Governments seek to avert green subsidy conflict between U.S. and EU – media

The looming trade conflict between Europe and the U.S. about government subsidies for green investments could be significantly defused after the American government signalled its readiness to amend key aspects of its “Inflation Reduction Act” (IRA), business newspaper Handelsblatt reported. According to the newspaper, the administration of U.S. president Joe Biden will accept EU calls for changing its stance on electric vehicles and battery production support in order to also make European products eligible for buyer’s premiums by declaring leased cars as utility vehicles that are exempt from rules that privilege producers in America. “Especially Germany’s carmakers would benefit from that,“ Handelsblatt said, adding that the amendment could cover about half of European car exports. With regard to battery production, the EU and the U.S. could agree on founding a “Resource Club” to pool efforts for securing critical raw materials and reduce dependence on China. “Europeans would see some of their most important demands fulfilled” by being granted similar access rights to the IRA subsidies as producers in Canada or Mexico, the newspaper wrote.

Ahead of a meeting of European government leaders in the EU Council on 15 December, German chancellor Olaf Scholz said the IRA would need a common response by EU states. “First of all, we must stress that we welcome the fact that the U.S. – in contrast to previous years – actively works on transforming its economy into one that halts man-made climate change and modernises itself,” Scholz said. “However, it’s clear that we need to do this in a way that doesn’t compromise on Europe’s competitiveness,” the chancellor said, adding that further talks will be needed on the subject. European Commission president Ursula von der Leyen had told the bloc’s leaders in a letter that Europe and the U.S. had to find common answers to “joint challenges,” including especially the high economic dependence on China.  

The IRA comprises nearly 400 billion dollars, mostly in the form of tax rebates. It covers the installation of renewables, hydrogen infrastructure and electric vehicles but stipulates that production to a large extent needs to happen in the U.S. or its neighbouring countries. Critics in Europe have argued the administration in Washington, D.C. hopes to compensate for past shortcomings in energy transition efforts by luring investors away from Europe through generous support programmes. The governments of Germany and France together already had warned against a trade conflict with the U.S. over green technologies, which had to be avoided and could be ill-afforded by both regions given the pressing challenges from the energy and climate crises.