Tom Krebs on a US Inflation Reduction Act for Europe

Traditional climate policy mostly relies on market-based policies centred around carbon pricing with ex-post compensation of so-called climate change “losers”. As Tom Krebs argues in a recently published New Economy Working Paper, this market-liberal approach is flawed as it neglect transaction costs and economic power relations in the labor market.

A modern climate policy stance takes account of these flaws and, according to Krebs, is built upon the idea of a forward-looking government that creates pro-worker, green institutions and uses green industrial policy to support households and firms in the transformation process. He names the US Inflation Reduction Act (IRA) as an example where modern climate policy was put into action to some extent. More precisely, it includes several elements of a worker-friendly and green industrial policy, while lacking a institutionalised pro worker climate agenda.

As Krebs argues in a recent article, Europe should embrace the IRA and its pro-worker bent, because the American plan’s targeted, government-centered approach is far more credible than the market-based approach guiding the EU’s current green agenda.

Read the article here and find the full working paper here.