One year on from the Inflation Reduction Act: International responses to the IRA

KEY POINTS

• The US Inflation Reduction Act (IRA) has successfully stimulated economic growth, attracting billions of private investment and creating thousands of clean energy jobs. Other OECD governments have adopted similar policies.
• This new economic environment is creating challenges and opportunities for the UK economy. However, certain fears proved premature, including predictions that the IRA would threaten the UK economy, provoke a wave of protectionism, or decrease the role of the market in net zero industries.
• On trade, domestic content requirements have proven more flexible than initially feared, expanding to include neighbouring and allied countries.
• On subsidies, governments have adopted a variety of approaches, from more direct forms such as grants to more indirect tax deductions, and from targeted subsidies for particular sectors to broader-based funding.
• Governments have simplified permitting and set benchmarks to reassure investors that their goods have a reliable market, which has combined with subsidies to develop a hospitable environment for the private market.

POLICY CONSIDERATIONS

• The UK should focus on securing a trade deal with the EU to accelerate trade on net zero goods in specific industries, as the EU’s 40% domestic content requirements leaves the door open for British exports.
• The UK should identify sectors that would benefit from government support and provide at least £54 billion over 10 years in grants, loans and tax incentives to attract investment and avoid offshoring to other countries.
• The UK should set legally binding benchmarks for green goods beyond electric vehicles to assure private manufacturers of a market for their goods.
• The UK should streamline its planning system by prioritising net zero projects, creating permitting offices for combined authorities and devolved governments and providing permissions within 18 months of submission.