Billions will remain on the other side of the Atlantic

The European response to subsidizing US manufacturers under the inflation control act so far has only been to ease regulation and access to European funding for green technology companies. These measures, previously proposed by the European Commission, were included in the communiqué following the summit of EU heads of state held on February 9-10. The EU trade bloc continues its attempts to negotiate with the United States on equalizing the conditions of competition, however, the American act provides mainly financial support measures – a total of $ 369 billion will be allocated for tax incentives, grants and loans.

The economic agenda of the EU summit, which ended on Friday, included a discussion of long-term competitiveness, and in particular the European Commission’s proposed industrial policy plan “in an era of net zero” in response to the American Anti-Inflation Act adopted back in August 2022. The communiqué following the meeting confirms the readiness of countries to “strengthen strategic sovereignty” and ensure “a level playing field within the union and at the global level” and proposes to simplify the procedures for obtaining state support (including through tax incentives) in those sectors of the green economy that may suffer from foreign subsidies or high energy prices. The plan also proposes the creation of a “single window” to simplify bureaucratic procedures for investors.

The simplification of procedures should also apply to access to general financing (now often limited by the requirement not to exceed country norms), and funds from the European Investment Bank. There is no talk of new funding yet – the plan contains a proposal by the EC to create a European Sovereign Fund by the summer of this year, which would equalize the countries’ ability to support, but the summit participants, judging by the communiqué, only took this point into account. The EC also had some concerns about the supply chains of raw materials, including rare earth metals, but for now the EU plans to limit itself to defensive trading instruments and diversification of supply sources (additional proposals should be prepared for the summit in March).

The American law provides for the allocation of additional funding in the amount of $ 369 billion – the document became the largest climate initiative ever approved in the United States (contrary to the name, according to the Congressional Budget Office, the implementation of the law will not lead to lower inflation, despite the inclusion of measures to reduce the budget deficit ). The act contains mainly financial support measures aimed at updating the energy infrastructure and stimulating the development and domestic production of key green technologies (from capturing CO2 emissions to “clean hydrogen”). Of the total, $216 billion is earmarked for corporate tax credits, $43 billion for energy consumer benefits, $82 billion for grants, $40 billion for loans, and another $13 billion for federal agencies. The act should also stimulate the reorientation of public procurement to the products of national manufacturers and companies from partner countries under free trade agreements. Note that there is no such agreement between the EU and the US – negotiations on the creation of the Transatlantic Partnership were finally stopped in 2019, however, the average level of tariffs in trade is only 3%.

At the same time, the EU trading bloc is trying to negotiate with the American side on equal access conditions for European companies in cases where support measures distort competition with companies from Mexico or Canada. This position was previously announced by German Chancellor Olaf Scholz, who spoke out against the “subsidy race”. However, the head of the US Treasury, Janet Yellen, after negotiations with the ministers of economy of France and Germany, said that “if Europe introduces similar subsidies, this will only improve climate policy.”

Tatyana Edovina