A Few Points on the Inflation Reduction Act

This February the European Commission unveiled its Green Deal Industrial plan to respond to US IRA to ensure that it remains competitive on green growth.  Although details on the measures to accelerate the uptake of green tech are still missing, the debate in the EU on the relaxation of state aid to match the IRA competitive subsidies is quite heated.

The plan includes a new Net-zero Industry Act – possibly presented in March - to speed up the roll out of clean technologies, by mainly identifying specific technology capacity goals by 2030, accelerating permitting procedures, and setting-up new EU standards for key tech. On financing, state aid rules will be eased until 2025, while roughly 250 billion euros from the existing REPowerEU programme will be re-oriented. A new EU Sovereignty Fund is also in the pipeline.  Some Member States fear that excessive use of state aid will benefit only those countries with larger fiscal capacity such as France and Germany, endangering the integrity of the single market.  And this dispute may prevent the law to move forward. The plan also focuses on skills – enhancing those sectors for green transition - and trade – supporting cooperation in key clean tech, and boosting Free Trade Agreements (i.e., with India).

Overall, EU industry warned against a subsidy race but welcomed the Commission’s intention to respond to IRA. Given the IRA’s use of tax credits, observing the EU’s more flexible use of subsidies, is essential to understand UK’s potential response and position in the international debate. The CBI will continue monitoring further developments and welcomes feedback from its members on this new EU plan.

Implementation of the IRA in the US

Talk about the Inflation Reduction Act (“IRA”) is all the rage in policy circles at the moment.  And rightly so, it is a massive piece of legislation that’s already had a global impact.  Huge amounts of funding and subsidies in the US that are cause for excitement for some and concern for many others.  What’s important to remember, however, is that hard work around the IRA is just now getting ready to start.  The “easy” stuff was drafting the legislation…the hard part is implementing it!

In practice, while the Constitution grants the President authority to enforce and implement laws passed by Congress, it’s a multitude of federal agencies operating on behalf of the President who enact implementing rules and regulations that put legislation in to action.  Typically, huge laws like the IRA direct federal agencies to write rules to enable the policies within a certain statutory authority. Agencies then publish these rules within the Code of Federal Regulations.

Before publishing these rules, however, agencies are required to give advanced notice to the public and seek consultation for weeks or even months. Final rules, when they do emerge, are not protected from legal challenge. Simultaneous to the development of the rules, agencies typically publish guidance documents to help clarify new and upcoming rules to the public.  Further complicating the process, this guidance is not legally binding, but is intended to provide clarity for the regulatory framework in which the rules are created.

After rules are published, they are sent to Congress and the Government Accountability Office (“GAO”) to review. Congress can then overturn rules if the House and Senate pass resolutions of disapproval – but this almost never happens.

When it comes to major spending packages like the IRA, it will be the responsibility of multiple federal agencies to implement it.  Only now are these agencies “staffing up” to write the rules – agencies like the Treasury Dept, the Dept of Energy, Dept of the Interior, the Environmental Protection Agency, and the Dept of Agriculture.  And while a lot of work is being done, in many cases, the full implementation of rules for each agency may take years – and there is opportunity in that timeframe to influence what implementation might mean for UK businesses looking to invest in the US.