Joe Biden’s green subsidies could backfire, EU commissioner warns

A major US plan to subsidize green space risks backfire as European companies move closer to China, a senior EU politician warned, saying talks with the Biden administration are unlikely to solve all of Europe’s legislative problems.

This was stated by EU Commissioner for Trade Valdis Dombrovskis. $369 Billion Inflation Reduction Act partly a US attempt to curb its reliance on China, it could have the opposite effect in Europe by making Beijing’s “overtures and proposals” more interesting. This, he said, “might work against the stated goal of the Inflation Reduction Act.”

Dombrovskis spoke ahead of the release of Washington’s guidance on Thursday, which said EU companies could benefit from a tax credit scheme for commercial clean vehicles – a move Brussels sees as a welcome first step, but one that doesn’t address all of its concerns.

The US legislation contained in the $369 billion package includes subsidies and tax breaks for green technology and manufacturing, including electric vehicles, batteries and hydrogen. It is trying to increase US investment in such sectors while reducing US dependence on Chinese products and know-how.

The European Commission has warned that the act discriminates against EU companies and threatens the bloc’s industrial base. He formed a task force with the White House to resolve the dispute.

While there are signs of a Biden administration moving in key areas of electric vehicles and batteries, this will only alleviate some of the problems, Dombrovskis said in an interview. “If there are such results, it will solve some of our problems, not all of our problems,” he said, stressing that the IRA affects a “much wider” range of sectors.

“When this work is completed, we will need to analyze where we are and see what options we have. . . We will need to consider additional elements [on] how to balance the playing field.

US President Joe Biden said this month during French President Emmanuel Macron’s visit to Washington that “amendments” to the rules could facilitate the participation of European companies in this regime.

Dombrovskis identified two key areas on which transatlantic discussions are focused. US law requires electric vehicles to be assembled in North America in order to be eligible for a $7,500 consumer tax credit – to the dismay of automakers in Europe, South Korea and elsewhere. However, this provision does not apply to commercial electric vehicles.

On Thursday night, the commission welcomed new US guidance that says EU companies can benefit from commercial clean car loans under the IRA, saying it reflects “constructive engagement” between the two parties. However, Brussels stressed that it remains concerned about discriminatory provisions regarding other clean vehicles.

Responding to the new US leadership, Dombrovskis said: “We welcome this important first step, which is the result of our fruitful discussions with the US. EU companies should now be able to take advantage of US credits for commercial clean vehicles. However, we will continue discussions within our joint task force on other aspects of the IRA on which we have important concerns.”

Another focus is on the requirement that battery components be sourced from the US or its trading partners. While the EU does not have a trade deal with the US, Dombrovskis hopes its geographic scope can be broad enough to include the bloc.

“There are a few vacancies, some work is underway, but we have not reached the goal yet,” Dombrovskis said.

At the same time, the EU needed to explore its own subsidy scheme as part of addressing the imbalance created by US law. In part, this will likely entail further changes to EU rules prohibiting state aid subsidies.

The commissioner stressed that he did not want a trade war between the two economies, but said that EU subsidies could be targeted more effectively.

“We need to be careful not to get into some sort of subsidy race that could be costly and inefficient,” Dombrovskis said. “So obviously the subsidy will be part of the answer. But we need to calibrate properly.”

While there have been calls in the EU for a “European purchase” of provisions that reflect U.S. commitments to purchase organic products under law, Dombrovskis stressed that the commission does not see this as appropriate as it could “cause further trade restrictions in other countries.” world, if we walked along this avenue.

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