• Biden’s IRA made significant progress in its first year.
• Still, the legislation faces a potential future Republican challenge.
• Biden wants to strengthen his climate leadership and strengthen the US to compete with China.

Why is Biden’s temperature Hot?

Answer: Biden’s Inflation Reduction Act has made significant progress in the first year, though complete effects are yet to be seen. 

In August 2022, Biden signed the Inflation Reduction Act (IRA) into law, marking it the most significant investment in clean energy and climate change in US history. The IRA comprises three main elements: tax incentives for green energy, extended healthcare programs with reduced drug expenses, and tax regulation adjustments to boost corporate revenue. 

Biden’s goals for the IRA can be understood from both a narrow and a broad perspective. In the narrow sense, the IRA serves as a critical instrument for advancing his climate agenda. The majority of the spending within the IRA is directed towards energy security and climate policies, with initiatives including catalysing investments in clean electricity production, on-shoring the manufacture of key energy transition components currently heavily controlled by China, accelerating the electrification of transportation, and deploying cutting-edge technologies like carbon capture and clean hydrogen production… These initiatives collectively represent a robust strategy to combat climate change, reduce greenhouse gas emissions, and secure a sustainable energy future for the nation. 

In a broader sense, the IRA is one of the three central pillars of Biden’s economic strategy, alongside the Bipartisan Infrastructure Deal and the CHIPS Act. Together, these legislative measures are designed to revitalise the US’ industrial strength and decrease the nation’s reliance on China, fostering domestic economic growth and technological innovation.

One year into its implementation, it’s clear that the legislation has made notable progress. Yet, it’s premature to provide a conclusive assessment of its complete effects, given that not all IRA provisions are implemented, and many funded projects involve extensive planning and construction time. 

According to a fact sheet released by the White House, notable achievements include the creation of more than 170,000 clean energy jobs attributed to the IRA and over US $110 billion in private sector investments in clean energy manufacturing over the past year alone. These accomplishments underscore the IRA’s positive influence on job creation and economic growth within the clean energy sector. Nevertheless, some overarching goals, such as reducing emissions by up to 41% below 2005 levels and transitioning to electric transportation, will require additional time and sustained effort to fully materialise. 

What is changing Biden’s “heat level”? 

Answer: Challenges for Biden’s IRA come from inside the house and competitors abroad.

The Republican Challenge

In April 2023, House Republicans made an effort to reduce government spending and raise the debt ceiling by attempting to repeal substantial parts of the IRA. Despite the potential advantages for red states, this move was purely symbolic, as it faced inevitable rejection in the Democrat-controlled Senate. Nevertheless, House Republicans have promised to make future repeal attempts, revealing the political fragility of the IRA in a government divided along party lines. In addition, the prospect of a Republican president elected in 2024 adds uncertainty, as candidates like Trump and Nikki Haley target the IRA’s grant and loan spending. A Republican administration could shift priorities and potentially halt or substantially reduce Biden’s climate initiatives, impacting the IRA’s long-term prospects.

Pharmaceutical Industry Opposition

Several pharmaceutical giants, including Merck and PhRMA, have filed a lawsuit against the Biden administration, asserting that the price-setting provision in the IRA is unconstitutional and could stifle innovation and research. The outcomes of these legal challenges are uncertain and could potentially affect provisions related to healthcare cost reduction within the IRA. Should pharmaceutical companies prevail in court, Biden may be compelled to remove these provisions from the IRA.

European Concerns and Responses

European leaders, such as Macron, have criticised Biden and the IRA for what they perceive as disguised protectionism. Concerns include potential hindrances to EU exports to the US and the risk of EU firms relocating stateside. In response to the IRA, the EU has adapted its state aid rules and introduced the Green Deal Industrial Plan, which aims to boost Europe’s net-zero industry competitiveness and support climate neutrality. However, it is suggested that Europe is unlikely to experience significant adverse effects from the IRA, reducing the probability of a transatlantic trade war. Instead, opportunities for collaboration between thriving green sectors in both the EU and the US may emerge.

Public Opinion in the US

Despite some progress, such as increased job creation, a majority of American voters disapprove of Biden’s climate-related actions. Meanwhile, surveys indicate that many are uninformed about the clean energy tax credits within the IRA. This sentiment could impact Biden’s chances of reelection in the upcoming year, highlighting the need for effective communication and public awareness campaigns regarding the IRA’s benefits and its role in addressing climate change.

What is driving Biden?

Answer: Biden wants to bolster his climate leadership, catch up with global clean energy competitors, and reduce reliance on China for clean energy technologies. 

Biden’s IRA agenda is driven by three main factors. First, climate change has consistently ranked as a top foreign policy priority for Biden. His commitment to this issue stems from a desire to enhance the US’ credibility and legitimacy in global climate leadership, particularly following Trump’s withdrawal from the Paris Agreement in 2017. The substantial public investment via the IRA plays a pivotal role in achieving the majority of emission reductions pledged in the Paris Agreement.

Second, Biden aims to close the gap between the US and global competitors like China and the EU in the race for clean energy leadership. The US has fallen behind these counterparts in developing a low-carbon economy, partly due to substantial public investment in clean technology and renewable energy by China and the EU. This investment has given China and the EU a competitive edge in clean-tech innovation and renewable energy manufacturing, with China dominating market share across various clean technology sectors. 

For instance, in 2021, the US lagged significantly in the electrification of transport, with a penetration rate of new energy vehicles at 6.5%, compared to 15.5% in China, and even higher rates in European countries like Germany, the UK, and France. The IRA therefore serves as a crucial component of Biden’s long-term plan to revitalise the nation’s industrial competitiveness.

Finally, the IRA is integral to Biden’s strategy for reducing dependence on China, particularly in the realm of clean energy technologies. Approximately 90% of large-scale manufacturing for critical clean energy technologies is concentrated in China and the broader Asia-Pacific region. Such heavy transatlantic reliance on China for these vital technologies presents potential national security concerns in the future. The IRA is designed to mitigate this risk by fostering domestic innovation and manufacturing, reducing dependence on foreign sources, and enhancing the resilience and security of the US clean energy supply chain.

What does this mean for you?

Answer: People in the US and EU are already experiencing multifaceted effects of the IRA, but the IRA’s impact in China is in its early stages. 

For Americans, the implications of these changes are multifaceted. The IRA promises lower drug costs for those relying on Medicare, a commitment to cleaner air in the long term, stabilised healthcare premiums, and substantial savings on power bills for the majority of households. It’s essential to note that while lower inflation might not yield immediate, tangible effects for the American public, its influence is more long-term and bears significant macroeconomic importance.

Meanwhile, residents of Europe have already experienced a swift response from the European Commission, which is actively intensifying its climate policies. Notable developments include the enactment of new legislation, such as the Green Deal Industrial Plan. These measures underscore Europe’s dedication to addressing environmental concerns and advancing sustainable, green initiatives on the continent.

Unlike individuals residing in the US and Europe, who are already witnessing the effects of the IRA, the ramifications of this initiative for people in China are bound to gradually unfold over the long term. It’s important to recognize that the influence of the IRA on those in China is still in its early stages of development. The US still relies on China for crucial clean tech components, and a complete shift away from this dependence will take time.