EU Threatens Trade Challenges on Climate IRA Provisions, Demonstrating Need for Climate Peace Clause

A new warning issued by the European Union (EU) claiming that the U.S. Electric Vehicle tax credit in the Inflation Reduction Act of 2022 appears to violate global trade rules demonstrates the need for a "Climate Peace Clause" to protect green jobs initiatives from trade disputes, environmental and other civil society groups said today.

A Climate Peace Clause is a commitment from governments to refrain from using dispute settlement mechanisms in international trade and investment agreements to challenge other countries' climate and green jobs policies. In response to the EU warning -- one of several from countries opposing elements of the EV tax credit that would stimulate new green jobs -- civil society organizations released the following statements:

Arthur Stamoulis, executive director of the Trade Justice Education Fund: "The EV tax credit included in the Inflation Reduction Act encourages more of the production of electric vehicles and batteries in the U.S and in neighboring countries. This type of program should be strengthened and expanded in order to create the new green jobs critical to addressing the urgency of the climate crisis. And yet, at the exact moment we should be promoting more green jobs initiatives in the U.S., we instead have the EU and other countries using threats of trade attacks to try to bully the U.S. into eliminating these types of programs, creating a race to the bottom in trade and climate. It is time for countries to come together and agree to stop using trade rules to challenge common sense climate and green jobs policies needed to build the clean energy economy. The U.S. should work with other countries to commit to a Climate Peace Clause and create a race to the top on trade and climate. I urge the EU to reconsider this counterproductive action."

Hebah Kassem, acting director of A Living Economy at Sierra Club: "As President Biden is likely poised to sign the IRA into law soon - the single largest investment ever in climate action - it is a shame that one of the U.S.'s closest allies is threatening this progress, citing antiquated trade rules written long before governments were taking climate change seriously. It's clear that the time for a Climate Peace Clause is now - so that all countries can get to the urgent business of taking bold climate action without fear of unnecessary challenges from trade agreements."

Melinda St. Louis, Global Trade Watch director at Public Citizen: "Decades after we first learned about the problem of climate change, the U.S. is now finally taking some of the necessary steps to address it. Meanwhile, there are trade agreements all over the world that stand ready to undermine that progress. Investing in green jobs is a key way that the U.S. and other countries around the world can create the political support needed to transition to a carbon-free economy. It's time to end this circular firing squad where countries threaten and, if successful, weaken or repeal one another's climate measures through trade and investment agreements. The EU should withdraw this threat and instead celebrate that the U.S. is finally taking these first critical steps to address the climate crisis, and the U.S. and trading partners should immediately agree to a Climate Peace Clause to protect future climate policies around the world from trade challenges."