Signed into law in August 2022, the Inflation Reduction Act (IRA) includes $500 billion in new spending and tax relief to reduce carbon emissions, lower healthcare costs, fund the Internal Revenue Service, and improve tax compliance. It is the third law passed in the US since late 2021 to improve US economic competitiveness, innovation, and industrial productivity. The IRA provides, for example, significant tax incentives for energy and climate change measures which have been argued to widen the competitiveness gap between Europe and the US.
The European Green Deal, presented by the European Commission in December 2019, sets the goal of making Europe the first climate-neutral continent by 2050. The EU Climate Change Act enshrines in law the EU’s commitment to climate neutrality and the interim target of reducing net greenhouse gas emissions by at least 55 % by 2030 compared to 1990 levels.
Since the arival of the IRA, the European Green Deal is no longer the only reference model for ambitious climate policy. The EU approach of increasing the price of CO2, small-scale regulation, market planning, stringent subsidies, and technological restrictions is being contrasted with the promotion and cheapening of climate-friendly processes and products through tax incentives and pragmatism.
Assessment by the VCI
The Verband der Chemischen Industrie e. V. (VCI; German Chemical Industry Association) applauds the IRA’s subsidy program for green technologies which has also encouraged the European Commission to establish the “Green Deal Industrial Plan”. On February 1, 2023, the European Commission presented its “Green Deal Industrial Plan for the Net-Zero Age” (GDIP) after a controversial and intense debate. The plan outlines the actions that the European Commission intends to take to stimulate investment in the “net-zero industry” within the EU and aims to simplify subsidies for green investments.
The VCI considers this goal essential. However, they caution that the EU plan may not address fundamental flaws in the Green Deal. Despite good intentions, the Commission’s efforts are inadequate, according to the VCI.
The positive aspect is that the Commission is not primarily relying on new funding. It is sensible to make existing programs more efficient and adapt aid law to facilitate the transformation. International cooperation is preferred over confrontation and protection.
However, the concern is that the plan risks becoming a centrally planned economy with narrow definitions of what products or technologies are eligible for support. This is neither possible nor helpful, as product and process innovations result from complex innovation networks and value chains. Better overall conditions for the industry are the key to competitiveness and successful transformation. The Commission’s impulse may be too limited, and the Green Deal’s complexity may become an obstacle to investment decisions. Clear priorities and a focus on essentials are needed. An honest inventory of what works, what is excessive, and which paths lead to the best outcomes is essential for a genuine “Green Deal Industrial Plan for the Net-Zero Age”.
- Mitgliedstaaten sollen leichter Subventionen für grüne Investitionen gewähren können, Verband der Chemischen Industrie e. V. (VCI; German Chemical Industry Association) February 16, 2023. (accessed February 20, 2023)