European presidents and ministers have flocked to Washington to complain about the Inflation Reduction Act’s protectionism. American subsidies of up to $400 billion over the next decade would suck investments across the Atlantic Ocean, they feared. In response, the European leaders threatened to pump up their own subsidies and launch a trade war. 

European businesses disagree. Most are happy — many already have US operations eligible for IRA aid and will benefit from the US’s green U-turn. In private, a Danish wind company executive says the new US subsidies are growing the green pie. His company will continue its efforts to win European contracts. It will just benefit from additional US sales. German business leaders echo these comments and express dismay at what they see as their leaders’ provocative populist threats. 

After years of grumbling about the US reluctance to fight climate change, European politicians should be happy, too. US measures will not undermine the European efforts to foster green industries. As the Danish wind example suggests, American investments will support Europe’s own climate efforts. The largest electric carmaker in the EU is Tesla, which recently opened a new Gigafactory outside of Berlin. German carmakers could receive subsidies for their US operations and expand in North America’s ever-growing EV market. 

The skepticism of some Europeans, principally Germany and France, probably does not stem from genuine anger about America’s efforts to enter the global green race. Instead, it looks like a talking point designed to loosen Europe’s strict state aid rules. Paris and Berlin have long been on the lookout for a window of opportunity to achieve this goal and promote their ill-defined concepts of digital sovereignty.  

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Fortunately, the Germans and French seem to be in the minority. Free trading nations, led by Sweden and the Netherlands, have signaled that they don’t want to engage in a transatlantic green trade war. Other European countries with less financial firepower than Germany fear being left behind.  

European leaders should not lose sight of the big picture. Subsidies come and go. They may be introduced and withdrawn with a flick of a pen. Investment decisions, notably those pertaining to long-term projects with delayed returns, are not made on the basis of a single enticing mechanism.  

Europe’s real problem is its poor record in attracting foreign green investments. Spain and the Czech Republic offered solar investments, for example, and then revoked them, generating lawsuits and a loss of investor confidence. Denmark, the world’s wind leader, recently infuriated its wind companies by canceling permits for planned offshore wind farms.  

Europe’s overall goal should not be to fight the US subsidies by responding in kind but to nourish an investment environment that will both keep domestic businesses in Europe and lure new ones from abroad. The IRA offers some important lessons. It offers a simple, straightforward way of gaining tax credits, grants, or soft loans for green energy projects. Despite Europe’s single market, it cannot compete. Taxes and subsidy schemes remain, for the most part, national competencies — creating a mishmash of programs across the continent.  

President Biden is betting big. His climate transition plans still could be overturned if Republicans take over both chambers of Congress and the White House. It is in Europe’s interest that this does not happen and therefore the continent should support his green policies. Let’s hope that Europe makes a realistic assessment of America’s green plans, not engage in a self-defeating trade or subsidy war. 

Maciej Bukowski, LL.M. is a former chief expert at Poland’s Ministry of Climate and Environment and an analyst at the Institute of New Europe, a Polish think tank. He is a Ph.D. candidate at the Jagiellonian University and a former Denton Fellow at CEPA. 

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

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