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Biden’s Historic Climate Bill Needs Smart Foreign Policy

The White House’s crowning domestic policy achievement can’t reach its full potential without engaging the world.

Bordoff-Jason-foreign-policy-columnist
Bordoff-Jason-foreign-policy-columnist
Jason Bordoff
By , a columnist at Foreign Policy.
U.S. House Speaker Nancy Pelosi poses with lawmakers after signing the Inflation Reduction Act at the U.S. Capitol in Washington on Aug. 12.
U.S. House Speaker Nancy Pelosi poses with lawmakers after signing the Inflation Reduction Act at the U.S. Capitol in Washington on Aug. 12.
U.S. House Speaker Nancy Pelosi poses with lawmakers after signing the Inflation Reduction Act at the U.S. Capitol in Washington on Aug. 12. OLIVIER DOULIERY/AFP via Getty Images

U.S. President Joe Biden just signed into law a signature domestic policy achievement: the Inflation Reduction Act (IRA). At its heart is nearly $400 billion to bring down U.S. greenhouse gas emissions, the largest investment the United States has ever made to address climate change.

Whether the law can live up to its historic promise will now depend on whether its massive clean energy subsidies can be deployed quickly and at scale. That will require several federal departments to write new regulations and guidelines to implement this bill. It will also require reforms to expedite the permits and approvals needed to rapidly build energy infrastructure, such as large-scale wind and solar farms as well as new high-voltage power lines. The Democratic leadership on Capitol Hill promised Sen. Joe Manchin, the deciding vote on the IRA, a vote on a companion piece of legislation on these reforms.

But Biden’s crowning domestic policy achievement will not reach its full potential without the hard work of the nation’s diplomats. Foreign policy is critical to the success of the IRA’s climate policies on everything from avoiding a trade war to ensuring manufacturers have the nickel, cobalt, lithium, and other commodities needed to make all those solar panels and batteries. Moreover, while the new law reduces U.S. emissions by another 7 percent to 10 percent by 2030—achieving a total decline of 40 percent compared to 2005 levels—the United States only produced 11 percent of global emissions in 2019. The new law thus needs to stimulate faster reductions elsewhere as well. Success here at home requires looking abroad.

U.S. President Joe Biden just signed into law a signature domestic policy achievement: the Inflation Reduction Act (IRA). At its heart is nearly $400 billion to bring down U.S. greenhouse gas emissions, the largest investment the United States has ever made to address climate change.

Whether the law can live up to its historic promise will now depend on whether its massive clean energy subsidies can be deployed quickly and at scale. That will require several federal departments to write new regulations and guidelines to implement this bill. It will also require reforms to expedite the permits and approvals needed to rapidly build energy infrastructure, such as large-scale wind and solar farms as well as new high-voltage power lines. The Democratic leadership on Capitol Hill promised Sen. Joe Manchin, the deciding vote on the IRA, a vote on a companion piece of legislation on these reforms.

But Biden’s crowning domestic policy achievement will not reach its full potential without the hard work of the nation’s diplomats. Foreign policy is critical to the success of the IRA’s climate policies on everything from avoiding a trade war to ensuring manufacturers have the nickel, cobalt, lithium, and other commodities needed to make all those solar panels and batteries. Moreover, while the new law reduces U.S. emissions by another 7 percent to 10 percent by 2030—achieving a total decline of 40 percent compared to 2005 levels—the United States only produced 11 percent of global emissions in 2019. The new law thus needs to stimulate faster reductions elsewhere as well. Success here at home requires looking abroad.

Consider that the IRA achieves many of its goals by subsidizing the development of a domestic clean energy industry, often requiring products be manufactured domestically to qualify for tax credits. Such incentives, such as large subsidies for domestically produced hydrogen and ammonia, could easily spark a backlash from countries worried their domestic firms will be undercut. European Union officials have already taken issue with electric vehicle tax credits that apply only to vehicles assembled in North America: Chevys and Teslas but not Audis and Hyundais.

Acknowledging the hard truth that our clean energy supply chains will remain heavily dependent on imports, particularly from China, requires steps to diversify suppliers.

U.S. trade officials will have to navigate all of this, not exacerbating trade tensions or sparking all-out trade wars that could undermine the energy transition, which will require dramatic increases in the global trade of clean energy technologies. At the same time, enacting strong climate policy in the United States also creates an opportunity to use trade measures to drive faster emissions reductions elsewhere. For example, the United States may now be able to join with or mirror the EU’s plan to impose a carbon fee on imports of high-emitting goods. The IRA will also help U.S. diplomats implement a recent deal between the United States and EU to restrict imports of steel and aluminum from Asia and elsewhere that do not meet certain emissions standards, providing a template for other sectors. While that risks trade conflict, it is a global agreement rather than a bilateral one, meaning other countries that commit to those standards are free to join, so effective diplomacy can also spur faster adoption of clean energy in other countries.

Next, national security officials will have to do more to secure supply chains of the inputs needed to scale clean energy, especially for critical minerals, such as lithium and cobalt needed for everything from batteries to solar panels. Today, the vast majority of critical minerals are refined and processed in China, and mining is heavily concentrated in a handful of countries including the Democratic Republic of Congo and China. The IRA tries to create incentives for domestic manufacturing by making the tax credits for electric vehicles contingent on whether their batteries contain a certain share of minerals mined in the United States or its trade partners. The reality, however, is that it will be extremely difficult to build a domestic mining and processing industry, given the long lead times for new projects, including challenges with environmental reviews and permitting. According to the International Energy Agency, it takes an average of 16 years to develop new mineral mining projects.

Acknowledging the hard truth that our clean energy supply chains will remain heavily dependent on imports, particularly from China, for many years to come thus requires policy officials to take steps to diversify suppliers, build strategic stockpiles, and reduce critical mineral demand through improved recycling and battery innovation.

In addition, roughly 95 percent of future emissions will come from outside the United States, so clean energy investments at home need to deliver faster adoption of such technologies in emerging and developing economies. That is especially important for still-costly technologies such as hydrogen and carbon capture that may be needed to decarbonize sectors such as steel and cement, massive quantities of which will needed to build all the roads, bridges, railways, and buildings in rapidly industrializing countries. Government support in the IRA for early-stage clean energy technologies can help them reach commercial scale by supporting demonstration projects and attracting private sector capital that might otherwise view them as too risky, thus bringing down the “green premium,” the difference between clean technology and cheaper but more emissions-intensive alternatives.

Beyond driving down the cost of such clean energy technologies, and thereby making them more affordable for lower-income countries, foreign policy tools such as export credit and development finance can accelerate adoption of clean energy technology overseas. For example, the U.S. Development Finance Corporation should use its equity and debt instruments to explicitly invest in the next generation of clean energy technologies in emerging economies, taking technology demonstration risk. It could do so in local currencies with riskier borrowers, making it easier for them to partner with other countries, multilateral development banks, and private investors. The Export-Import Bank can then give a boost to U.S. companies looking to export clean technologies. With the right foreign policy, the IRA can deliver a win-win of slowing emissions growth in countries growing the fastest and helping U.S. companies and workers.

Finally, historic clean energy investments enhance U.S. credibility in global climate talks, which could have a large multiplier effect if it spurs other countries to also take stronger climate action. U.S. climate and energy diplomacy is thus key on everything from international climate negotiations to cooperation on clean energy technology.

The climate spending bill is a landmark domestic policy achievement. Its success will now depend not just on U.S. actions at home, but on how the nation’s diplomats, national security leaders, and international economics officials implement U.S. foreign policy around the world.

Jason Bordoff is a columnist at Foreign Policy, the co-founding dean of the Columbia Climate School, the founding director of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs, a professor of professional practice in international and public affairs, and a former senior director on the staff of the U.S. National Security Council and special assistant to former U.S. President Barack Obama. Twitter: @JasonBordoff

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