Retooling the regulation of net-zero subsidies: lessons from the US inflation reduction act

Leonelli, Giulia Claudia ORCID: 0000-0001-9567-3280 and Clora, Francesco (2024) Retooling the regulation of net-zero subsidies: lessons from the US inflation reduction act. Journal of International Economic Law, 27 (3). pp. 441-461. ISSN 1369-3034

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Abstract

The US Inflation Reduction Act (‘IRA’) has heralded the advent of a new era of industrial policy within and beyond the US. As the net-zero economy transition unfolds and national economic security paradigms entrench, industrial policy is here to stay. Net-zero subsidies are employed as multi-purpose policy tools to promote domestic manufacturing, de-risk from China, and boost the net-zero transition. This new scenario prompts a fresh look at old questions surrounding environmental subsidies and their justification, actionability and countervailability. This article makes three contributions. First, it articulates a conceptual framework to assess questions surrounding the justification of net-zero subsidies. It advocates a direct focus on their environmental effectiveness, drawing a distinction between justifiable trade-distorting effects and unjustifiable protective or discriminatory application associated with the pursuit of reshoring or geopolitical goals. Second, it employs a careful analysis of different IRA tax credits to operationalize the article’s framework and test its robustness. Third, it draws on legal and economic insights to shed some light on the environmental effects of different groups of net-zero subsidies. On these grounds, it advances a streamlined threefold categorization and demarcates the boundaries within which different subsidies should be justifiable, non-actionable and non-countervailable.

Item Type:	Article
Additional Information:	© 2024 The Author(s)
Divisions:	Law
Subjects:	K Law H Social Sciences > HB Economic Theory
JEL classification:	Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies K - Law and Economics > K3 - Other Substantive Areas of Law > K32 - Environmental, Health, and Safety Law N - Economic History > N5 - Agriculture, Natural Resources, Environment, and Extractive Industries > N50 - General, International, or Comparative
Date Deposited:	19 Aug 2024 14:09
Last Modified:	14 Nov 2024 17:42
URI:	http://eprints.lse.ac.uk/id/eprint/124604

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