New legislative initiatives geared toward the energy transition are beginning to reshape economic activity in different countries, and will be a major topic in New York during this week’s United Nations General Assembly debate.
Three years after President Biden’s Inflation Reduction Act (IRA) unleashed billions of dollars in green energy and infrastructure investments, global leaders are weighing whether the energy transition will be marked by competition or cooperation.
Multiple leaders stressed on Tuesday morning the fluctuating dynamics in global power politics accompanying the transformations in economic dynamics, with Brazilian President Luiz Inácio Lula da Silva remarking on the “dizzying changes in the international panorama” and President Biden describing no less than “an inflection point in world history.”
“Our task is to make sure that the forces holding us together are stronger than those that are pulling us apart, that the principles of partnerships that we come here each year to uphold can withstand the challenges, that the center holds once again,” Biden said.
U.N. Secretary-General Antonio Guterres said that “epic transformations” were underway and cautioned that “the current order always feels fixed – until it is not.”
“Instability around the world is a by-product of instability in power relations and geopolitical divides,” he remarked, referring to multiple regional conflicts and global hotspots.
Biden’s IRA has been matched with parallel initiatives in power centers across the globe, including Europe’s Green Deal and various development and financing projects from China. Europe’s answer to the roughly $800 billion IRA was the $750 billion Green Deal passed last year.
The IRA made $369 billion in “energy security and climate change” investments, according to a summary of the bill by Senate Democrats. It also created a 15-percent corporate alternative minimum tax that has recently started implementation procedures at the Treasury Department, which is scheduled to raise between $250 billion and $313 billion in revenue.
The IRA was projected to shrink the deficit by $300 billion over the subsequent decade.
While the switch to electric vehicles away from internal combustion engines and changes in the energy production and usage mix – along with many other industrial projects – are eventually predicted to bring down global carbon emissions and help slow planetary warming, U.N. member countries have been falling behind their targets.
2023 was projected to be the year with the “highest emissions ever recorded,” according to the Washington, D.C.-based Brookings Institution, citing data from the World Emissions Clock.
“The world is expected to emit almost 59 gigatons of carbon-equivalent greenhouse gasses; about 2,000 tons per second,” Brookings Institution fellow Homi Kharas and others wrote in an analysis from last November. The analysis noted that the “the global average citizen now emits around 7.4 tons of these emissions,” though of course per-capita emissions are skewed toward more industrialized countries.
New and emerging technologies being advanced in various pieces of national and international legislation are retooling various industries, but development experts told The Hill this week they’re not seeing them have a concerted effect yet upon supply and value chains.
French civil servant and Chief Executive Officer of the Agence Francaise de Developpement Rémy Rioux commented on the “viscosity of existing value chains” this week during an interview.
“Shorter supply chains are needed,” he said, while cautioning that too much fragmentation of production and distribution pipelines could have negative consequences for international security. In the wake of the economic shutdowns caused by the pandemic, there was a fair amount of discussion of “friend-shoring” and “near-shoring” economic supply lines away from some traditional East Asian production centers.
“[We] don’t want fragmentation too much,” Rioux told The Hill, while saying that “regional interests are back.”
Biden’s Inflation Reduction Act works largely through tax credits for different kinds of businesses and industries, supplemented with some individual tax credits and direct investments, as well. This legislative methodology came under some criticism at the U.N. on Tuesday as fueling financial inequality and leading to stratification of wealth.
“At the national level, some governments are supercharging inequalities by doling out massive tax giveaways to corporations and the ultra-rich, while shortchanging investments in health, education and social protection,” Guterres said.
This point was seconded by Brazilian President da Silva.
“The super-rich pay proportionally much less taxes than the working class. To correct this anomaly, Brazil has insisted on international cooperation towards developing minimum global taxation standards,” he said.
American officials have argued that stitching the green transition into the tax code and incentivizing private business is a good way to insulate the shift away from fossil fuels from political pressures.
“This is now the tax code,” White House economist Lael Brainard said in May. “These rules are complex, they take a very long time to write, and they take a very long time to amend.”
In addition to legislative packages geared toward the energy transition, more expressly financial initiatives undertaken by development banks are also ramping up in support of it.
“[Multilateral Development Banks] are starting to factor in climate,” Rioux said, adding that “the winds are changing.”
Republicans pulled out of the Paris climate accord when they won the Congress and the White House in 2016, a withdrawal that was immediately reversed when Democrats came to power in 2021.
With potential modifications to the green transition and the recent move toward an expressly industrial policy at stake in the 2024 election, U.S. businesses are showing a higher degree of interest in the current election than they were in 2020.
71 percent of small businesses say they are more interested in the 2024 election as compared to the 2020 election, according to data released by the Chamber of Commerce Tuesday, with 42 saying they are “much more” interested.
Businesses are also telling lawmakers they’re ready for a more practical approach to the legislative process in light of recent budgetary discord in Washington that resulted last year in a notable downgrade in U.S. creditworthiness by ratings agency Fitch.
“Small business owners are more interested in the 2024 election than the last presidential election cycle and say it is important for political leaders to come to Washington ready to compromise and get things done,” the Chamber said in a Tuesday statement.