You might remember the Inflation Reduction Act. The federal government went all in on carbon emissions, with doubled tax credits for building retrofits. Or, as the Environmental Protection Agency put it, “The Inflation Reduction Act of 2022 (IRA) is the most significant climate legislation in U.S. history, offering funding, programs, and incentives to accelerate the transition to a clean energy economy.”
Who knew that it would send the EU reaching for the nearest bottle of antacids?
EU commission vice-president Margrethe Vestager told the Financial Times that the IRA had a “toxic” effect on some European industries. The worry is that the plentiful programs of the US could do one of two things: either give US companies a financial advantage over their European counterparts or lure EU-based corporations to the US.
Or, as S&P Global Commodity Insights recently put it, “EU green plan aims to rival US climate law, repel deindustrialization fears.”
“European lawmakers have raised concerns about the potentially market-distorting effect of the IRA, the US government’s $369 billion climate and energy law,” they wrote. “The historic legislation contains billions of dollars in tax credits for clean energy and low-carbon technologies over the next decade along with incentives for US-based manufacturing.”
Call it tit for tat, but Brussels has made it clear that it does not want to lose businesses to US shores and just unveiled a proposal to better compete for these investments, the FT reported. However, there is concern among the member states of the confederation that once the restrictions on federal aid to individual companies is loosened, it could also set off a bidding war among the member states. “Some countries in the south warn that it risks tilting the level playing field by disproportionately aiding rich countries to pour money into their companies,” the FT wrote.
In general, countries in the north of the region are wealthier and those in the south object to
A number of the measures — a rework of the EU’s electricity market and production boosts of mining for substances like cobalt and lithium — were in the works anyway. This response to the US only accelerates the timetable.
However, there appears to be room for the US to still compete.
“Clean technology industries have criticized the funding regime in the EU for being too complicated to access the financing needed to scale up their businesses, saying the tax credits in the US were a simpler and more attractive system,” the FT wrote.