It’s a Good Thing the IRA Incentivizes U.S. Clean Energy Production

By Matthew McMullan
Nov 30 2022 |
The Inflation Reduction Act includes significant tax credits for American-made electric vehicles. Getty Images

Those incentives shouldn’t be loosened or scrapped. Sorry, Europe!

French President and man of the people Emmanuel Macron is visiting Washington, D.C. this week, where he’ll meet with President Biden. And on behalf of the European Union, Macron is expected to argue that the sizeable tax credits for American-made electric vehicles (EVs) included in the Inflation Reduction Act, which passed Congress this summer, violate trade rules and are illegal. Why? Because they EVs made in Europe won’t get the same kind of credit attached to him!

The subtext to this is Europe runs a huge auto trade surplus with the United States and its automakers want to keep it that way. So its proposal, when you boil it down, is basically this: Cut European-made EVs in, or face a trade war. But judging by what Biden has been up to in the past 24 hours … I doubt he’s gonna budge.

Here he is, telling a room full of union members and factory workers in Michigan what the clean energy shift obviously represents: An opportunity to reinvigorate domestic manufacturing and create American jobs:

And look, this is a good thing. This is the right stance to take. Because forget its incongruous name – the Inflation Reduction Act is, as described this week by none other than one-time vice president and now longtime climate activist Al Gore, “by far the most significant climate legislation ever passed by any country and in all of history.” It isn’t hubris, it’s a $369 billion investment in clean energy production and is going to create a major shift in how our economy functions. It will fund the shove we Americans need to get off fossil fuels by getting us into EVs, which makes it a huge step toward addressing the global climate crisis.

We’re using this moment, after approximately 30 years of trade and investment policy that basically encouraged deindustrialization, to reinvest in our productive economy. And this is why the domestic content rules in the IRA are so incredibly important: They’re going to make sure the next generation of energy production isn’t sold to us under the guise of “free” trade, like a solar energy supply chain riddled with credible accusations of forced labor. It’s going to make sure a lot of it is made here, and that Americans experience the economic benefit of that localization.

That’s not illegal. Europe’s own carbon border adjustment, as Mr. Gore pointed out, is basically based on the same idea. That’s already in place! So instead of huffing, puffing, and then demanding the United States hollow out one of the most transformative climate policies the world has so far seen so Volkswagen and Stellantis can maintain market share, it should instead be preparing domestic incentives of its own so more Europeans buy more EVs.

“Hear me,” Biden said Wednesday as he described this new industrial policy, “we’re gonna leave nobody behind this time around. Nobody.”  

That’s the right line! The U.S. government should stick to it despite EU complaints about American EV incentives.