For some time now, the European Union has been engaged in talks with the United States regarding the new Inflation Reduction Act (IRA) law. Certain EU officials have expressed concerns that the law may unfairly discriminate against European companies by offering investment incentives that could potentially lure away investment from Europe. This has sparked fears of a subsidy race, leading to a scenario where European businesses may relocate significant parts of their supply chains to the US. As a means of preventing a possible trade war, the EU and the US have established a task force with the aim of finding amicable solutions to this issue.
Before delving into the feasibility of a solution, it is important to first comprehend the actions taken by the EU and their corresponding language. In other words, gaining an understanding of the EU’s rhetoric and the measures they have implemented in response to the IRA law is crucial.
IRA: A Plan to Stabilise Prices and Boost the Economy
EC President Ursula von der Leyen had proposed the European Sovereignty Fund (ESF) as a response to the controversial American IRA. The ESF would be integrated into the EU’s long-term budget and support the transition to renewable energy, along with relaxed state aid rules for member states to subsidize companies. However, some experts had expressed concerns that this may lead to a subsidy race between the EU and the US, which could prove to be costly for European taxpayers. While some European leaders have called for a “Buy European” policy, others resist further subsidies.
Meanwhile, the American IRA is a substantial climate bill that aims to lower energy costs, increase cleaner production, and reduce carbon emissions by 40% by 2030. It also includes provisions to make corporations and the ultra-wealthy pay their fair share and lower healthcare costs for Americans. Despite this, France and Germany have voiced concerns over provisions that may benefit US producers over foreign ones and are pushing for a robust European response in the form of greener subsidies and a “Buy European” policy.
Overall, these bills highlight the importance of striking a balance between environmental sustainability, economic growth, and worker welfare.
IRA: Is it Delivering on its Promise to Tackle Rising Prices?
European clean tech companies are considering the US as a more favourable location for their operations due to the generous tax benefits offered by the US IRA, passed last year. The act offers $375 billion in benefits for renewable industries, and Norwegian start-up Freyr is among the companies building a factory for electric car batteries in Georgia, citing the new law as a “massive, massive incentive.” Similarly, companies across Europe making green energy products like EV batteries and solar panels are also considering the US, as the EU response has been described as “underwhelming” and bureaucratic, causing fears that Europe may fall behind in the green energy transition. The EU has responded with plans to ensure at least 40% of clean tech is produced in Europe by 2030, while also limiting the amount of strategic raw materials from any single third country, such as China. However, the simplicity of the US program is proving attractive to many businesses. Nevertheless, concerns have been raised over the increased costs of local production and whether consumers will be willing to pay more if global supply chains disappear.
Why does it matter?
The recent development of US clean energy policies and the resulting influx of European clean tech companies into the US is an important topic for EU citizens and in particular EU students to be aware of due to its potential impact on the European economy, job market, and essentially global competition in the green energy sector.
With the US set to outpace the EU in the global push to reduce carbon emissions, leaving EU countries at risk of losing billions of investments and jobs.
Furthermore, the EU’s response to this development has been underwhelming to say the least, with complaints that its plan is confusing and bureaucratic (nothing new unfortunately), putting Europe at risk of falling behind in the green energy transition.
Lastly, the impact of the US incentives concerns the global (and European) supply chains and manufacturing models.
In conclusion, the current state of affairs in Europe is cause for concern, with the ongoing conflict in Eastern Europe (Russia-Ukraine War) and China’s growing influence (in Europe through its companies, and Taiwan), now compounded by the recent bill that challenges the very foundation of the EU economy. These developments signal a turbulent future for Europe, making it imperative for the public, especially students, to engage in open discussions to understand the predicament we find ourselves in. It is crucial that we recognise the gravity of the situation and take proactive measures to address the challenges facing Europe.
This article was written by an independent writer whose views are not associated with The Third Eye. The Third Eye strives to be the student’s voice, and that entails giving them a platform to voice their opinions.