Certain provisions in US President Joe Biden’s climate action plan, the Inflation Reduction Act (IRA), have prompted strong responses from the European Union, which fears it could hurt its industry.
As the IRA is set to be one of the main topics of discussion during French President Emmanuel Macron’s state visit to Washington this week, AFP answers some key questions about the dispute.
The IRA, a massive bill that focuses largely on climate and social spending, provides more than $430 billion in American investment.
Of that amount, $370 billion will go toward reducing greenhouse gas emissions by 40 percent by 2030, making it the largest U.S. program to combat climate change.
Some of the investment is in the form of tax breaks for companies investing in clean energy, but there are also significant subsidies for electric vehicles, batteries and renewable energy projects — if they’re made in the United States.
One is a $7,500 subsidy for households that buy US-made electric vehicles, while another provides benefits to manufacturers of wind turbines and solar panels that use American steel.
The IRA has raised eyebrows at EU headquarters in Brussels, as well as other European capitals, which see the various subsidies as “discriminatory”, particularly against the bloc’s carmakers.
“This is unacceptable for the EU. Currently, this text is extremely protectionist, to the detriment of European exports,” said Czech Industry Minister Jozef Sikela, whose country currently holds the EU’s rotating presidency.
He did, however, emphasize “goodwill on both sides” after a meeting of EU ministers with US trade ambassador Katherine Tai.
In early November, EU Internal Market Commissioner Thierry Breton threatened to “go to the WTO” and consider “retaliatory measures” if the United States did not cancel its subsidies.
“In some cases, the subsidies that the Biden administration is offering are four to 10 times the maximum amount authorized by the European Commission,” said French Finance Minister Bruno Le Maire, who called on the Commission to create “European preferential measures or accelerate the use of reciprocity instruments”.
According to an official French briefing of reporters ahead of Macron’s state visit, the hot button issue will be on the table.
“We fully understand the desire of the US to be more independent,” the official said on Monday, “but the problems come from the fact that in Europe we do not have this kind of discriminatory instrument, we follow WTO rules in this area. “
The official said France wants “Europe too, not just the United States, to emerge stronger” from the continent’s period of multiple crises.
Even if Biden wanted to waive certain measures or expand the number of beneficiaries, his legislative options are quite limited.
Any action will be more complicated when his Democratic Party loses its majority in the House of Representatives in January, after losing them in the November midterms.
It’s also not clear that Biden is even considering touching a key piece of his presidential legacy, which he salvaged only after protracted negotiations in the Senate.
Biden’s original proposal, the Build Back Better Act, was even more ambitious, offering $1.7 trillion in investments. That plan passed the House in late 2021 but has been stalled in the Senate.
The subsidies in question are also very popular, especially in states like Ohio and Michigan, where the auto industry remains strong and their “swing state” status gives them considerable political influence.
However, the United States hopes to patch things up with its European partners.
After a virtual exchange with France’s Le Maire, US Trade Representative Tai said on Monday that the countries were “working together to strengthen their common understanding of legislation”.
For his part, Macron hopes to go further and obtain from his American counterpart “exemptions for a certain number of European industries, perhaps along the lines of what is already agreed to for Mexico and Canada,” according to an aide.
The two American neighbors, which share a free trade pact with the United States, received exemptions in the IRA for subsidies for electric vehicles.