a quick look at the international angle, does it do much for the rest of us? And if so how? Ani Dasgupta is WRI's President and CEO. I asked him for his first reaction to the Act, especially after the ambitious climate agenda that President Biden had been elected on, had for many, many months not led to any obvious serious action.
Ani Dasgupta 1:18
There was a very high moment, right, a year and a half back. And then the year was really full of disappointing news, including what happened to Congress, but also what happened in the US Supreme Court. So it seemed like oh, my god, in this great opportunity with this great administration, we will not actually get any of these outcomes in place. And then this happened, which for me, was something real, some real far reaching ambitious policies. This is not enough, but this is a great, great momentum for us to work together with. And this also, I think, the way it is structured, and we will talk about that more, is going to encourage different parts of society, the businesses, the cities, the states, to do more. You know, this cycle of positive investments that we need for creating momentum. So I felt very positive. But you I also want to position that this came, this relief of positive momentum, because we had very high expectation when the administration started and the last year was kind of complicated as you well know.
Nicholas Walton 2:18
Drawing back a bit, we've seen a lot of encouragement and optimism, from the American side of things. People think that this will actually make a lot of things happen over in the United States. But if we draw the canvas a little bit wider, the whole of the rest of the world, what should the rest of the world be thinking of when we when we look at President Biden signing that piece into law?
Ani Dasgupta 2:38
I think beyond the United States, and there's not been written in the last two weeks about the implications in the United States, the 40% reduction, you must have seen all that. I think there are three ways it'll impact the world. One is United States' leadership in global climate action. The United States a very important player for galvanising, increasing momentum, increasing finance, getting countries together, and United States has done this before Paris, at Paris, since Paris, even last year at Glasgow we saw. And given that their domestic agenda now has momentum, this will give wind in the sails of the United States in bringing countries together. I can't tell you how important that is. Because as you know very well, even the rich countries, the G20, even them and the other countries together, what commitments they have made so far, doesn't reach to 1.5 degrees. So ambition is much more needed and with that. Finance is needed to make sure those ambitions are actually converted to outcomes in these countries. So one, it will actually provide the momentum of US leadership, which I think is very much needed, the US has played a very important positive role in climate diplomacy in the world. And I think that will continue. The second, I think it's kind of interesting, because United States is such a big economy, the technological shifts that are invested in this... So let's take example, automobile, for example, or batteries, that the investment that will make electric automobile much more accelerated, the sale and use of it, that creates this momentum to drive down prices, as we have seen in solar, for example, or hydrogen or carbon capture. Those price decreases and technological innovation is actually a commodity and then will be important for the world. So the world will benefit. Because it is such a big market, if prices of batteries came down, or price of cars came down. So there's a very big spill over effect of the technological innovation the US will invest on. And the third more important thing is that this particular bill actually invests in specific things to move the economy from where it is to a much more greener economy. So this whole thing we've all been talking about, to transitioning the economy, the investment it makes on energy, on technologies, even food systems — there's I think, 60 million billion dollars, I might get the number wrong — those investments actually show how do you transition economy. I think every country in the world and where you live, Nicholas, the EU has tried to do the same thing actually, in their own planning, that these two major economies actually showing the world, what kind of investments you need to make to transition economy, I think is a huge lesson. We at WRI are very much focused on that, because we want to get this learning from early movers here to the countries across the world. So this is a lesson that India would need, South Africa would need, China would need. So I think these are three ways this bill, though this is domestic, though this is United States, will impact the world
Nicholas Walton 5:33
And picking me up on the idea of showing how things can happen, that's critical, isn't it? Because it's not just how you actually do things, which technologies you need to help innovation to happen, consumers to find things more within reach, but it's also how to actually do this politically. Because after all, part of this bill is actually showing that climate action is about opportunities, not about just sort of putting on your hair shirt and making the sacrifices now to save abstract future generations.
Ani Dasgupta 6:01
Well, absolutely. I mean, think about it. It's not called the climate bill. It's called the inflation Reduction Act, IRA, because that's a reality, right? The reality is, how do you get the economy back? One of the interesting provisions in that is the point you're just making, getting the policy and making sure it is wide reaching and impacts more people. So the criticism of electric vehicles has been that it is you know, only middle class people buy new cars, and you just subsidise new cars, and is also expensive. So one idea is basically how do you reduce the price, right? How do you do more to reduce price? But now there's a provision in this also for this tax rate for used cars. Because most lower income people buy used cars. You know, these shifts are taking place, and we all are learning, how do you make these climate goals that is politically right and actually benefits most people? Because ultimately, this has to benefit more people, if you want wide adoption of such policy. So you're absolutely right, I think we are learning, I think we are learning from the EU policy and how what will happen to the EU, we will learn from United States. And this far reaching economic shift, Nicholas, every economy in the world, rich or poor, has to go through the shift. So as a large economy like the United States embraces this, we learn a lot and encourage others to embrace the same.
Nicholas Walton 7:19
And what does it mean for the poorest countries around the world?
Ani Dasgupta 7:23
That's a really interesting question. I think the three points I made about economic shift, learning about transition, all these things are relevant to the poorest countries of the world. But the poorest and the most vulnerable countries actually have another problem. The other problem is actually finance, having the resources to support the transition. Some of these countries are debt ridden, and they do not have enough flexibility on finance, to finance this. This is where I think this is wonderful news, that United States actually has a momentum in the domestic agenda. But now the United States, the Administration and the Congress have to focus on their commitment, the global agenda and making them the global leader in moving the finances. President Biden's committed, I think, about $11.5 billion in different buckets, supporting transition, supporting its goals towards $100 billion per year. These are the things that the United States would have to do now. And I hope it happens quickly. That will not only provide the momentum that the United States, the IRA provides, but also provide the momentum in getting the finances which the vulnerable countries most absolutely need. And I think the next, just if I can connect this question to the next COP, you know, this idea of solidarity that countries are together to move, the shift, and the richer countries are going to keep the commitment to finance this transition, as they have already committed. This is the shift the next step for doing United States leadership. And we are all hoping that that will come sooner than later.
Nicholas Walton 8:56
That was Ani Dasgupta explaining why the Inflation Reduction Act is good news for the rest of the world, as well as for the United States. With more about it on our website, including an Insights piece looking at the six big benefits from the act, and you can find that at wri.org. You can also track down more of our podcasts there, or simply subscribe on whatever app you listen on. I'm Nicholas Walton, and thank you for listening.