The United States needs a plan to take the Inflation Reduction Act abroad

A cornerstone of the United States’ efforts to reduce climate-warming emissions is the Inflation Reduction Act (IRA), whose investments will reduce clean energy costs globally. The Biden administration is not shy about the law on the world stage, where it saw at best a lukewarm reception at the last UN climate summit COP27 in Egypt and at worst outright hostility from U.S. allies. Despite touting the law in its climate diplomacy, the United States lacks a concerted policy to internationalize the IRA. It is unclear how the Biden administration will take clean energy technologies and markets spurred by the IRA and get them to developing countries, where most future emissions will be. Doing so is imperative to global climate goals, but also to rival China’s dominance in clean energy supply chains and infrastructure investment abroad.

It’s clear when Congress wrote the IRA, it did not think of any foreign country. The legislation laces its tax credits with protectionist measures like U.S.-sourcing requirements to boost domestic investment and jobs. And yet this has not stopped the Biden administration from working with allies like Japan to strike deals that allow foreign companies to comply with the law’s sourcing provisions. Likewise, the U.S. is sitting down at the table with the European Union to strike a similar arrangement.

So far, the Biden administration has relied on a series of ad hoc agreements to deal with international reactions from the IRA, but it needs a proactive approach. Otherwise, investment lifecycles will end, and vital new emissions-reducing technologies will likely not reach the parts of the world where emissions are growing. Worse, there may be a perception that a country needs to be the richest or loudest in airing their grievances with the IRA to get any U.S. engagement.

Cheaper technology and the private sector alone will not solve the problem because wealthy countries like the United States have done an inadequate job to deliver existing clean energy technology to poorer countries. Complex interactions between trade, international development and foreign policy determine how developing countries adopt clean energy technology. For example, poorer countries must pay higher borrowing costs to add renewable energy to their electricity grids.

The United States furthermore lacks an overarching strategy of how the IRA’s clean energy investments will pair with its own efforts for infrastructure development efforts in poorer countries. China lacks no such vision. In 2017, the Chinese government articulated how it will promote its green investments with its Belt and Road Initiative that has already invested $1 trillion in developing countries.

What could an internationalization policy for the IRA look like? At a strategic level, the White House must first articulate a vision outlining how the IRA’s investments will fit with initiatives like the Partnership for Global Infrastructure Investment and the Indo-Pacific Economic Framework, two efforts to reengage U.S. participation in developing country economic development. Such a vision would spell out objectives, values and standards to guide U.S. government agencies.

At a practical level, the White House must coordinate between foreign affairs and domestic agencies in the federal government. From familiar foreign affairs agencies like the U.S. Agency for International Development and the State Department but also lesser-known agencies like the Development Finance Corporation (DFC), U.S. Export-Import (Ex-Im) Bank and the U.S. Trade and Development Agency, the White House needs to ask them to develop and articulate ways to incorporate the IRA into their engagements. For example, the DFC or Ex-Im Bank could prioritize lending to projects in developing countries using U.S. clean energy exports that take advantage of IRA tax credits.

From domestic agencies like the Departments of Energy or Commerce, the administration should require similar articulations. For example, the Department of Energy can encourage joint ventures or commercialization with like-minded countries in its ongoing efforts to launch hydrogen hubs across the United States. While it may be more difficult for domestic agencies to internationalize their execution of the IRA due to legal restrictions, there is precedent for the United States partnering with countries to implement a domestic law. For example, the Department of Commerce signed a memorandum of understanding with India to guide its implementation of the CHIPS Act, the recent law to onshore semiconductor production. Strategies by domestic agencies would build upon ongoing international climate and energy cooperation by the United States.

Ultimately, the touting of the IRA by the United States will not alone bolster its international climate credentials. The IRA’s mixed international reception is indicative of this limited mileage. Advancing a vision for how the United States will take the IRA’s cheaper clean energy technologies abroad will. Such a vision will not only increase global climate ambition but help the world be on step closer to meeting its climate goals.

Shayak Sengupta is a fellow in energy and climate at Observer Research Foundation America (ORF America), a Washington, D.C.-based think tank focusing on the United States, India and their partners.