No thanks Joe: Britain won’t copy Biden’s IRA spending spree

LONDON – Britain will resist calls for new green investment in response to US President Joe Biden’s sprawling $369bn spending package and will instead rely on existing political levers to fight US protectionism.

UK Chancellor Jeremy Hunt, a member of the ruling Conservatives, has promised to deliver Britain’s official response to Biden’s Inflation Reduction Act (IRA) in a tax return next autumn.

But two senior government officials involved in the planning said Hunt will build heavily on reforms to the UK government’s existing Contracts for Difference programme, a decade-old scheme aimed at supporting private sector investment in energy projects. renewable by reducing the risks of price fluctuations, to boost green. investment.

The move will disappoint UK companies calling for a more interventionist approach from government to compete with Biden’s plans, but a minister told POLITICO that “the money just isn’t there.”

Biden’s landmark law, signed into law by the president exactly one year ago, provides nearly $400 billion in subsidies and tax credits in a bid to boost American manufacturing of green technology such as electric vehicles and solar power.

The vast majority of the spending goes to US-based companies, raising fears in European capitals that the package will trigger an exodus of companies to the United States.

Hunt told POLITICO in April that the UK would not unleash its own matching subsidies to compete with the US, warning that Biden’s “protectionism” would “return global growth to the Dark Ages” if other countries followed suit.

However, the EU is planning its own €250 billion package, the Industrial Green Deal Plan, in response to the IRA. Canada will spend about $60 billion on its own clean energy subsidy plan.

Instead, the UK is planning changes to its Contracts for Difference scheme to try to compete with US and EU policies, according to two people with knowledge of the plans.

Under the scheme, the UK government holds annual auctions that allow low-carbon power producers to win contracts that try to offset potential fluctuations in power prices, a key factor when companies consider investment decisions.

The government is considering changes that would see more generous payments to private sector companies through a different “exercise price” in contracts, while also considering reforms that would force more of the supply chain into projects. green energy to be based in the UK.

The minister quoted above said that the chancellor will “use the tools that we have already been using” to boost green investment, and that the changes set out in the autumn declaration will “turn the dial further”.

“That’s what companies do: use the tools they already have to achieve the desired result,” said the minister.

A government official, also granted anonymity to speak candidly to the press, confirmed that extending and reforming Contracts for Difference will play a “central role” in the UK’s response, adding that reforms could also be revealed. regulations to trigger national investment.

The British government estimates that by the end of the decade, the UK needs between £50bn and £60bn of private sector investment in renewable energy each year to reach its net zero carbon emissions target by 2050.

Emma Pinchbeck, chief executive of Energy UK, an umbrella group representing UK energy companies, warned that Britain’s level of green investment “is slowing at a time of heightened competition” and said the private sector needs urgently needed clarity on Britain’s long-term climate plans.

Pinchbeck urged the UK to liberalize planning rules and allow more onshore wind projects to “send a strong signal” about opening up the UK to investment, following suggestions from 10 Downing Street this summer that the government could backtrack on some of its environmental goals. .

“We’ve had a run of negativity from the UK government and we’re pushing on whether it’s worth net zero,” he said.

“What the industry hears is, ‘we’re not clear on long-term investment.’ Politicians really underestimate how much money moves on market signals.”

Tone Langengen, an expert on climate change and energy at the Tony Blair Institute for Global Change think tank, said there were opportunities for Contracts for Difference to expand “to cover new technologies… and introduce more local content requirements.”

“However, a more ambitious CfD regime will not be enough to compete with the ambitious steps taken by the US, China and Europe,” he said.

“There is a real opportunity for the UK to use national research and scientific capabilities, and our relative progress in reducing emissions, to develop a global niche as a cleantech innovation hub.”

Treasury is also considering introducing a border carbon tax as part of its response to the IRA this fall.

This would see the government place a new tax on foreign products that emit a large amount of carbon dioxide in the production process, something the EU will start doing later this year.

POLITICO previously reported this year that the government was leaning towards the implementation of a Carbon Border Adjustment Mechanism (CBAM), despite the rejection of the Secretary of Commerce and Business, Kemi Badenoch.

A Treasury spokesperson said: “The UK has a world-leading track record of decarbonising due to early investment in green industries and a strong and attractive business environment, which puts us in a good position to capitalize on opportunities and mitigate the risks presented. for the IRA.

“We will continue to monitor the impact in the UK, and our response will be ongoing as appropriate, concluding later this year.”