The stick and the carrot, by Mariano Marzo

The stick and the carrot, by Mariano Marzo

The Law for the Reduction of
Inflation Rate (IRA)
in English), promulgated by
President Joe Biden last summer, includes measures to promote the development of energies that help the US meet its emission reduction commitments, while improving its competitiveness and energy security.

This legislative package has been controversial: several European political leaders have stated that it provides an unfair advantage to US industry, insofar as the tax incentives contemplated are detrimental to the EU’s industrial base and could amount to a violation of international trade rules. Certainly, it is urgent to open an EU-US dialogue. about.

It is worth seeing what the EU can learn from the US Inflation Reduction Act.

However, it should not be overlooked that the IRA has also generated a lot of interest in the financial and business community. There are many who think that the initiative paves the way for the US to create the necessary economic conditions to ensure the large investments required by the energy transition. So it is worth asking what lessons the EU can learn from the IRA to make its legislation more effective and attractive to investors, while accelerating the energy transition.

In this sense, there are two major differentiating characteristics that make the US regulation more effective than the European one.

The first is technological neutrality. The IRA promotes on equal terms all available energy decarbonisation solutions (renewable and nuclear electricity, electric vehicle, hydrogen, carbon neutral liquid fuels, CO2 capture and storage, etc.). The United States even believes that oil and natural gas will continue to be necessary for decades to come, and that their production should be boosted to strengthen the country’s energy security. On the other hand, in the EU some solutions are more favored than others, and some of them are even prohibited, often forgetting that Europe is still highly dependent on the external supply of natural gas, while it lacks the infrastructure to import it.

The second feature is simplicity. In the US, aid is given in the form of tax breaks or incentives, available to all those who are interested in investing in clean energy. In the EU, a complex system of regulations is preferred, which in many cases overlap each other (taxes, emissions trading, mandatory penetration targets), and which are often accompanied by excessive and unjustified restrictions and limitations. The stick takes precedence over the carrot.

The EU’s green deal seeks to lead the global fight against climate change, and its citizens are generally proud of it. However, this should not prevent Europe from learning from others when they do better.

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