UK Favors Gradual Approach in Global Green Subsidies Race



The UK’s Finance Minister, Jeremy Hunt, has said that Britain will not be able to offer subsidies similar in scale to the US’s Inflation Reduction Act, which provides $369 billion for green investment. The UK will use a case-by-case approach for subsidies, a move criticised by some economists for lacking predictability and risking economic gains from a global shift to low-carbon industries. Despite some criticisms and risks of losing out on foreign direct investment, some investors agree with the UK’s cautious approach to subsidies, considering the country’s fiscal constraints and high debt levels.

UK’s Response to Biden’s Inflation Reduction Act

Britain’s approach towards President Biden’s Inflation Reduction Act, a $369 billion legislation emphasizing green investment, has been under scrutiny over the past year. Finance Minister Jeremy Hunt has indicated that due to strict fiscal constraints, the UK may not follow the US’s subsidy-heavy plan. Despite concerns about missed economic opportunities, British officials maintain their preference for a more free-market approach, coupled with selective subsidies or grants.

Benefits vs Risks of Subsidy Provision

Critics such as Mariana Mazzucato, a professor in economics of innovation, argue that the UK’s case-by-case subsidy approach is problematic and could allow companies to exploit the government. Meanwhile, the subsidies featured in the Inflation Reduction Act are praised for promoting job creation and economic expansion while having clear eligibility requirements for funding.

Global Reaction to the Inflation Reduction Act

The Inflation Reduction Act has significantly altered the landscape for green investments globally. While some countries celebrate the US’s spending spree on green technology, others are wary of the potential brain drain and financial resources it might attract. Britain, for example, is grappling with the reality that it may be unable to match the scale of American subsidies, which could exceed $1 trillion.

UK’s Green Initiatives and Challenges

Despite being the first major economy to legally commit to achieving net-zero greenhouse gas emissions by 2050 and publishing strategy documents supporting this goal, the UK has been criticized for backsliding on its green commitment. Recent changes, such as delaying the ban on petrol and diesel car sales, have been called out for lack of consistency.

Investors and Industrial Strategy

The Inflation Reduction Act has sparked discussions about the benefits of an industrial strategy. This is a key point of divergence between the UK’s two largest political parties. While some investors agree with the government’s selective approach to subsidies, others emphasize the need for clear intent and commitment to net-zero goals.

Impact of Inflation Reduction Act on Investments

Despite being a recent development, the Inflation Reduction Act has already shown signs of attracting investments to the US. Several UK companies have set up entities in the US or shifted their focus from the UK due to the act. This includes sectors such as hydrogen industry, which feels particularly threatened by competition from countries offering generous grants and tax credits.

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