INFLATION REDUCTION ACT

1. Context

2. U.S. IRA

The Act is a scaled-down version of Mr Biden's ambitious Build Back Better plan that did not get the Senate's approval in 2021.

3. Twin Objectives

1. Inflation
2. Climate Action Package

4. Climate Funding In IRA

• The Act is the biggest climate action package in U.S. history earmarking $370 billion for climate-focused funding and investments aimed at cutting emissions by around 40% below 2005 levels by 2030.
• The IRA combines climate action goals with industrial policy, aiming to transition to clean energy by incentivizing local manufacturing of renewable energy components.
• It also seeks to reduce American reliance on China for materials and components for the clean energy industry.

1. To bolster clean energy development in the U.S., the IRA provides consumer and industry-side incentives.
2. To promote the use of electric vehicles (EVs) and to secure domestic supply chains for their manufacturing, the federal tax incentive policy for EVs has been changed.

• Now, only passenger EVs assembled in North America are eligible for a $7,500 tax credit incentive.
• Those who buy used EVs will be eligible for a $4,000 tax credit if 40% of the critical minerals used in the car batteries are extracted, processed and recycled in North America or a country having a free trade agreement with Washington.

• It also offers billions in federal procurement to American-made clean technologies.

5. Europe’s Concerns

• The EU’s new green plan ‘Fit for 55’ is targeting to cut CO2 emissions from cars by 55% and vans by 50% by 2030 and all emissions from cars by 2035.
• For this, it will need to significantly increase its uptake of EVs.
• Although China dominates the EV purchasing market, Europe has also been posting high growth in EV demand vis-à-vis the total auto demand, even faster than the U.S.
• According to the International Energy Agency (IEA), nine of the top 10 countries by share of EVs in the total car stock are in Europe.
• To meet its emissions targets, the EU will benefit from its local automakers ramping up manufacturing, but the IRA raises fears of automakers moving to the U.S.
• Europe's fears may not be unfounded as several automakers, battery makers, and energy companies have already made announcements or shown interest in setting up shop in America.

6.U.S.Stand

• President Joe Biden said that there was room for “tweaks” in the IRA to “make it easier for European countries to participate” and that it was “never intended” to exclude cooperating countries.
• However, he stressed that the “U.S. makes no apology” for promoting American manufacturing and would continue to create jobs for its people.

Source –Hindu