[ad_1]
Sheffield (UK), 18 February (Dialogue) Climate change policy has entered a new era. The growing dispute between the US and the EU over the impact of the US’s new green subsidy regime has made this all too clear. In many ways, however, the story is ultimately about China.
Over the past 20 years, developed countries have used three main types of policies to reduce greenhouse gas emissions. Renewable energy regulations require generators to invest in solar, wind, hydro and geothermal energy.
Emissions trading schemes for energy and industrial companies put a price on carbon. Energy efficiency standards for a range of products, from automobiles to white goods to household appliances, are gradually increasing.
The policy toolkit has been used with notable success in Europe and North America. Emissions in developed countries have fallen sharply even as economies have grown. As demand increases, green technologies—from wind and solar to electric vehicles—fall in cost and improve in performance.
Read also | Pakistan: Five Taliban terrorists were killed in an attack on the police chief’s office in Karachi.
A virtuous circle ensues: climate policy increases demand for green technologies, which reduces costs, which allows policy to be tightened, which further stimulates demand and innovation.
friction
However, there are two problems. First, most of the economic benefits go to China. From 2010 onwards, China quickly became the world’s leading supplier of wind and solar technology, as well as basic minerals such as lithium, cobalt and rare earths.
China’s dominance reduces costs for everyone. But it also means that, as industrial jobs are lost in the developed world, they are not being replaced by comparable jobs in the new energy sector.
Second, climate policy is starting to generate political opposition. Countries are starting to see the costs reflected in consumer prices as emissions targets are tightened.
The most dramatic reaction came in France in 2018, when a relatively small increase in fuel taxes caused so-called gilets jaunes (yellow jackets) protesters to block roads across the country for more than a year, even under President Emmanuel Marc The same goes for Dragon after removing that tax. In the United States, opposition in Congress has blocked plans for climate bills — including modest carbon pricing plans — throughout President Barack Obama’s presidency.
Joe Biden has learned his lesson. His Reducing Inflation Act (IRA), passed in 2022, offers climate carrots rather than sticks — and lots of them.
The bill – despite its name being almost exclusively about climate change – provides a whopping $369bn (£306bn) in tax credits and other subsidies for companies making low-carbon investments and consumers buying green products. Crucially, to take advantage of the subsidy, a significant portion of the materials and equipment used must be produced in North America.
EU position
Orthodox economists condemn the IRA. Subsidies are far less efficient than taxes (not to mention more expensive), and protectionism increases costs for consumers.
For any politician, however, Biden’s approach looks like a no-brainer. Don’t Penalize Businesses With Carbon Taxes: Reward Them With Tax Credits. Don’t let the employment benefits of climate policy leak into China from overseas: make sure they stay at home. Nearly three-quarters of Americans support the bill, including more than half of Republicans.
The EU is alarmed by the possible fallout. There have already been reports that European cleantech companies plan to move production to the US, while others may be locked out of the US market. The European Commission has threatened U.S. legal action at the World Trade Organization over violations of free trade rules and has secured U.S. concessions, including extending tax credits to foreign-made electric vehicles.
What’s more, Commission President Ursula von der Leyen announced the EU’s Green Deal for Industry. Central to this will be the Net Zero Industry Act, which eases rules on state aid and subsidizes investment in clean technology. At the same time, the Critical Raw Materials Act will create partnerships with like-minded suppliers to reduce reliance on Chinese imports, similar to how recent EU and US chip laws have affected semiconductors.
wider context
As a result, both the EU and the US are turning climate policy into an industrial and trade strategy. One might ask what took them so long. China’s 12th Five-Year Plan in 2010 identified for the first time seven environmental “strategic industries” to focus on for economic development. It is no coincidence that China is rapidly dominating new low-carbon industries: that is indeed the plan.
The European Union and the United States are desperately trying to catch up, with Japan and South Korea not far behind. The strategy extends beyond their own continent. The new kid on the block is the multibillion-dollar energy transition partnerships recently negotiated by the European Union, the United States and other Western powers with South Africa, Indonesia and Vietnam.
These “JET-Ps” are intended to stimulate investment, not only in the renewable energy transition, but also in domestic industrial capacity. The loans and guarantees provided by Western governments are designed to take advantage of larger private financial flows. The goal is for these countries to manufacture and export their own green technologies, blazing a new path of economic development.
More such partnerships are likely to be announced in the coming year. This is not altruism by Western countries, but an attempt to provide an alternative to China’s huge investments in developing countries.
What about the UK? These developments have left the UK economy in a severely weakened position. The EU is an obvious partner in green industrial policy. On its own, the UK is not big enough to compete with it.
It creates a compelling case for a future UK government to strike a green trade deal with the EU. In return for financial contributions to the EU Green Innovation Fund, the UK could rejoin the single market for environmental goods and services.
Just a few years ago, climate change was only part of environmental policy. Today, it is a key dimension of economic strategy and geopolitics. Given the extent of the economic transformation it will require, no one should be surprised. (dialogue)
(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)
share now
[ad_2]
Source link