Inflation Reduction Act opens Pandora's box

A staff member hangs a US national flag before US President Joe Biden arrives for the European Council meeting in Brussels, Belgium, March 24, 2022. [Photo/Xinhua]

This is an editorial from China Daily.

Although the European Union claimed in a statement on Wednesday that the Green Deal Industrial Plan it has proposed is intended to "enhance the competitiveness of Europe's net-zero industry", it is known to all that the proposals are made to counter the damaging effects of the United States' Inflation Reduction Act on EU industry.

The plans, which will be debated by EU leaders next week, would make €250 billion ($272 billion) available, in the form of various subsidies and tax breaks, to the green industry of the bloc to prevent its enterprises from being lured to the US, which is providing subsidies of $369 billion through its act.

The act has irked the EU and other major economies including India, Japan and the Republic of Korea for its distortion of market law, but attempts to persuade Washington to show some consideration to their industries have proved fruitless. Even French President Emmanuel Macron received a cold shoulder on the issue during his state visit to the US in December.

That has understandably spurred the EU to accelerate its own version of the act. The efficiency with which the bloc has drafted a plan of such a scale, which is in sharp contrast with its long reviled red tape and bureaucratic tardiness, showcases the EU members' consensus on the need to counter the US move.

Although the EU announced that the plan is based on four pillars of "a predictable and simplified regulatory environment, speeding up access to finance, enhancing skills, and open trade for resilient supply chains", it cannot hide the fact that it is the first domino to fall after the US' adoption of its selfish and shortsighted legislation.

Given the intransigence of the US, the EU has been left with no choice but adopt the tit-for-tat package, to "level the playing field", as European Commission President Ursula von der Leyen told the media on Wednesday.

It is predictable that more dominoes will fall as the major economies pass their own version of the act to prevent their own industries and jobs from being sucked to the US and the EU, lured by their subsidies. This will put the less-developed countries in an even graver climate predicament.

Like the audience in a theater, once those seated in the front rows stand up, those sitting behind them have to do the same. The moves of the US and the EU will make it even more difficult for the back-row less-developed countries to catch the tide of green development. Subsidies should be provided to them as agreed at the Sharm el-Sheikh Climate Change Conference in Egypt in November last year, rather than raising the threshold for them to participate in the global green transition.

Also, even if the subsidies might help level the playing field among those that provide them, they de facto encourage speculators to swindle the subsidies for quick money rather than inspire true competition for green innovations. That will unavoidably shatter global synergy to tackle climate change by widening the North-South gap and consume the growth momentum of the whole green industry globally.

Is that what the US and the EU want?