Home / Opinion / Views /  Biden's Inflation law is good for rest of the world too

For President Joe Biden and his fellow democrats, the Inflation Reduction Act, passed by both Houses of Congress and signed into law by the president, is a rare political victory, which makes good on a large part of his initial promise to build America back better. What is in it for the rest of the world?

The Inflation Reduction Act is no more about reducing inflation than a hot dog is about an intemperate canine. The name is calculated to appeal to Americans who are confronted with inflation of an order they have not seen in four decades. It has three elements. First, spending about $369 billion on clean energy and climate tech, which is expected to reduce, by 2030, America’s greenhouse gas emissions, with some help from state-level action triggered by this federal initiative, some 40% below the level reached in 2004. Second, some additional funding for expanding health insurance coverage and authorization for the government to negotiate down the prices of drugs for its Medicare programme. Third, some measures to raise additional taxes, principally by levying a minimum tax of 15% on the profits companies report to shareholders, on the lines of India’s Minimum Alternate Tax, to end the practice of some of the largest corporations paying no tax at all.

The world’s second largest emitter bringing its greenhouse gas emissions down is a good thing for the world at large. Some of the money is earmarked for curbing methane emissions, which are the worst for trapping heat in the atmosphere.

The Act has been dubbed, rightly, as all carrot and no stick. There are no carbon taxes, no cap-and-trade regime, methods favoured by economists as the optimal mechanisms for curbing emissions. Instead, what the Act offers are assorted tax credits and subsidies for renewable energy adoption, for investment in renewable energy and energy efficiency and production of clean energy and clean energy infrastructure and ecosystems. There is money on offer for retrofitting buildings to make them more energy efficient, for the purchase of electric vehicles, for carbon dioxide capture and sequestration, for direct air capture of CO2, for new, high-tech nuclear reactors and assorted other clean-air related measures, including $2 billion for breakthrough energy innovations in government labs and $27 billion for clean energy accelerator for deployment of technologies that curb emissions.

For all the gloss of free-market creative destruction as the driving force behind American capitalism, the reality is that significant state funding drives research and development in that country—as in the space programme, grants to universities, liberal funding via the Defense Advance Research Program—which funds not just directly defence-related research but things like RNA vaccines, too, and contracts to manufacturers to develop prescribed capabilities.

With the largest economy in the world deciding to fund research in direct air capture, this route to combat climate change gets a big boost. And it is the most vital tool in that effort. The world is already 1.1 degree Celsius warmer than pre-industrial times, according to the sixth climate assessment report of the Intergovernmental Panel on Climate Change.

Even the most frenetic emissions reduction by all countries of the world cannot prevent the average global temperature rising to 1.50 C above pre-industrial times. Only sucking the existing load of CO2 out of the atmosphere can offer redemption. Carbon Dioxide Removal (CDR) can take many forms—growing more trees that synthesise CO2 into food and wood is one, Direct Air Capture is another. The best scenario would be when the CO2 so captured is used as feedstock for producing useful things, such as methane, which can be broken down into hydrogen and carbon, preferably as graphene or carbon fibre. Research in this direction is already progressing well. Liberal funding by the US government would give it a big boost.

Small modular reactors and nuclear fusion reactors hold out the promise of abundant clean energy at low cost. The Act's funding would boost these too.

If US funding makes development, deployment and expanded production to scale of effective climate technology, India, too, would stand to gain.

What the US does would influence behaviour in other countries, too. A contagion of climate-friendly measures is likely to ensue. That would be a good thing for all of us.

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