Every country needs an Inflation Reduction Act

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MELBOURNE, Nov 23 (Reuters Breakingviews) – Lawmakers in South Korea blasted the U.S. Inflation Reduction Act as a betrayal. European Union leaders worried it would leave the bloc’s companies at a disadvantage. And big miners like Australia’s Fortescue (FMG.AX) said it left them little choice but to direct a lot of spending to the United States. Yet concerns about market distortion from the policy intended to stimulate investment in the energy transition and signed into law by President Joe Biden in August 2022 are easing. Other countries are realising they need to adapt the blueprint.The Biden administration’s willingness to negotiate on its package of $370 billion of tax breaks and other measures has helped. That has mollified fears among major U.S. allies that the legislation’s push to boost manufacturing stateside would shut them out. Seoul lobbied hard with decent success, for example, to allow electric vehicles manufactured in South Korea and sold in the United States to be eligible for the IRA’s $7,500 tax credit. Australia struck a deal with Washington in May over critical minerals that paves the way for companies Down Under to gain access to the legislation’s financial benefits, while the European Union is still in discussions over those and other issues.Reuters GraphicsSuch progress has allowed the law’s real power to shine: its ability to unlock private capital for green products. The IRA contains tax credits to stimulate consumer demand for everything from electric vehicles to heat pumps, and funds to jolt companies into action. In the first 12 months of the act, more than 270 new clean energy projects with some $130 billion-worth of investments were unveiled, per Bank of America.All in, the IRA could spur $3 trillion in renewable energy technology investment by 2032 – and by 2050 encourage up to $11 trillion of total investment in infrastructure, Goldman Sachs reckons. That means jobs – almost 1.5 million new ones in the U.S. by 2030 – per Labor Energy Partnership estimates.It’s an enticing mix of emissions reductions, more employment and a boost to productivity for politicians around the globe to try to emulate. The trick is finding how to pay for it. Granted, over time the increased economic activity and concomitant tax revenue – not to mention environment-based disasters averted if rising temperatures can be stopped – could cover the initial outlay many times over.Reuters GraphicsTrouble is, governments also need to show that they will be fiscally responsible stewards of the energy transition in the short term – especially with inflation still a threat and budgets under pressure.The U.S. national debt, for example, st …

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