Biden’s IRA has shocked Europe. And catching up could lead to 2 big mistakes

Biden's IRA has shocked Europe.  And catching up could lead to 2 big mistakes

US President Joe Biden, in front, and Ursula von der Leyen, President of the European Commission.

Mayor Bloomberg | Mayor Bloomberg | fake images

The European Union is working against the clock to create a program to match the president Joe BidenThe unprecedented climate subsidies of . But you will face two key problems in the process.

The EU had long called on the US to be more active on climate policy. Biden complied with that with the Inflation Reduction Act. But he has raised competition concerns for European companies, angering politicians in the region. Brussels has been thinking about how to best respond.

“US legislation doesn’t get passed overnight,” Emre Peker, director of the Eurasia consulting group, told CNBC, adding that the EU could have acted more quickly.

“The EU was asleep at the wheel…with 28 representations in Washington, the Europeans could have done more to counter the IRA before its adoption.”

The US Inflation Reduction Act, also known as the IRA, was passed by US lawmakers in August and includes a record $369 billion in spending on climate and energy policies.

Among other things, it provides tax credits to consumers who buy electric cars made in North America; this could automatically make European-made EVs less attractive to buyers because they are likely to be more expensive.

We will continue to invest more in the region to achieve significant growth.

Some European companies have recently announced investment plans in the US to benefit from an early pickup in demand. And more could follow suit.

volkswagen has ambitious goals for the North American region. We now have a unique opportunity to grow profitably and electrically in the US,” a spokesperson for the German company, one of the largest automakers in Europe, told CNBC by email.

In itan Italian energy company, is concentrating 85% of its €37 billion ($40.2 billion) investments between 2023 and 2025 in Italy, Spain and the US.

“Specifically in relation to public support policies, the IRA covers unprecedented measures on green technology and we believe that it could act as a stimulus for the EU to move in that direction, in order to support a substantial expansion of renewable technologies that are key to the energy independence of our continent,” a company spokesperson told CNBC via email.

Luisa Santos, deputy director of BusinessEurope, a group of business federations, told CNBC that “it’s still a bit early to say who will invest where.” “But it’s very clear that some companies will invest in the US anyway,” she added, referring to an expected increase in investment to the US, at the expense of Europe.

spend more than others

Currently, European officials are looking to relax state aid rules so that governments have more space to financially support key companies and sectors.

The European Commission, the executive arm of the EU, is due to present a proposal in the coming weeks.

But this solution might not be ideal. Countries with bigger budgets will be able to deploy more funds than poorer nations, putting at risk the integrity of the EU’s much-vaunted single market, where goods and people move freely and which represents more than 440 million people. consumers.

Belgium PM: The EU is not catching up on developing a sustainable industry

Belgian Prime Minister Alexander de Croo told CNBC that more state aid is “not a good answer.”

“There are equal conditions [in Europe]. Belgium is a small market, a very open economy, Germany is a big market. If this becomes a race of who has the deepest pockets, we are all going to lose and it would lead to a subsidy war with the United States,” de Croo said earlier this month.

Several other experts have also raised concerns about the relaxation of state aid rules. Former Italian Prime Minister Mario Monti told Politico Europe that this is a “dangerous” approach.

In a letter issued last month and seen by CNBC, Europe’s competition chief Margrethe Vestager said: “Not all member states have the same fiscal space for state aid. That is a given. And a risk to the integrity of Europe”.

slow to respond

In addition to the challenges with easing state aid, timing is also a risk.

European officials will discuss and decide how to provide more green incentives in the medium and long term. On the one hand, some argue that current European investment programs should be redistributed towards these subsidies. But on the other hand, others argue that the bloc will need to raise fresh money to implement such a huge project.

Therefore, it is likely to become a deep and tense political issue that could drag on for a while.

Paolo Gentiloni, Europe’s commissioner for the economy, said Tuesday in Berlin that “different opinions” are on the table.

“But I am satisfied that there is a clear intention to participate in this discussion,” he said after talks with German Finance Minister Christian Lindner, who previously said he would not support new public loans.

Germany is likely to face a recession

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