Were it not so potentially serious it would be amusing. For years, the European Union has tried to encourage the US to do more on climate policy. Finally with Joe Biden at the helm the Americans have been planning to do just that for some time. But, when the flagship policy — the Inflation Reduction Act — made its way through the legislative process and was approved last August, the EU seemed… a bit surprised? Cue the IRA vs the NZIA — and a number of potential outcomes.
The IRA offers a mix of subsidies and tax credits for sustainable tech. The act covers Sustainable Aviation Fuel (SAF), electric vehicles and hydrogen. As long as they’re American Made. The resulting ecosystem provides significant incentives for US companies or foreign companies operating domestically. US-made EVs for example are likely to become significantly cheaper for US consumers than those made overseas. While clarifications that some foreign-made EVs would qualify for tax credits have helped assuaged some concern, there remains a significant rift between the two blocs.
IRA sneaks through legislature?
A $369 billion act does not pass through quietly overnight. It did, as one would imagine, generate some column inches. Skip forward six months and the EU is now crying foul on ‘protectionist’ policies from its great friends from across the water while simultaneously trying to coordinate a response that stems a growing exodus of green innovation to the US.
That response will in part be through the Net-Zero Industry Act (NZIA) unveiled by European Commission President Ursula von der Leyen in January. (For its part the UK has very quietly agreed with the EU assessment and left it at that.) The NZIA will focus on a target to have at least 40% of the bloc’s annual needs met by net-zero manufacturing capacity within the union. Solar, battery tech, heat pumps, hydrogen wind and fission will be specific targets.
(Trade) War or Peace
How does this end? There is of course an opportunity for the situation to deteriorate into a full or pseudo EU-US trade war. This is especially likely if the EU comes good on its threats to call in the World Trade Organisation as enforcer. Having acknowledged that the US is now ‘on the same page’ when it comes to addressing the climate crisis, it would be… uncomfortable for the EU to have to put 20th Century trade rules in the way of fighting the 21st Centuries biggest problem.
Could a rosier outcome be secured? Should the EU and US manage to align the IRA and NZIA, the sum would be greater than the parts. That outcome would be an enormous fillip for the fight against climate apocalypse and would surely make other global players at least sit up and pay attention.
For the moment there are calmer heads on both sides of the water and they are prevailing. President Biden is committed to addressing EU concerns. When asked about a trade war with the US Germany’s Chancellor Olaf Scholz told Bloomberg TV : “I am sure it will not happen, we are working very hard to avoid a situation like this.” Let’s see…