Richard Bravo
Thu, December 15, 2022
(Bloomberg) -- European leaders are willing to start a transatlantic fight over Joe Biden’s climate-friendly tax law, dubbed the Inflation Reduction Act, even though it’s dedicated to boosting green tech and moving toward a carbon-neutral future. They’re upset over the subsidies it will dole out, which they say give American firms an unfair leg up.
“Elements of the IRA risk un-levelling the playing field and discriminating against European companies,” European Commission President Ursula von der Leyen wrote to the European Union’s 27 leaders on Wednesday. She also unveiled a four-point plan for how to fight back against the American law that would give member states more latitude to invest in their own companies and that would possibly redirect EU funds to firms in need.
Here are the key elements of the dispute:
What is Biden trying to achieve with the IRA?
Biden’s Inflation Reduction Act devotes more than $360 billion to climate-related spending, including tax breaks for making and deploying clean-energy infrastructure. The law will provide subsidies for domestic industries, including for electric-vehicle producers, but the American president said earlier this month that it “was never intended to exclude folks who were cooperating with us.”
Why are the Europeans upset about this?
European leaders have been outspoken in their discontent over the law. French Finance Minister Bruno Le Maire accused Washington of pursuing a “Chinese-style” industrial policy that discriminates against non-US companies. The EU has said it may take the US to the World Trade Organization over the law.
Since Russia invaded Ukraine in February, the entire world, but especially Europe, has had to begin the process of reinventing their economies now that they no longer have access to cheap Russian gas. The EU is worried that their companies will be left at a disadvantage if they can’t match the subsidies Washington and Beijing will be providing their industries.
What has been the US response so far?
Even though Biden said that “the US makes no apology” for the law, he did say that he saw room for tweaks to “make it easier for European countries to participate.”
“There’s obviously going to be glitches in it, and a need to reconcile changes in it,” Biden told reporters earlier this month after meeting with French President Emmanuel Macron in Washington.
But it isn’t clear how the law might be revised, as Republicans are unlikely to be willing to amend it after they take control of the House next year.
Why are the Europeans struggling to produce a united response?
So far EU member states haven’t been able to get behind a single strategy for how to counter the American law. Von der Leyen has floated a European Sovereignty Fund to help member states underwrite the green transition. She also suggested rerouting revenue from the bloc’s emissions trading system, saying “it’s clear that not every member state has the fiscal space for state aid, and we need complementary European financing.”
But Germany has advocated streamlining how existing EU funds are distributed and increasing incentives at the national level, pushing back against calls from countries including France for more aggressive bloc-wide measures.
What will this mean for the transatlantic relationship?
The EU’s competition chief, Margrethe Vestager, told reporters in Paris earlier this month that the climate law could be damaging for European businesses, as well as in other major economies, including Japan and South Korea. But she said avoiding a subsidy race is an absolute priority and the EU is working constructively with the US to find solutions as soon as possible.
“One war at a time is what we can master,” Vestager said, noting the energy crisis in Europe sparked by Russia’s invasion of Ukraine. “We have found solutions on very difficult issues before and we should be able to do it again because I don’t think the geopolitical situation we are in allows for big democracies to have a fallout.”
What’s the next thing to watch?
EU leaders will discuss the bloc’s next steps at a summit in Brussels Thursday and they could put new state-aid rules in effect as soon as January. But all eyes are on Washington and what tweaks Biden is willing to make. If the changes are too small to placate European leaders, then it could herald a new transatlantic subsidy race.
--With assistance from Ania Nussbaum, Alonso Soto, Jorge Valero and Alberto Nardelli.
Macron Implores Europe to Match Biden’s Green Subsidy Package
Ania Nussbaum, Katharina Rosskopf and Michael Nienaber
Thu, December 15, 2022
(Bloomberg) -- Emmanuel Macron is calling for the European Union to come up with a robust answer to Joe Biden’s green subsidy package known as the Inflation Reduction Act that includes common funding.
“We must go faster, simplify our rules and provide a macroeconomic answer and a level of aid at the national and European levels that allows us to match what the Americans have done,” the French president told reporters before a meeting of EU leaders in Brussels where they will discuss the issue.
Macron and his EU counterparts have been outspoken over the $369 billion climate and tax law, which they say provides an unfair advantage to North American industries, including electric-vehicle producers. The EU has said it may take the US to the World Trade Organization over the law.
“Although we are allies, we must have this response to strengthen our industrial base and remain competitive,” he said, adding that the response should include “European instruments and common funding.”
EU Divisions
The EU leaders will task the European Commission, the bloc’s executive arm, to propose how to mobilize national and EU tools to safeguard Europe’s economic, industrial and technological base, according to a draft of the summit conclusion seen by Bloomberg.
Commission President Ursula von der Leyen unveiled an initial plan on Wednesday that would give member states more latitude to invest in their own companies and that would redirect existing EU money to firms in need. But the leaders will need to address how far reaching the commission proposal will be and, importantly, if it will include new money.
German Chancellor Olaf Scholz has backed a more moderate response to the American climate and tax law, pushing to streamline how existing EU funds are distributed and increasing incentives at the national level.
“We will also talk about the competitiveness and future viability of our economy, in particular our joint handling of the Inflation Reduction Act,” Scholz told reporters ahead of the summit. He also hinted there would be no immediate action taken on Thursday, saying the topic would come up “more often and repeatedly” in the coming months.
Dutch Prime Minister Mark Rutte echoed Scholz’s proposal by pushing back against the idea of joint funding options. “We are not big fans of new money,” Rutte said. “We have to look at existing money and how to use that.”
Sovereignty Fund
The German and Dutch approach has irked some that are pushing for a more rigorous response, arguing that not all nations have the same fiscal capacity to support their domestic companies.
“Member states are not equal when it comes to delivering state aid. Some can deliver a lot more than others,” the EU’s competition chief, Margrethe Vestager wrote in a blog post on Thursday. “That’s why we propose to introduce a new sovereignty fund, as a complementary funding to ensure all European countries can benefit from the green transition instead of just a few.”
Germany is planning to spend more than €10 billion ($10.6 billion) to invest in companies switching to clean technologies, according to people familiar with the plan.
“Today we see that too often countries are trying to install a scheme on their own and it looks a bit like a game of the deepest pockets,” Belgian Prime Minister Alexander De Croo said on Thursday. “And yes, some countries may think they have deeper pockets, but in a few months we’re all at the end of what you can do.”
--With assistance from Alberto Nardelli, Jillian Deutsch, Jorge Valero, John Ainger, Lyubov Pronina, Niclas Rolander, Slav Okov and Krystof Chamonikolas.
Ania Nussbaum, Katharina Rosskopf and Michael Nienaber
Thu, December 15, 2022
(Bloomberg) -- Emmanuel Macron is calling for the European Union to come up with a robust answer to Joe Biden’s green subsidy package known as the Inflation Reduction Act that includes common funding.
“We must go faster, simplify our rules and provide a macroeconomic answer and a level of aid at the national and European levels that allows us to match what the Americans have done,” the French president told reporters before a meeting of EU leaders in Brussels where they will discuss the issue.
Macron and his EU counterparts have been outspoken over the $369 billion climate and tax law, which they say provides an unfair advantage to North American industries, including electric-vehicle producers. The EU has said it may take the US to the World Trade Organization over the law.
“Although we are allies, we must have this response to strengthen our industrial base and remain competitive,” he said, adding that the response should include “European instruments and common funding.”
EU Divisions
The EU leaders will task the European Commission, the bloc’s executive arm, to propose how to mobilize national and EU tools to safeguard Europe’s economic, industrial and technological base, according to a draft of the summit conclusion seen by Bloomberg.
Commission President Ursula von der Leyen unveiled an initial plan on Wednesday that would give member states more latitude to invest in their own companies and that would redirect existing EU money to firms in need. But the leaders will need to address how far reaching the commission proposal will be and, importantly, if it will include new money.
German Chancellor Olaf Scholz has backed a more moderate response to the American climate and tax law, pushing to streamline how existing EU funds are distributed and increasing incentives at the national level.
“We will also talk about the competitiveness and future viability of our economy, in particular our joint handling of the Inflation Reduction Act,” Scholz told reporters ahead of the summit. He also hinted there would be no immediate action taken on Thursday, saying the topic would come up “more often and repeatedly” in the coming months.
Dutch Prime Minister Mark Rutte echoed Scholz’s proposal by pushing back against the idea of joint funding options. “We are not big fans of new money,” Rutte said. “We have to look at existing money and how to use that.”
Sovereignty Fund
The German and Dutch approach has irked some that are pushing for a more rigorous response, arguing that not all nations have the same fiscal capacity to support their domestic companies.
“Member states are not equal when it comes to delivering state aid. Some can deliver a lot more than others,” the EU’s competition chief, Margrethe Vestager wrote in a blog post on Thursday. “That’s why we propose to introduce a new sovereignty fund, as a complementary funding to ensure all European countries can benefit from the green transition instead of just a few.”
Germany is planning to spend more than €10 billion ($10.6 billion) to invest in companies switching to clean technologies, according to people familiar with the plan.
“Today we see that too often countries are trying to install a scheme on their own and it looks a bit like a game of the deepest pockets,” Belgian Prime Minister Alexander De Croo said on Thursday. “And yes, some countries may think they have deeper pockets, but in a few months we’re all at the end of what you can do.”
--With assistance from Alberto Nardelli, Jillian Deutsch, Jorge Valero, John Ainger, Lyubov Pronina, Niclas Rolander, Slav Okov and Krystof Chamonikolas.
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