The European Union is skeptical that the US will make any meaningful changes to the $370 billion green investment plan that the bloc says unfairly subsidizes American companies.
Even though President Joe Biden said last month that he saw room for tweaks to the Inflation Reduction Act “to make it easier for European countries to participate,” the US has so far only offered tax credits for commercial electric vehicles, which EU officials view as insufficient, according to people familiar with the matter.
The US has ignored most of the bloc’s concerns and proposals about how to make the IRA — which offers tax incentives for items and parts made in the US — less discriminatory against European firms, said the people, who asked not to be identified because discussions on the matter are private.
EU leaders will meet in Brussels next month to discuss its response to the US law, with some proposing a so-called Buy European Act to help bolster domestic companies. The bloc has said it may file a complaint against the US at the World Trade Organization over the IRA, a prospect that could undermine transatlantic unity in the midst of Russia’s war in Ukraine.
A spokesperson for the European Commission, the EU’s executive arm, didn’t immediately respond to a request for comment.
‘Alarm Bells’
Anger is growing over the climate law, and Belgian Prime Minister Alexander De Croo accused the US of trying to lure green industries across the Atlantic.
“They are calling Belgian firms, German firms in a very aggressive way to say: ‘Don’t invest in Europe, we have something better’,” De Croo said in Brussels on Tuesday. “That is something to ring the alarm bells over.”
Biden told his cabinet last week that he wants his administration to move forward implementing his signature climate policy as-is, but his aides say they’re still discussing the interpretation of the law, according to people familiar with the discussions.
With little hope to change the IRA, the EU has been focusing on how to respond to the law.
European Commission President Ursula von der Leyen unveiled an initial plan last month that would give member states more latitude to invest in their own companies and that would redirect existing EU money to firms in need. But the leaders will need to address how far reaching the commission proposal will be and, importantly, if it will include new money.
Clean Tech
The EU’s response may also include a European Clean Tech Act as well as support for European Investment Bank loans and other methods to boost competitiveness. The commission will also propose a Sovereignty Fund in the summer.
Some in the EU hope for more concessions on raw materials and batteries from the US come March, and the two have agreed to set up a group to coordinate on subsidy transparency, the people said.
Talks with the US on finding amicable solutions are ongoing through a dedicated task force and officials are keen to avoid a tit for tat trade conflict and subsidy race. However, expectations are low, the people said, as buy American is core to the new law and neither Congress nor the Biden administration appear poised to shift away from that in any meaningful way.
France has already proposed subsidies to bolster its national industry, while the EU’s internal market commissioner, Thierry Breton, has been to EU capitals to promote the European Clean Tech Act.
Some countries in the bloc are concerned that issuing more subsidies will put Europe in a race with the US to the bottom and could distort the single market, shifting investments away from smaller nations towards larger member states. Germany and France issued a joint proposal, urging the government in Washington to grant Europe the same exceptions enjoyed by nations that have free-trade deals with the US such as Canada and Mexico.
