Something about the United States government’s climate subsidies isn’t sitting right with European governments, which is why German Economic Minister Robert Habeck and French Finance Minister Bruno Le Maire are set to discuss them with the Biden Administration on Tuesday, February 7th.
While Europe’s governments agree with the drive towards a transition to green energy included in the US government’s Inflation Reduction Act, there are qualms that the aforementioned climate subsidies for manufacturers in North America could sway companies from working or investing in Europe.
Indeed, some quarters in the region claim that the US subsidies violate rules imposed by the World Trade Organization. But with governments reluctant to come into commercial conflict with the United States, the most prudent thing to do is to see how the IRA may be implemented without prejudice against the European commercial and industrial sectors.
Fair Treatment for All
One of the main reasons why the Franco-German contingent is headed to Washington is to ensure that European businesses get the same treatment as that accorded to Canada and Mexico. Should Habeck and La Maire be able to gain such assurance, then the trip will be deemed successful by their respective nations.
For the Germans, in particular, the uncomfortable topic of the IRA’s possible disadvantages for the country’s automotive sector in light of the shift from fossil fuels will need to be broached.
One of the stipulations under the IRA states that tax credits for new electric vehicles apply only to those whose final assembly was done in North America – a region that includes Canada and Mexico, both of whom have standing free-trade agreements with the United States.
According to a statement from the US Treasury Department issued in December of last year, EVs leased by consumers may qualify for up to $7,500 in commercial clean tax credits. Given how around half of the German electric vehicles in the US are leased, Habeck intends to confirm whether or not the rule covers these as well.
What’s the Real Issue Here?
But covering leased European EVs with a subsidy is just one issue out of many, it only applies to a fraction of the continent’s total vehicular exports. The real issue that Habeck and La Maire intend to resolve involves the incentives that will drive companies to move their production facilities to the United States.
Some experts opine that, when considered together with soaring power prices in Europe, the IRA will make industries on the continent considerably less competitive than their North American counterparts.
The summit notwithstanding, the European Commission proposed a number of reparative measures on Wednesday, February 1st, including the loosening of EU state aid rules while repurposing existing funds.
