THe came to the United States for last year’s United Nations climate conference in Sharm el-Sheikh, Egypt. Finally, the country passed the Inflation Reduction Act, a $369 billion spending package designed to help the country reduce carbon emissions.
But in the months since, administration officials and members of Congress have faced a flurry of questions and complaints about the landmark law. Why is funding to help countries most vulnerable to climate change not included? Could a future Republican Party undo it? Perhaps the most painful question came from allies: why is the law throwing some of the closest US partners under the bus?
One South Korean official called the law “treasonous.” Midway through a conference in Egypt, the EU scrapped a wide-ranging document complaining about “problematic” tax provisions that would hurt the bloc’s industry. Japan has said the law could prevent its auto companies from investing in the United States. December. Amitabh Kant, the Indian government official tasked with presiding over this year’s G20 summit, joined the chorus, telling me that the bill is “the most protectionist piece of legislation ever produced in the United States. world”. He called on the US to reconsider provisions favoring US manufacturing and “find a way out for our trusted partners”, including India.
The attacks on their faces are stunning. The US has been criticized for decades for its failure to implement policies to reduce emissions and combat the scale of climate change. Now it is under attack to do exactly that.
But pushback is also an inevitable consequence of America’s long-awaited and comprehensive adoption of climate policy. Building a clean energy economy has always required new materials, supply chains and manufacturing facilities, and new trade rules from the start.
The focus is now on how the US – and its partners and competitors – combine climate and trade. Smart governance would support new investments in climate technology by governments around the world, creating jobs and growing the economy. Poor governance would doom the economy and decarbonisation efforts. “Obviously we need to fix this so it doesn’t go off the rails,” says Alden Meyer, senior fellow at E3G, an international climate think tank. “But obviously part of the context is that there’s plenty to go around in emerging markets and technology growth.”
You would be forgiven for being surprised that the world turned against the IRA. For years, even decades, countries have urged the US to pass major climate legislation. And activists hailed the law as a giant leap in the right direction when Biden signed it in August.
But the sweeping legislation, announced in July and passed by Congress shortly thereafter, was passed so quickly that foreign friends and foes alike had little chance to process its contents. When they did, they found a lot of things they didn’t like. The law includes various subsidies for things like the production of clean hydrogen, electric vehicles and renewable energy components to encourage manufacturers to set up shop in the US.
“Any policy you create, like we did with the green deal, like the IRA right now, can create tension because you’re taking things in a different direction that wasn’t intended in the trade agreements,” Frans said. Timmermans, the EU’s top climate official, told me in September. “So it makes sense that there may be issues that need to be discussed.”
Since then, the tone has only grown more concerned. During the interview with Kant, he returned to the IRA several times without prompting. “You not [decarbonize] being uncompetitive and doing what he had resisted all his life,” Kant told US officials in his message. “You believed in market forces and now you do?
The US responded on several fronts. Officials, from President Biden on down, met with their counterparts to reassure them. During French President Emmanuel Macron’s state visit to the US, Biden hinted that there could be “fixes” to the law to address Macron’s concerns. With that in mind, the Biden administration has sought to overturn the law’s preemption by implementing it. Guidance released by the Treasury Department in late December said the U.S. would try to take a flexible approach to implementing the IRA’s auto provisions.
But much of the US remains firmly convinced that the law is actually a huge gift to other countries. America’s massive investment in the IRA will drive down the cost of clean energy technology not only in the US but also in the rest of the world. In doing so, officials say, the U.S. is pushing the costs of green energy research and development onto everyone else.
“The world’s most powerful countries, including the United States, must invest to commercialize these technologies and reduce their costs to the rest of the world,” US climate change envoy John Kerry said in November. “As we approach 2030, folks, we’re going to make clean tech much more accessible and affordable for the rest of the world.”
Whether they like it or not, foreign leaders will eventually have to accept that the law won’t change much. John Podesta, who is tasked with overseeing the implementation of the IRA, said in November that he was “fully engaged” in discussing the concerns, but added that “the law is the law.”
What happens next? Some European officials have urged the EU to adopt the IRA’s approach rather than try to fight it. India is running a ‘Make in India’ program to boost its domestic production of clean energy. Greater production of clean energy technologies is, of course, a good thing. But policymakers need to ensure that these changes are a race to the top, not a race to the bottom. To do this, officials will have to seriously discuss new road rules in multilateral forums that will allow the development of domestic clean energy production while promoting global trade.
“Whatever we do, we will not be confrontational on these issues,” Timmermans said. “Let’s solve them. So that we are all on the same page.
Kant says the G20 forum, which he is chairing this year on behalf of the Indian government, is an opportunity for the world’s largest economies to discuss these issues. Kant is particularly keen to create road rules for so-called green hydrogen, a fuel that many hope could be a clean fuel for industry.
Talks are also taking place within the World Trade Organization and between individual countries. The intersection of trade and climate is sure to be on the agenda at next week’s World Economic Forum in Davos. Even more. “What is the best space?” asks Meyer. “We need lots of spaces where this conversation can take place.
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