Europe moves from anger toward acceptance of U.S. climate law

First came the shock. Then the outrage. Now, European countries seem to be moving toward acceptance of a massive U.S. clean energy subsidy package that has roiled transatlantic trade relations.

“It is not our intention — and has never been our intention — to change the American law,” French Finance Minister Bruno Le Maire told reporters on Tuesday afternoon in Washington. “We just want to ensure the implementation of the American law [is done with] full transparency.”

Le Maire and German Vice Chancellor and Economy Minister Robert Habeck brought that message to high-level meetings on Tuesday with U.S. Treasury Secretary Janet Yellen, Commerce Secretary Gina Raimondo and senior White House aides Mike Pyle and Brian Deese.

The visit is a marked shift in tone from previous engagements. French President Emmanuel Macron accused the U.S. of “hurting” his country when Congress passed its landmark Inflation Reduction Act.

European officials had initially pushed President Joe Biden and senior U.S. lawmakers to make the law more inclusive of European companies. The law provides $369 billion in subsidies and tax credits that aim to incentivize purchases of electric vehicles and build up green infrastructure. One of the most hotly contested provisions, a $7,500 electric vehicle tax credit, is limited to cars built in North America and with battery critical minerals sourced domestically or from a free trade agreement partner — which the EU is not.

Habeck and Le Maire say they haven’t given up that campaign. But in the face of uncertainty about how far the Biden administration will go to address their concerns, the officials said the European Union, one America’s most important trading partners, deserves at least a transparent accounting of how the U.S. government will use the law to funnel money to industry.

“We agreed on the necessity of full transparency on the level of subsidies and tax credits,” Le Maire told reporters after the meetings, as well as “necessity to ensure constant communication at the ministerial level, especially on the strategy on tax credits.”

“You cannot have any fair competition if there is not full transparency on the level of public subsidies and public tax credits that are granted to private companies,” he added.

But outside of pledges for transparency and cooperation, the meetings with U.S. officials did not appear to yield any concrete agreement to alleviate the EU’s top concern with the IRA — the North American assembly requirement for subsidized electric vehicles.

Le Maire said the sides agreed in principle that the “implementation of the IRA should include as many EU components as possible.” But he declined to detail if that meant the U.S. had budged on the EV tax credit terms, or if they would seek to maximize EU parts under existing the parameters.

The economic dustup has shown how complex and potentially adversarial the race toward a clean energy future will be. Even as they pursue their own self-interests, economies like the U.S. and EU have at least one shared goal beyond slowing climate change: ensuring China does not dominate supply chains for battery production and renewables.

For their part, European nations are already developing their own subsidy scheme to prevent a feared migration of EU manufacturing to the U.S., where energy costs are lower and states are standing by with sweeteners to dish out. After meeting with U.S. officials, the ministers said the need for Europe to respond with its own subsidy package is clearer than ever.

“One conclusion we have to draw from the meetings,” Le Maire said, is that “we see the absolute necessity for Europe to arrive at the definition and implementation of a European green tech plan.”

U.S. officials have encouraged the EU to boost its own industries, often noting there is ample room in the market for widespread government support for clean energy.

A Treasury Department readout of the meeting said Yellen stressed the need for innovation and development of technology “on both sides of the Atlantic to speed the transition to green energy and meet our collective climate goals.”

The Treasury Department provided preliminary guidance in late December on how it is going to implement key features of the electric vehicle tax credits and promised complete details in March. In a win for the EU, it hinted at adopting an expansive definition of which countries are considered U.S. free trade agreement partners. It also said imported electric vehicles would be eligible for a separate credit for commercial clean vehicles. However, many legal experts said it’s unlikely the administration could bend the law any further.

The German and French officials emphasized a promise to cooperate on creating a common market for the components that go into many clean energy products, with Habeck hailing the creation of a “critical minerals club” between the trading partners. France and Germany had already agreed last year to join a “minerals security partnership” to bolster critical mineral supply chains.

“The idea is we will find concrete measures … on how we reach more diversity in the supply chain,” Habeck said. “If that is reached, then we might have the steps for further agreements, for further alignment for the goods that are produced out of the critical minerals.”

Habeck and Le Maire also met Tuesday with Sen. Joe Manchin (D-W.V.), who played a key role in crafting the final details of the IRA, particularly the electric vehicle consumer tax credit.

Speaking at an online event hosted by the news outlet Semafor before that meeting, Manchin defended the IRA bill as an important step toward achieving U.S. energy security and said it was never his or Congress’ intention to hurt Europe.

“We can bring them in to basically participating [in the IRA provisions],” Manchin said. “But every country does what they can to stimulate their market, to keep their people working, to have a strong economy. They can’t deny us from doing the same thing.”

Manchin also encouraged European officials to offer incentives to increase investment in clean energy and technologies to fight climate change. He expressed concern the EU wants “to continue to beat the living crap out of people by charging carbon taxes, carbon fees and everything [else they’re] doing, rather than giving them incentives, basically, to mature these industries quicker.”