POSITION | EUROPEAN POLICY | INFLATION REDUCTION ACT
Europe Competing for the Green Transition EU Industrial, Climate and Trade Policy Response
March 2023 Key Recommendations ▪
The Inflation Reduction Act (IRA) of the Biden administration is an exemplary climate investment package: it is a non-bureaucratic, consistent and forward-looking combination of climate, trade and industrial policy aspects. The IRA shows how industrial and climate policy can be interlinked to achieve the necessary momentum for the climate transition of industrial value chains.
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German industry is critical of those aspects of the IRA that disadvantage European and other foreign companies. Specifically, these include the tax credits for electric vehicles (EVs), as well as the “Buy American” and local content requirements throughout the IRA.
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The European Commission should use all available channels to ensure the implementation guidance of the US authorities is as inclusive as possible in order to minimise discrimination against European manufacturers. The EU and the United States should take care to avoid a subsidy race or trade disputes. European retaliatory measures in the form of customs duties or “Buy European” regulations would be counterproductive.
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In comparison to the United States, EU industrial policy on climate protection has complicated regulation, long-winded planning and approval procedures and little support for private investment. The measures of the individual member states are also insufficiently harmonised. Due to the strong support provided in the United States, China, Japan and other industrial nations, the EU is lagging behind and falling short of its self-proclaimed goal of being a pioneer in green technologies. The total funding volume for climate measures in the EU currently stands at around 645 billion euros (2021–2027).
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The EU must substantially boost its competitiveness on the path to ecological sustainability through rapid regulatory decision-making, lean planning and approval procedures, and administratively simple funding measures for a broad spectrum of industries and technologies within a flexible framework of subsidies. Like the United Sates, the EU should adopt a pragmatic course and introduce tax credits.