Climate Policy Is Still Good for Business
On July 4, U.S. President Donald Trump signed his party’s One Big Beautiful Bill Act, which, among other things, slashed around $500 billion from the clean energy tax credits at the heart of the 2022 Inflation Reduction Act. In addition to reducing emissions, the IRA has helped drive more than $800 billion in committed and pending private investments in clean energy and manufacturing. Public opinion supported the subsidies, and many Republican districts—where 80 percent of the money went—benefited from them. But this was not enough to protect the measures from the hacksaw the Trump administration has taken to the green transition.
Despite this dramatic loss, however, the strategy behind the IRA’s climate provisions remains sound. The law emerged from the largest climate coalition the United States has ever witnessed. Environmental groups, scientists, progressives, and green industries have long supported climate-friendly policies, of course. But the IRA brought large new industrial players to the table, including automakers, utilities, and even some energy-intensive manufacturers. These firms joined traditional climate policy advocates to urge policymakers to provide public funds for decarbonization. These industries, notably, were those that have the potential to decarbonize—they might be “brown” today, but with the right investments, they could be green in a decade or two.
Winning the support of these “decarbonizable” industries made the IRA and similar policies in other wealthy countries possible. Even as the United States rolled back some of those gains, industrial lobbying helped block new taxes on renewables and electric vehicles and preserve a meaningful share of the act’s green subsidies, including those for investments in geothermal and nuclear power plants, batteries used to store electricity, and clean manufacturing. Still, the United States is an outlier. No other country that has ramped up clean energy spending, such as Australia, Canada, France, Germany, Norway, and United Kingdom, has slashed that spending in any comparable way, even as domestic political support for climate policies dims. They all recognize the value of green subsidies to help domestic firms compete with leading Chinese ones and capture rapidly growing green markets, and to enable companies and households to comply with net-zero targets.
Global clean energy investment reached $8 trillion between 2019 and 2024, more than double the total from the preceding two decades. Clean energy subsidies such as those in the IRA are key to this increase, pushing companies to pursue economic opportunities in fast-growing green markets rather than cling to the fossil fuel–based business models of the past. The partial repeal of these measures in the United States was a setback. Policymakers in Washington and elsewhere can now learn from it and do better next time, by designing policies to be more resilient and by drawing more industrial players into a broadening climate coalition. A decade ago, simply avoiding civilization-threatening climate change seemed like an unattainable goal; many projections expected global warming near four degrees Celsius by 2100. The most ambitious emission targets remain unachievable, and climate change is already wreaking ecological and humanitarian havoc. But today, with a proven strategy to bring some major industries onside, a plausible path to decarbonization is finally beginning to emerge.
INDUSTRIAL DIVIDE
The core obstacle to climate action has never been public attitudes, long-term economic concerns, or a failure of diplomacy. Even when their constituents favor climate action, politicians consistently struggle to deliver meaningful climate policy. Economists have long argued that preventing climate change has aggregate welfare benefits that outweigh the costs. And countries have solved other global environmental problems, such as the ozone hole and acid rain, through international agreements.
The stumbling block has been that decarbonization will create winners and losers—and the losers of the future hold substantial power in countries across the world. Even if the overall economy will benefit from effective climate policy, and green industries in particular will thrive, many firms and industries that depend on fossil fuels for profits will face steep costs and risks. The latter group has been highly effective at blocking change.
The strategy behind the IRA’s climate provisions remains sound.
In the late 1980s, carbon-intensive industries, from automaking to coal mining to energy-intensive manufacturing, began working together to oppose international climate treaties through a lobbying group brazenly named the Global Climate Coalition. What followed was a decades-long effort to cast doubt on climate science and lobby against measures aimed at curbing greenhouse gas emissions. Advocates of climate policy stood little chance against this fossil fuel coalition. Carbon-intensive industries used their deep ties to trade associations, unions, political parties, and regulators to block federal climate legislation in the United States and water down policy efforts across Europe. These industries all feared that commitments to reduce emissions would incur massive costs, threaten jobs, and render meaningless their hard‑fought leads in fossil fuel technologies. Protecting their advantages meant preventing meaningful progress in addressing climate change.
But this strategic calculus shifted in the late 2010s. Starting a decade earlier, China had invested heavily in supply chains for electric vehicle batteries and wind and solar power, betting on a long-term trend of decarbonization. The bet paid off. Chinese investments significantly lowered the costs of clean energy technologies, which made global decarbonization more feasible and gave Chinese firms a first-mover advantage, putting companies such as the electric vehicle maker BYD and the battery manufacturer CATL in a position to dominate a future net-zero global economy. By the end of the 2010s, China had established a technological lead just as organized climate movements were pushing governments to adopt more ambitious emission targets.
This combination of economic and political pressure fractured the longstanding fossil fuel coalition across the wealthy world. Fossil fuel companies continued to resist decarbonization. But industries that could, in principle, decarbonize—including automaking, utilities, and energy-intensive manufacturing—were forced to rethink their strategies. Simply obstructing the green transition would no longer shield them from its costs; they risked declining competitiveness and losses of market share to first movers, many of them Chinese firms, as global demand for low-carbon technologies and goods rose. This created an opening for policymakers. They offered these industries a bargain: invest in clean technologies and adopt green practices in exchange for massive government support that would help them catch up with Chinese companies and comply with tougher emission regulations, higher carbon prices, and new net-zero laws. Many embraced this bargain, fracturing the fossil fuel coalition that for decades had obstructed meaningful climate policies.
THE NEW BARGAIN
It was this recent convergence of interests that produced the IRA’s clean energy subsidies. During his 2020 presidential campaign, Joe Biden adopted an aggressive climate policy, partly in response to the demands of climate activists. But he also made his climate plan a central piece of his strategy to appeal to voters and business interests in manufacturing and industry-heavy Midwestern swing states that Trump won in 2016. He presented his promise to spend $2 trillion on decarbonization as a path to the “revitalization” of Michigan’s economy, for instance, and a way for American workers “to dominate the global market” in electric vehicles, sustainable steel production, and wind turbines. When he assumed office, Biden’s climate initiatives secured support not only from major environmental groups but also from utility companies, metal manufacturers, and automakers—the broadest coalition behind climate policy in U.S. history.
Yet the final climate spending package in the IRA was less than half of Biden’s original $2 trillion promise. The new green industrial coalition was still limited. Large parts corporate interests, including the powerful financial sector, resisted Biden’s push to raise taxes to finance green spending, often relying on Senator Kyrsten Sinema of Arizona to block such advances. And the fossil fuel sector remained powerful; Senator Joe Manchin of West Virginia, a major coal producing state, resisted key provisions designed to rapidly drive down fossil fuel demand. Passing the law showed that the scales were finally tilting toward climate action, but it was a narrow victory.
A plausible path to decarbonization is finally beginning to emerge.
Trump’s fervor for fossil fuels tipped the balance back, encouraging congressional opponents of the IRA’s clean-energy tax credits in the debate over a new tax-and-spending bill. The climate coalition was not gone, however: moderate Republican senators, such as Lisa Murkowski of Alaska and Susan Collins of Maine, and some Republicans from states with substantial clean energy investments, such as Joni Ernst and Chuck Grassley of wind-rich Iowa and Thom Tillis of North Carolina, an emerging electric vehicle hub, helped block the most extreme proposals, including new taxes on renewable energy and electric vehicles and a total erasure of clean-energy spending. Carmakers and utilities that were already invested in clean energy, batteries, and electric vehicles also protested moves to slash the tax credits that their investments depend on. The new green industrial coalition was ultimately too narrow to defend most of the IRA’s clean energy provisions. But the fact that a Republican Congress and White House extended as many clean-energy tax credits as they did is a testament to the inroads it has made.
Policies similar to the clean energy subsidies in the IRA have proliferated recently. Within the past few years, the EU adopted the European Green Deal, the Australian government launched its Powering Australia plan, the Canadian government established the Canada Growth Fund, and the German government committed hundreds of billions of euros to a climate fund. Many of these policy packages have included not just green spending but new emission restrictions and higher carbon prices, too. Together, they represent one of the most significant advancements in global climate policy since the 1992 Earth Summit in Rio de Janeiro, where international participants launched the UN Framework Convention on Climate Change and agreed to cooperate on reducing greenhouse gas emissions. And as in the United States, the latest raft of clean energy policies adopted in Europe and elsewhere was made possible by industries’ joining political coalitions to support them.
This strategy is no panacea. Cuts to U.S. clean-energy tax credits have shown the limits of the new coalition’s power. These industries are no saviors of the climate, either. Their primary interest is profit, and they resist environmental policies that are bad for their bottom lines. Designing climate policy around them is therefore likely to produce slower decarbonization than ambitious climate targets require. But without at least the conditional support of these sectors, it is hard to imagine any industrialized nation assembling and maintaining the political force necessary to seriously pursue decarbonization.
REFINING THE STRATEGY
In the United States, climate advocates and their industrial allies must now learn the right lessons from the rollback of the IRA. The minority of provisions that remain intact is a significant one. Tax incentives for clean manufacturing across a wide range of industries survived the latest cuts, although tax credits for consumer purchases, such as electric vehicles or rooftop solar panels, did not; those will expire in the coming months. Before the passage of the Republican bill, conservative politicians and news outlets had decried consumer tax credits as a government attempt to shape people’s behavior. As has been the case in the last half-century of U.S. industrial policies, measures that were technocratic and hidden in the tax code were more difficult to politicize and remove than highly visible consumer incentives or large public grants to individual companies.
Part of the problem with the IRA tax credits was that the constituency that might have wanted them to continue did not have enough time to grow. Rolling out investments and starting construction of new factories proved slow and cumbersome, so the benefits of the policy were only just becoming visible when Biden left office. There is no easy substitute for winning two elections in a row, but future policymakers should try to reduce the delay between passing legislation and delivering on its economic promises by speeding up permit processes, minimizing bureaucratic requirements, and deploying funds more rapidly. Even a Republican Congress might help lower these barriers if they are part of a larger bureaucratic reform package. The effort would pay off the next time the United States introduced clean energy subsidies: faster implementation would spur rapid capital commitments, turning firms and communities into stakeholders and, as the projects matured, into beneficiaries that would be more motivated to defend the policies.
There is some danger of learning the wrong lessons from the IRA rollback, too. Tax credits for wind and solar electricity were cut while incentives to develop emerging technologies such as geothermal power and advanced nuclear fission remained in place—effectively dismantling policies that would more quickly reduce demand for oil and gas while allowing innovation that poses little immediate threat to fossil fuel interests to continue. The takeaway for future policymakers should not be that funding emerging technologies works but funding mature ones does not. At a minimum, wind and solar power must be on an equal playing field with fossil fuels that have been receiving public subsidies for decades, especially given the contributions of clean energy to improved public health, emission reductions, and more resilient electric grids. As expanding artificial intelligence and data infrastructure drive up demand for electricity, the need to boost wind and solar power becomes even more urgent, as facilities for both can be built quickly. Subsidies for these energy sources are among the most powerful tools policymakers have to reap the economic and environmental benefits of clean energy, and they are worth the political capital required to defend them.
The core political strategy that produced the IRA in the United States and similar green spending around the world still holds enormous potential to advance climate policy. The U.S. rollbacks were a disappointing setback for climate advocates and many industries, and they will lead to higher greenhouse gas emissions and weaken the United States’ technological and competitive position in clean energy. But the strategy got many things right, most notably its fracture of the traditional fossil fuel coalition by giving major industrial players incentives to align with decarbonization. That foundational principle will remain essential. Climate policy is not just about environmental obligation: it can and should foster investment, jobs, growth, and long-term competitiveness. Seizing this economic opportunity is the way to build a political coalition that stands a chance to sustain the green transition.
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