EU Protests Protectionism in Inflation Reduction Act Subsidies

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By Christian Roselund

A diplomatic rift is opening between the European Union and the United States over preferential U.S. subsidies to domestic industries in the Inflation Reduction Act (IRA). Meetings between the two parties held in early November do not appear to have resolved tensions and EU Trade Commissioner Valdis Dombrovskis has threatened a complaint to the World Trade Organization.

The IRA contains generous subsidies for domestic wind, solar, and battery manufacturing, as well as bonuses to clean energy deployment tax credits if domestic content is used. Additionally, the law changed the electric vehicle tax credit for consumers so that only the purchase of vehicles with a high portion of domestic content qualifies for the credit.

In comments to the U.S. Treasury on implementation of the IRA provisions, the delegation of European Union to the United States expressed concerns about the “discriminatory nature” of these provisions and their “cumulative, potentially adverse effects on the EU’s industry.” The EU complaint named nine specific provisions with the IRA where there are concerns. The complaint further singled out several of these as potentially violating World Trade Organization Rules:

  • The domestic content bonus in the Section 45 Production Tax Credit (PTC) and the Section 45Y technology-neutral PTC
  • The domestic content bonus in the Section 48 Investment Tax Credit ITC) and the Section 48E technology-neutral ITC
  • The Section 26 Clean Vehicle Tax Credit (multiple provisions)

For the domestic content provisions in the ITC and PTC as well as the Clean Vehicle Tax Credit, the EU has requested that EU goods be treated the same as U.S. goods when qualifying for the credit.

In an interview with CNBC, German Finance Minister Christian Lindner stated that he would prefer to see this conflict resolved amicably. “We should do everything we can to avoid a tit-for-tat situation and a trade war,” stated Lindner. “We need more partnership between the United States and the European Union, not less.”

News coverage: Why America’s climate law is causing rifts at COP 27 (E&E News)

News coverage: EU says it has serious concerns about Biden’s Inflation Reduction Act (CNBC)

Source: Comment from the Delegation of the European Union to the United States of America (Internal Revenue Service)