Stop griping. Europeans should be copying not criticising Joe Biden’s climate policy

If the European Union wants a level playing field it should match US subsidies

When Tony Blair first met George W Bush a couple of decades ago he tried to charm the new president into staying in the Kyoto climate change accord. He got nowhere. Europeans have spent most of the time since throwing up their hands at America’s cavalier dismissal of global warming. Now Joe Biden has reversed course. And the Europeans are crying foul.

Biden’s curiously named Inflation Reduction Act is a year old. It provides for at least $370 billion in tax credits for clean tech manufacturing and development during the next decade. Among the sectors to benefit are battery and electric vehicle production, carbon capture and hydrogen. The early signs are the incentives work. Depending on take-up, the level of IRA subsidies could turn out to be significantly higher. 

When Bush hosted Blair, a hotter planet was still seen as a threat on the horizon. If anyone needed telling again, this summer’s scorching heat from Arizona to Beijing to Barcelona has delivered an abrupt warning that the danger is now. Global warming has happened. The Paris accord committed the world to containing the increase in temperature to 1.5 degrees centigrade. The figure has already reached 1.25 degrees. 

So New York can be shut down by wildfires in Canada, Greece, Italy and Spain are too hot for tourists and the deserts of Algeria and Tunisia threaten to leapfrog the Mediterranean. Elsewhere in Africa, the extreme weather - storms and flash floods as well as heatwaves - is amplifying the economic pressures for mass migration northwards and generating new conflicts between states. Even if, by some magic, the world could halve tomorrow the amount of greenhouse gases being pumped into the atmosphere, the temperature would keep on rising. Global warming is already a calamity. The game now is to prevent it from turning into an existential catastrophe.

In the circumstances, the obvious question to be asked about Biden’s package is not whether it is unfair on America’s economic competitors or marks a lurch towards protectionism, but whether a figure of $370 billion is halfway enough. The US ranks behind China in terms of the amount of carbon its pumps into the atmosphere. But if it does not move fast along a trajectory to net zero it is hard to see Beijing, or most of the rest of the world, turn off their coal-powered electricity stations.  

The Europeans griping about Biden’s package have lost sight of this bigger picture. The IRA, you hear it said, has given America an unfair competitive advantage. It will draw investment away from Europe to the US. Why should vehicle manufacturers make electric vehicles in Europe if Washington subsidises production in the US? 

The world, it seems, has been turned on its head. The Biden Administration has thankfully shaken off the addiction to the neoliberal globalisation that gave us the Washington consensus. Europeans, who used to recognise the state sometimes has a legitimate role in shaping economic outcomes, are now taking up cudgels in defence of 1990s economic neoliberalism. 

Beyond the attachment to “free trade” of the ideological purists, the critics of Biden’s strategy fail to grasp the urgency. Business is already investing in clean technology, the argument runs, so governments can stand on the sidelines. In truth,  the unavoidable message of this summer’s weather extremes is that there isn’t time to wait for the private sector to do the job. 

Governments should not be worrying about how to meet present carbon reduction targets. They should be toughening them up, and explaining how to get there. The one thing we can be sure of is that free market disciplines and competition will not fix this one without a mighty shove, and substantial financial help, from the state.

The subsidies-are-always-protectionist prism of the free traders presumes a finite amount of investment in low carbon technologies to be shared out across the Atlantic. Clean vehicle, chemical and steel plants set up in the US will inevitably mean production losses in Europe. 

This can best be called the lump of capital fallacy. If the world is to avoid calamity turning to catastrophe, there can be no cap on new investment in low or zero carbon technologies. The imperative is to decarbonise everywhere - and at a pace that the marketplace would never deliver without state help. In a nutshell, instead of criticising the United States, the European Union should be copying it - and urging other rich nations to do the same.

Persuading China and the poorer economies of the global south to follow suit represents another, still more formidable, task. It will require a fundamental re-engineering of international financial institutions to promote green development in poorer economies. That too will cost. But one thing is certain. Nothing will happen to stop the planet burning if the west fails to set an example at home.