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Inflation and Climate Change: a Global Battle for Green Investments is ongoing

As global inflation continues to be a pressing concern, the United States took bold steps with the Inflation Reduction Act (IRA) to curb inflation and drive green investments, passed on August 16, 2022. The United States introduced the IRA to combat inflation and reshape the economy by promoting green investments. The act, a part of President Joe Biden's "Build Back Better" agenda, allocates a whopping $369 billion to climate and energy policies. While the act has been lauded for its focus on the environment, it has also attracted concerns across the Atlantic. This move is raising eyebrows in the European Union, as member countries worry about the potential impact on their economies and industries.

The European Union, already dealing with the consequences of the Inflation Reduction Act, is worried about the potential impact on its economy and industries. European companies are considering relocating to the US to take advantage of the IRA's generous subsidies. This has led to calls within the EU for a swift response to stabilize the situation. EU Commission President Ursula von der Leyen has announced plans for a new Net-Zero Industry Act to rival the IRA, targeting green industries and promoting European cleantech innovation. This proposed legislation underscores the EU's determination to protect its economy and growing green sector. The EU also aims to cut red tape, streamline regulatory processes, and increase green investments to maintain competitiveness. A nation that is being mainly put under pressure by the IRA is Germany, as German companies are considering investing more heavily in the United States. There are concerns about what this could mean for the EU's economy. Several projects in Germany have been delayed or put on hold due to the IRA's subsidies, raising questions about the future of the EU as an attractive location for green investments. While some experts argue that there is no immediate threat to the EU's industrial sector, the IRA has undeniably increased competition.

In response to the IRA, the EU is considering countermeasures, including more freedom for member states to provide subsidies. However, this has also led to fears of a "subsidy spiral" that could prove detrimental in the long run. The ongoing energy crisis, fueled partly by the conflict in Ukraine, has put additional pressure on the EU, favouring the US in the green investment race. This development further complicates EU-US relations and could have significant repercussions for the two economies. While the future remains uncertain, it is clear that both the EU and the US are locked in a battle for green investments and dominance in the clean tech sector. The outcome of this struggle will depend on how each bloc navigates the challenges ahead and the strategic decisions they make in the coming years. The Inflation Reduction Act has sparked global competition for green investments. The European Union strives to counterbalance its impact on their industries and economy. As the energy crisis unfolds and the race for green dominance continues, the future of EU-US relations and the global green economy hangs in the balance.