Countries Wage War Over Clean Energy Subsidies

On one side of the Atlantic: the Inflation Reduction Act (IRA), on the other side: the Green New Deal. The gloves are off, but can the subsidy money be as enormous as indicated without massively stoking inflation? Besides, what possible climate benefit does anyone think they might see?
– – –
Journalists are calling it a subsidy war, says OilPrice.com.

Those involved in it are keen to preserve an image of cooperation and agreement. Whatever you call it, it’s hard to deny the obvious: the United States and Europe are locked in a race—a subsidy race for the energy transition.

When Congress passed the Inflation Reduction Act last summer, many companies had reason to celebrate: they were going to get generous financial support to build or expand their businesses as long as they fell into any “sustainable” category.

The mood was different in Europe. There, business leaders had reason to start worrying about one more thing: the increased competitiveness of U.S. goods thanks to the IRA and the consequent reduced competitiveness of their own goods.

That was on top of their soaring energy costs while the U.S. competition enjoyed low rates thanks to local production. European business leaders demanded a response from European decision-makers.

In a way, decision-makers delivered. After several national government officials, most notably French President Emmanuel Macron, openly slammed Washington for not playing fair, the EU passed earlier this year something called the Net Zero Industry Act.

The act aimed to “increase the competitiveness and resilience of the EU’s net-zero technology industrial base which will make up the backbone of an affordable, reliable, and sustainable clean energy system.”

That sounds good on paper, but businesses were not happy with it. It appears the Net Zero Industry Act was a rushed job, and like all rushed jobs, it was less than a success. Yet it was a typical Brussels document: needlessly complicated and insufficiently specific.
. . .
Meanwhile, it was not all fun and games in IRA-era United States, either. The initial price tag of the bill was a bit below $400 billion, to be spread over ten years. Last month, the University of Pennsylvania estimated that the price tag of the IRA will in fact top $1 trillion.
. . .
Yet even with the internal [EU] squabbles, it seems the big problem is the IRA. It is such a big problem that Germany’s strongly pro-American economy minister Robert Habeck recently called it a declaration of war.

“The [Americans] want to have the semiconductors, they want the solar industry, they want the hydrogen industry, they want the electrolysers,” Habeck elaborated, as quoted by the FT.

Indeed, the Americans do want all that. And it seems that unless the EU gets its act together and simplifies the subsidy distribution procedure, there will be a business exodus from Europe in a western direction.

Europe will be left to mourn the loss of its economic glory, which began in 2022 when the continent’s dependence on external suppliers of energy was revealed in full light.

Meanwhile, the blockbuster show to watch will be how long before the IRA money runs out and what the actual outcomes of all that subsidizing will be.

Full article here.