Explained: The EU is in turmoil as a result of Biden’s green subsidies law

On Monday, high-ranking officials from the European Union and the United States will meet for a trade meeting to voice concerns regarding Washington’s massive new green energy subsidy package.

While EU nations invite the new obligation to energy progress, they dread the $430 billion Expansion Decrease Act (IRA) will unreasonably burden their organizations compared with rivals in the US.

Why is Europe energy?

The 27 EU nations are concerned that their businesses will not be eligible for the new law’s tax credits for North American-made components used in renewable energy technologies like electric cars.

The European Union believes that approximately $207 billion (200 billion euros) of the US subsidies are linked to locally produced content provisions that may be in violation of WTO rules.

Ursula von der Leyen, president of the European Commission, stated on Sunday that while competition is beneficial, it should be fair.

In addition to putting European businesses at a disadvantage compared to their American counterparts, EU state aid rules in their current form prohibit member states from providing similarly generous tax breaks to businesses planning to establish factories.

South Korea is also concerned that its automakers will not be eligible for the US tax breaks, and the EU is not the only ally of Washington that is upset about the package.

What does Europe want?

European officials claim that their best chance lies in securing exemptions in the same vein as those that have been granted to Canada and Mexico. Since the US Congress is unlikely to make any significant changes.

During a state visit to Washington last week, French President Emmanuel Macron raised concerns, and US President Joe Biden allowed for “tweaks” to be made to the package.

The governments of the EU are looking for a quick solution, possibly through a deal that can be reached at a meeting of the EU-US Trade and Technology Council on December 5. Prior to the talks, a draft joint statement stated that the package was on the agenda.

Bernd Lange, the head of the European Parliament’s trade committee, stated that a negotiated settlement would only yield small changes and that Europe should file a complaint at the WTO, despite the fact that neither side wants to rekindle trade tensions that damaged transatlantic relations during the Trump administration.

However, traditionally pro-free trade nations like Sweden and the Netherlands would likely retaliate against such a European response.

Can Europe also support its companies?

France has led calls for Europe to respond by providing its own state support for European businesses, such as a “Buy European” act and substantial subsidies.

Germany has shown interest in supporting European industry, despite the fact that its coalition-led government is far from agreeing on how to do so. However, it has not been as vocal about the possibility of a massive subsidy program.

Cross-border projects that are deemed to be in the broader interest of the EU can also be subsidized by European governments pooling resources. However, getting such initiatives approved by the European Commission can frequently be time-consuming and difficult.

Last month, French Economy Minister Bruno Le Maire and German counterpart Robert Habeck urged the Commission to streamline and accelerate the approval process in light of a number of significant projects in the works.

In response to the US push for green subsidies, Von der Leyen stated that the EU’s state aid regulations should be modified.

Source: Reuters