On July 4, President Donald Trump enacted the One Big Beautiful Bill Act, which drastically cut approximately $500 billion from the clean energy tax credits established under the 2022 Inflation Reduction Act (IRA). This move, combined with the Environmental Protection Agency’s recent decision to reverse Obama-era climate regulations, has reinforced the administration’s dismissal of efforts to limit emissions.
The IRA had been instrumental in promoting over $800 billion in committed and prospective investments in clean energy and manufacturing, enjoying considerable public support. Notably, many Republican districts, which received 80 percent of the funds, reaped substantial benefits from the subsidies.
However, this overwhelming public backing did not shield these measures from the sweeping reductions implemented by Trump’s administration. Despite these setbacks, the underlying strategy of the IRA’s climate provisions remains robust. The law was a product of an unprecedented climate coalition in the United States, which encompassed a vast array of stakeholders, including environmental groups, scientists, progressives, and green industries.
For the first time, the IRA also brought significant industrial players into the dialogue, such as automakers, utilities, and energy-intensive manufacturers. These sectors recognized the potential to transform their operations with appropriate investments, transitioning from a ‘brown’ to a ‘green’ status over the next decade or two.
The backing of these decarbonizable industries was crucial for the IRA and similar initiatives seen in other affluent nations. Although the U.S. has rolled back some of its climate achievements, the lobbying efforts from industrial stakeholders managed to prevent new taxes on renewables and electric vehicles, safeguarding a portion of the IRA’s green subsidies.
Countries such as Australia, Canada, France, Germany, Norway, and the United Kingdom have not followed the U.S.’s lead in reducing clean energy expenditures. Instead, they acknowledge the critical role of green subsidies in bolstering domestic industries against the competitive edge of leading Chinese firms and assisting companies and households in meeting net-zero targets.
From 2019 to 2024, global clean energy investments reached a staggering $8 trillion, outpacing the combined total of the previous two decades. Subsidies like those in the IRA have been central to this momentum, encouraging firms to pursue opportunities within the rapidly expanding green sectors rather than remaining tethered to outmoded fossil fuel business models.
The recent partial repeal of these measures in the U.S. poses a significant challenge. Yet, as policymakers reflect on this episode, there lies an opportunity for improvement. A progressive redesign of policies that yield greater resilience, while incorporating more industrial stakeholders into the climate coalition, could enhance future efforts.
Just a decade ago, the prospect of evading severe climate change felt unattainable, with projections suggesting global temperature increases could approach four degrees Celsius by 2100. Despite the unachievable status of many ambitious emission targets, and the current visible impacts of climate change, a promising strategy to rally major industries behind a decarbonization agenda is starting to materialize.
The historical challenge to effective climate action has not stemmed from a lack of public support or long-term economic concerns, nor has it been due to failed diplomacy. Politicians often struggle to implement substantial climate policies, despite public demand for action.
Economists agree that preventing climate change presents aggregate welfare benefits that outweigh the associated costs. Looking back, many countries effectively tackled global environmental issues like the ozone layer depletion and acid rain through collaborative international agreements.
The major hurdle has been the inevitability of decarbonization creating distinct advantages and disadvantages among industries, where losing sectors wield significant influence. Even when an effective climate policy could benefit the broader economy and foster growth in green industries, fossil fuel-dependent companies have successfully obstructed progress.
In the late 1980s, a coalition of carbon-intensive industries formed the Global Climate Coalition, actively working to resist international climate agreements. This initiative led to a decades-long campaign of misinformation aimed at undermining climate science while lobbying against emissions reduction strategies. Traditional advocates for climate policy often found themselves outmatched against this powerful fossil fuel coalition.
For years, carbon-intensive companies leveraged their strong connections with trade associations, unions, political parties, and regulators to fend off federal climate legislation in the U.S. and weaken climate initiatives across Europe. Protecting their advantages necessitated hindering significant advancements in climate action.
However, a pivotal shift occurred in the late 2010s, primarily fueled by China’s extensive investments in electric vehicle batteries and clean energy technologies. These moves were aimed at capitalizing on an anticipated global trend toward decarbonization and ultimately proved to be advantageous.
As a result, Chinese initiatives effectively lowered the cost of clean energy technologies, facilitating global decarbonization efforts and positioning Chinese companies as leaders in potential future net-zero economies. By the end of the 2010s, China solidified its technological edge at the same time organized climate movements were successively urging governments to commit to loftier emissions reduction goals.
This convergence of economic and political factors fractured the established fossil fuel coalition, leading industries that could possibly decarbonize — including automaking, utilities, and energy-intensive manufacturing — to reevaluate their approaches. The long-standing strategy of stalling the green transition was no longer viable, given the consequences they faced within the competitive landscape.
Faced with increasing global demand for low-carbon products and technologies, these industries recognized the potential pitfalls in blocking decarbonization efforts. Policymakers began to extend a deal: in exchange for government support to develop clean technologies and adapt green practices, industries would engage in the transition.
This strategy significantly contributed to the success of the IRA’s clean energy subsidies. Biden’s 2020 presidential campaign actively focused on climate policy, partially in response to climate activists’ demands, but also to attract voters and businesses in the manufacturing-centric Midwestern swing states that had leaned Republican in 2016.
His ambitious promise of $2 trillion for decarbonization was framed as a means to revitalize economies, notably Michigan’s, and to ensure that American manufacturers led the global market in sustainable sectors such as electric vehicles and renewable energy.
Upon taking office, Biden’s climate initiatives garnered support from major environmental organizations alongside traditional corporate interests, making it the most extensive coalition advocating for climate policy in the United States’ history.
Despite this, the final funding package of the IRA amounted to less than half of the initial $2 trillion proposal. The newly formed green industrial coalition faced hurdles, most notably from powerful corporate sectors, including the financial industry, which resisted Biden’s push to finance green policies through increased taxation.
Additionally, figures like Senator Joe Manchin, hailing from coal-rich West Virginia, opposed key parts intended to rapidly diminish fossil fuel usage. While the passage of the IRA signified a shift toward climate action, it reflected a narrow victory for advocates.
Importantly, Trump’s aggressive pro-fossil fuel stance emboldened congressional opponents of the IRA’s clean-energy credits, impacting forthcoming tax-and-spending discussions. Nevertheless, the climate coalition did not evaporate entirely, as moderate Republican senators such as Lisa Murkowski and Susan Collins, among others, contributed to staving off more extreme proposals aimed at abolishing clean-energy funding.
Moreover, automakers and utilities, already committed to clean energy solutions, mobilized to protest severe cuts to the essential tax credits they relied upon. Although the new green industrial coalition proved insufficient to safeguard the majority of the IRA’s clean energy provisions, the fact that its achievements survived to some extent showcases the inroads made within the political landscape.
Parallel to the burgeoning U.S. policy initiatives, several other countries have adopted similar frameworks. The EU has pursued the European Green Deal, while Australia has introduced its Powering Australia plan. Canada has initiated the Canada Growth Fund, and Germany has allocated substantial resources to a climate fund.
These international agreements and policy initiatives encompass not only green energy investments but also stricter emission regulations and elevated carbon taxes. The emergence of these frameworks represents one of the most substantial advances in global climate policy since the 1992 Earth Summit, a pivotal moment in the evolution of efforts to mitigate greenhouse gas emissions.
Similar to trends in the U.S., these latest clean energy policies have been bolstered by industrial players joining coalitions to advocate for effective policies.
While this approach is not a cure-all, the recent cuts to U.S. clean-energy tax credits expose the coalition’s inherent limitations. Industries have their own profit motives, which can lead to resistance against policies perceived as detrimental to their financial interests.
As such, climate policy centered around these industries is likely to yield slower decarbonization than current ambitious targets stipulate. However, the inclusion of these sectors is vital for assembled political forces to genuinely pursue decarbonization on a large scale.
In the U.S., climate advocates and allied industries must extract lessons from the IRA’s rollback. The remnants of intact provisions present significant opportunities, as tax incentives for clean manufacturing across various sectors survived the recent reductions.
Conversely, tax credits for consumer purchases, like electric vehicles and rooftop solar installations, faced expiration and were vulnerable to political critique. Conservative politicians often framed consumer credits as governmental impositions on personal behavior.
Historically, strategies that are more technical and concealed within the tax framework have proven less susceptible to political manipulation compared to visible consumer incentives or large public grants.
One critical challenge faced by the IRA was the lack of time for constituencies to grow in support of its provisions. The slow rollout of investments and construction delays meant that many benefits were just beginning to emerge when Biden concluded his presidency.
Moving forward, policymakers should prioritize accelerating the pace of implementation and breaking down bureaucratic barriers to facilitate timely returns on legislative investments. Even a Republican-controlled Congress could assist in diminishing these obstacles as part of wider bureaucratic reform efforts, which would yield dividends for future clean energy subsidy initiatives.
A potential pitfall lies in misinterpreting the lessons from the IRA’s rollback. The cuts to wind and solar tax credits, contrasted with the retention of funding for other emerging technologies, could lead to a misjudgment that supporting development is more favorable than funding mature technologies.
It is crucial that wind and solar avenues receive equitable treatment in comparison to fossil fuels, which have benefited from long-standing public subsidies. Given the proven health-hazard benefits and emissions reductions attributed to clean energy, support for wind and solar investment must remain politically viable.
The recent advancements in artificial intelligence and data infrastructure pressure the demand for electricity, making the development of wind and solar solutions increasingly urgent. Subsidies aimed at bolstering these technologies represent powerful mechanisms for policymakers to capitalize on the associated economic and environmental advantages.
Ultimately, the political strategy that led to the creation of the IRA and similar green spending initiatives holds considerable promise for advancing climate policies across the globe. Although the rollbacks signify a sobering setback for climate advocates and industries alike, they underscore the necessity of devising resilient policies for the future.
The strategic fracture of the traditional fossil fuel coalition has opened new doors for decarbonization partnership among major industrial players. Climate policy must aim not only to fulfill environmental obligations but to stimulate investment, generate jobs, and bolster long-term economic competitiveness.
Harnessing the economic potential tied to the green transition is crucial in forging a political coalition capable of sustaining meaningful climate action in the years to come.
image source from：foreignaffairs
