[The Editors' Verdict] Written as 'Inflation,' Read as 'Climate Change'

Interest Beyond Industrial Impact to Global Agendas
Key Focus on Understanding the 'Big Picture' Drawn by the US
The 'Capability' of US Politicians Leading Agreements Compared to Our Reality

The U.S. law named the ‘Inflation Reduction’ Act crossed the Pacific and transformed into the ‘Electric Vehicle Act,’ but in reality, it is a story about climate change.

It is important to consider whether ‘we can sell more cars in the U.S. or not,’ rather than dismissing the climate issue of that country as insignificant. It is well known that no solution can be approached without a revolutionary change in attitude from the U.S. (and China) regarding climate change.

Just two years ago, the U.S. withdrew from the Paris Climate Agreement, calling global warming a hoax. Therefore, the passage of the Inflation Reduction Act (hereafter Climate Change Act) is groundbreaking. Time magazine’s evaluation that it ‘opened the door to a new era of fighting climate change’ is also notable. Although the law uses the word inflation for political purposes, its core is to pour an enormous amount of $369 billion, equivalent to 480 trillion Korean won, into climate change and clean energy programs.

By 2030, U.S. carbon emissions will be reduced by 40% compared to 2005. Many interpret that the international climate change policy will be readjusted, triggering a fundamental transformation of the industrial structure. This is because massive incentives are given to companies that shift their business structure to eco-friendly energy bases. This provides companies with long-term investment certainty. Ultimately, the Climate Change Act will change the foundation of the energy system we have depended on, and this will be the most powerful and important impact it will have on us.

If the law achieves its intended effect, the U.S. will solidify its global leadership in the climate change sector. It can also catch another ‘rabbit’ of industrial restructuring. The big change coming to the electric vehicle market is part of that. Currently, only 5.6% of new cars in the U.S. are electric, but consumers are now more likely to purchase electric vehicles next. The law provides up to $7,500 in tax credits for new electric vehicles. However, by limiting eligibility requirements to be ‘U.S.-centric,’ the law also contains an intention to reorganize supply chains to counter China.

The method of raising $750 billion (about 1,000 trillion Korean won) in funds also has significant implications for us. Citizens earning less than $400,000 (about 530 million Korean won) annually do not pay any additional taxes. The funds are raised by applying a minimum effective tax rate of 15% to companies with annual incomes exceeding $1 billion (about 1.32 trillion Korean won). Meanwhile, the immediate benefits to citizens, such as the electric vehicle tax credit, apply only to households with combined annual incomes below $300,000 (about 400 million Korean won).

Taxes are paid by the wealthy and corporations, but the benefits go to the middle class and below, as well as citizens worldwide. If such a law were proposed in Korea, it would have been difficult for the administration to survive. The level of U.S. politics, which created a massive law addressing global issues and strategic industrial vision simultaneously, and led to concessions and agreements, seems to overlap with our reality. The lack of balanced policy focus that only concentrates on immediate economic ripple effects can also be pointed out.

It is, of course, important to analyze the impact on core industries and prepare alternatives. However, this should not serve as a reason to omit reflection on the essence of climate change response and the big picture the U.S. envisions. Our government should take this as an opportunity to reconsider whether it places climate change as a national priority, and whether it is contemplating policy approaches and long-term industrial competitiveness visions commensurate with its economic status.

The ecological footprint per capita (a figure converted into land area representing the impact of daily life on the ecosystem) that the Earth can sustain is 1.8 hectares. The ecological footprint per capita of Koreans exceeds 5 hectares, wider than that of China and Japan. Korea accounts for 0.7% of the world population but emits 1.7% of carbon.

Shin Beom-su, Industry Managing Editor

This content was produced with the assistance of AI translation services.