Joe Biden’s $369 billion climate push ripples through developing countries

So far, 2022 has not been a great year for emerging economies in Asia. The immediate challenges of a strong dollar, rising interest rates and inflation in everything from food to fuel show little sign of abating.

Now another complicating factor has emerged – from an unlikely source.

The Cut Inflation Act signed into law in August by President Joe Biden contained a far-reaching climate initiative. It commits more than $369 billion in grants and tax credits over a decade to encourage decarbonization and cleaner energy.

As a clear positive U.S. commitment to lower carbon emissions and cleaner energy, this is truly a global good. But there is an unintended consequence: its impact on developing countries’ climate change efforts.

Analysts and executives in some emerging markets like India fear that one of the effects of the new law will be to increase the cost of renewables for them, making coal a more attractive alternative.

“By handing out subsidies, this law may well have the effect of distorting the entire renewable energy supply chain,” says Mahesh Kolli, Chairman and Co-CEO of Greenko Group, a Hyderabad-based renewable energy company. .

For example, he says solar panel suppliers will be able to charge US customers far more than the price at which India imports panels. This means that the price of solar panels will increase for developing countries, which will hinder the switch to renewable energy.

“Taxpayers in the US (and Europe) are hurting India and other emerging markets. Solar power has never been reliable, but in the past it was cheap. Now the incentive is to go back to coal,” says Kolli.

Furthermore, some industry experts point out that the new US measures, particularly in the area of ​​solar energy, are all aimed at increasing domestic production over time. The United States wants to reduce the global reliance on China for everything from batteries to the guts of clean energy infrastructure by giving American companies and global companies an incentive to produce in the United States.

Today, for example, China holds more than 80% of the global solar panel market, according to data from JPMorgan. The bank also claims that China accounts for 10 of the top 15 wind turbine producers, with a total market share of around 55%.

An executive from a major Asian investor said, “It’s American protectionism first.” And if China sends more of its production out of the United States, it could affect other countries like Malaysia, another major source of solar panels.

It is certain, however, that the US legislation will have different impacts across Asia.

In South Korea, there has been anger over the impact of the bill’s decision to eliminate subsidies for electric vehicles assembled outside North America. There are fears that Hyundai and its electric vehicles will be at a disadvantage until the company starts production at a $5.5 billion plant in the US state of Georgia in 2025. But South Korean battery producers present in the United States will benefit from subsidies there. and probably an increase in demand.

For some in countries like India, however, this is another example of how the burdens of climate change fall unevenly. Many countries like Pakistan, India and Bangladesh have less capacity and fewer resources to build resilience to global warming.

India is preparing to lead the G20 in mid-November. He is already positioning himself as the face of those emerging nations who believe that it is the developed countries that are responsible for climate change, when the burden of reversing the evil falls largely on them.

“A transition to low-carbon technologies can only be successful if developing countries have access to resources, including finance, on concessional terms,” ​​said Anantha Nageswaran, Chief Economic Advisor to the Government of India, in a co-authored column in the journal Mint. .

He said developing countries need help to meet the transition costs of moving to less carbon-intensive production in a shorter time frame than their developed counterparts.

“The role of the latter in raising capital on reasonable or concessional terms to enable this transition of developing countries is a sine qua non and, quite frankly, part of their promise made at the Earth Summit in 1992 and under the Paris Agreement in 2015,” he added.

The Cut Inflation Act may be a breakthrough in the United States for climate change, but the burden of adjustment falls increasingly heavily on many cash-strapped emerging markets.

About Christopher Easley

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