S. Gross: “Subsidies were the only way to do serious climate policy in the US”
S. Gross: “Subsidies were the only way to do serious climate...
Samantha Gross, Director of Energy Security and Climate Initiative at the Brookings Institution, offers her insights on the new US Inflation Reduction Act (IRA) and its implications for the EU
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Samantha Gross is the Director of Energy Security and Climate Initiative at the Brookings Institution and one of the most renowned experts in the field. Gross has more than 25 years of experience in energy policy, climate change policy, and international energy affairs, including Director of Climate Change Policy and Technology at the US Department of Energy. She also hosts a podcast called Climate Sense, which discusses the most pressing issues in climate change.
In this last episode of the Do Better Podcast, Ángel Saz, director of EsadeGeo, talks with Gross about the new US Inflation Reduction Act, its implications for the European Union, and its effects on the global energy transition. In this article we offer an edited version of the interview, which you can listen to in full here.
The Inflation Reduction Act (IRA) is a historic piece of climate legislation for the United States. So, what does it mean for energy and climate?
The IRA is the most significant piece of climate legislation the US has ever seen. It's about $390 billion towards climate programs, most of this in the form of subsidies available for all kinds of people: for regular consumers to electrify their homes or buy electric vehicles, for various types of manufacturing and industry for batteries, for renewable electricity generation equipment, for building out hydrogen infrastructure, and for the production and mining of critical minerals. So it's focused on all kinds of things involved with the energy transition.
Another good thing is that it's very often technology neutral rather than focusing on specific technologies. Instead of targeting wind or solar specifically, it can include nuclear, geothermal, and other forms of zero-carbon electricity. It also talks about hydrogen in terms of the CO2 emissions emitted when it's produced — it doesn't focus on how you make it, only that it's low emissions.
And third, it's focused on innovation, which tends to be something the US excels at. Quite a few programs focus on green energy and emissions reduction innovation, mainly through funding for loan guarantees, for instance, to advance new energy technologies.
How does that legislative approach compare with what we're doing in the European Union?
It's quite different, and the reasons are primarily political. It's not possible in the US to do a European-style climate policy focused on regulation and the EU Emissions Trading System. We don't have the votes to pass something like that in the US; the only tool available to us are subsidies. So, naturally, you see a lot of subsidies now that we're taking this seriously, rather than the carbon pricing and the regulation that's more common in the EU.
It is not possible in the US to do a European-style climate policy
The EU seems to be frustrated with the IRA and is trying to respond to it with its own subsidies. How do you evaluate the EU’s reaction so far?
It's not just the EU that has been frustrated with it. I've heard a lot of complaints from friends in Asia as well. These complaints are primarily twofold. First, they're about the level of subsidies, and that industries will come to the United States instead of Europe or Asia because we have such high subsidies that will attract all these industries. Second, parts of the IRA are quite protectionist as they focus on buying US products. The subsidies are only available to products produced or refined in the United States or in countries with which we have free trade agreements — which notably do not include the EU.
I understand them, particularly the worries about protectionism. And part of the reason why it turned out this way is that folks in the US and in the US Congress are obsessed with China. I don't think they intended to cause problems with our European friends with this law; so much as to compete more effectively with China and to have some industrial policy, given that China really does industrial policy. So I think some of the concerns in Europe were inadvertent and may not have been thought out enough when the law was put together. But on the other hand, the fact that it's done primarily with subsidies was how it was going to go at all times. Because we don't have the political will to change our environmental laws or to pass a serious carbon tax. We don't have the politics to do that; we can only subsidize.
You mentioned technological neutrality, which is embedded in the IRA. How has the industry reacted to the IRA?
The energy industry has been pretty positive about it. There's something here for everybody to like; the fact that it's technology neutral means that some technologies that were excluded before, such as nuclear, are now included. The oil and gas industry are excited that there are subsidies for carbon capture, storage, and use. They're excited about the technology neutral hydrogen subsidies; if they can make hydrogen from natural gas and store the resulting CO2 or use it for something, they can also get the credit. Technology neutrality means there's something in it for everybody, making it politically more palatable.
The US does not have the political will to change environmental laws or to pass a serious carbon tax
Is there any opposition the law has had from any particular industry or sector?
It's been overwhelmingly positive. Some are less on the bandwagon with various parts of it. For example, the US auto industry is mostly down with electric vehicles, and so we haven't heard so much of that from the US industry. But it's been mostly positive, and I think because the IRA is so ecumenical in the way it spreads money around.
One of the things the IRA doesn't cover is permitting. Permitting is a big issue on both sides of the Atlantic. What is the state of permitting for these large renewable energy projects in the US?
Permitting is the biggest barrier to achieving the good things we could get from the IRA. It is very difficult to build projects in the US. The permitting processes are quite balkanized for many of these projects with state and local authorities, in addition to federal, and it's just hard to build things. When the IRA passed, a deal was made in which permitting reform would be brought to a vote on the floor of the Senate. But the problem was Republicans that had generally supported it were mad about the IRA passing and voted against it, basically out of spite. So we're right back where we were when we started.
In order to do the energy transition, we need to build stuff and big things, transmission lines, big renewable energy projects, infrastructure for hydrogen, and mines for the minerals we'll need. And we need to permit those big things we need to build. I'm hoping we can find a way to get reform through Congress.
Is not just the Europeans that are not happy with the US
How does the IRA play out in energy geopolitics? What could be the effects on the energy security of the different regions? And for energy geopolitics at large?
It's a great question because the Europeans are not happy with us. And it's not just the Europeans. I've had folks from Japan, Korea, or Singapore in my office back in Washington complaining about the IRA's protectionism and the level of the subsidies. And that can be difficult. I hope we can foster an understanding that this was the way it needed to be; there wasn't another way to do serious climate policy in the United States. To push the energy transition along, I can't change US politics, but I can explain where they came from and encourage our friends and allies to find ways to work and compete constructively with us with the law we have.
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