The US is trying to allay European fears of a subsidy war

The Biden administration is trying to ease European concerns over the new US climate and tax law, which some allies see as protectionist industrial policies that threaten their economies.

More than a year after the Inflation Reduction Act was passed, European officials remain frustrated by the legislation, which included more than $300 billion in spending and tax credits aimed at boosting the U.S. clean energy industry. America’s allies have complained that the law puts them at a disadvantage by making their economies less attractive to invest in given the scale of American incentives.

With the wars in Ukraine and the Middle East intensifying, the Biden administration is seeking to assuage those concerns and send a clear message to its closest allies that America is not trying to start a subsidy war.

“The misrepresentation I’ve often heard is that the IRA is signaling a turn toward American protectionism or the start of a subsidy race to the bottom,” Wally Adeyemo, the deputy finance minister, plans to say in a speech in Germany on Tuesday, according to a copy of his prepared remarks. “I want to be clear: do neither.”

Mr. Adeyemo said the United States continued to look for ways to improve coordination with Europe on climate and energy security initiatives and said the Biden administration wanted countries like Germany to maintain a strong industrial base. The United States pursues a policy of so-called friendship, which entails strengthening supply chains with allies while diversifying away from China.

“Even as we encourage American manufacturing, we recognize the need to build a resilient supply chain that includes our allies,” said Mr. Adeyemo, speaking at the Industry 2023 conference in Berlin.

Europe has been under economic pressure for the past year as it has moved away from buying Russian energy and spent heavily to support Ukraine. European officials are particularly concerned that new US incentives for the auto industry would draw investment away from their economies. President Biden’s new law contains more than $50 billion in tax credits aimed at encouraging Americans to buy electric vehicles assembled in North America.

In recent months, the Biden administration has negotiated deals with Western allies that would allow the critical mineral they produce to count toward U.S. tax credits for electric vehicles. Mr. Adeyemo suggested that over time the agreements would help both the United States and Europe increase clean energy production.

“Through such agreements and partnerships, we will help ensure that both the United States and Europe have access to the critical raw materials needed to produce batteries for electric vehicles and to drive the renewable energy economy,” he said.

The European Union continues its own clean energy subsidies in response to US incentives.

Report of the European Commission published last week says it is not yet clear what impact the US climate law will have on the EU economy and that a possible European clean energy stimulus package will determine the ultimate impact.

“The overall impact of the IRA on EU cleantech investment will also depend on the effectiveness of the EU’s response and on its policies to improve its long-term competitiveness and technological advantage,” the report said.

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