American green protectionism threatens European interests

The Inflation Reduction ACT (IRA) has caused a stir in Europe, but it is simply a continuation of American protectionist policies.

Share:

Gain full professional access to energynews.pro from 4.90€/month.
Designed for decision-makers, with no long-term commitment.

Over 30,000 articles published since 2021.
150 new market analyses every week to decode global energy trends.

Monthly Digital PRO PASS

Immediate Access
4.90€/month*

No commitment – cancel anytime, activation in 2 minutes.

*Special launch offer: 1st month at the indicated price, then 14.90 €/month, no long-term commitment.

Annual Digital PRO Pass

Full Annual Access
99€/year*

To access all of energynews.pro without any limits

*Introductory annual price for year one, automatically renewed at 149.00 €/year from the second year.

The Inflation Reduction ACT (IRA) has caused a stir in Europe, but it is simply a continuation of American protectionist policies. Europe, whose interests are seriously threatened by this law, must respond. The American disengagement could also impact its strategy towards Beijing.

The IRA: an extension of US protectionist policy

A distortion of competition

The Inflation Reduction Act, an American law aimed at curbing inflation, is presented as a climate law. However, according to Roman Kramarchuk, an analyst at S&P Global Commodity Insight, it is really an industrial policy bill. Furthermore, despite the name of this legislation, a report by Moodsy Analytics shows that it will have only a modest effect on inflation. In the 4th quarter of 2031, the consumer price index would be only 0.33% lower thanks to this legislation.

The first disagreement around the IRA concerns the production of electric vehicles. European leaders accuse the Americans of engaging in protectionism that seriously harms the interests of the old continent. The IRA provides a tax credit of up to $7500 for the purchase of a North American electric vehicle with a battery from the same source. Vehicles produced in Europe would therefore be excluded from the scope of this subsidy. European governments claim that these subsidies are contrary to international trade rules.

On the other hand, the IRA also contains a measurement component on renewable hydrogen that must concern Europe. Indeed, subsidies for the production of green hydrogen could lead to a flight of investment from Europe to the United States in this sector. This is particularly the case for Plug Power, which has paid particular attention to the European market in recent years. The company is now turning away from this to focus on the U.S. market thanks to the IRA’s high hydrogen tax cuts.

The European powers have shown hostility towards this text, which undermines their interests. The European Commissioner in charge of the internal market mentioned in particular an appeal to the WTO to resolve this dispute, which represents the protectionist tone adopted by the Americans.

A continuation of the protectionist policy

Joe Biden remains aligned with Trump’s unilateral approach. It will not resume negotiations on bilateral agreements such as TTIP with the EU. The Biden administration is focusing its efforts on strengthening national production capacity, in particular through significant public investment since taking office. The main difference between the two presidents is that Joe Biden is engaging in what James Bacchus, former chairman of the WTO’s appellate body, calls “polite protectionism.

Since his election, the U.S. president has not pushed Congress to reauthorize the Generalized System of Preferences (GSP), which eliminated tariffs under certain conditions for developing countries. In addition, the CHIPS and Science Act program passed in 2022 also expresses a U.S. national preference. In particular, it heavily subsidizes domestic producers of microprocessors. The IRA is therefore not an isolated protectionist measure.

A different European approach

While the IRA largely excludes European producers from the North American market, EU Trade Commissioner Valdis Dombrovskis recalled that the Tesla Model Y was the best-selling model in Germany in September 2022. This performance was only possible thanks to the European subsidies from which the foreign producers benefit. There is no reciprocity with the IRA. This case is an illustration of the gap between the two entities in the approach to international trade.

In this respect, Christine Lagarde’s speech during the IMF’s annual meetings on October 21, 2021 is enlightening. The ECB President recalls that the share of international trade has grown much more in Europe than in the United States in recent years. Between 1999 and 2019, it rose from 31% to 54% in the Eurozone. At the same time, it has only grown from 23% to 26% in the United States.

Europe’s strong integration makes it vulnerable to protectionist measures taken by China and the United States. Behind certain protectionist measures of these two countries lies a change in industrial policy towards more security at the expense of the efficiency of global supply chains.

Thus, two important projects may not be carried out in the European Union. One is Northvolt’s giant battery plant in Germany. Its president indicated that the group’s priority was now expansion in North America. Tesla has raised similar doubts about a proposed battery factory in Germany.

In addition, the EU and the US have different approaches to climate change. The European Union takes a largely regulatory approach, while the United States relies on incentives. Another difference in approach was felt during COP27. Europe promised financial support to African countries, while the United States seemed reluctant.

An American strategic error?

European responses

For the moment, the European response has been timid, refusing to mention protectionist retaliatory measures directly. They will not remain impassive, however. The US and the EU have set up a working group to try to find compromises. However, the IRA went into effect in August 2022, and there does not appear to have been any progress since. Emmanuel Macron’s call for a “European awakening” on November 8 is in line with the European Union’s desire for firmness.

The EU Council reached agreement on the Carbon Border Adjustment Mechanism (CBAM) in March 2022 to meet the “Fit for 55” targets. This border carbon adjustment mechanism wanted by the EU has worried American politicians and businesses. Industry was concerned that the implementation of this mechanism would negatively impact U.S. trade and production. This mechanism can also be seen as a protectionist tool. Other measures could follow if the Americans do not make concessions regarding the IRA.

Protectionism could undermine China strategy

The American disengagement from multilateralism leaves the way clear for China to promote its own vision of economic globalization, without reference to democracy or civil rights. Beijing is already gaining ground with emerging countries. The protectionism of the United States could help to reinforce this dynamic.

To maintain its technological leadership, the United States limits access to its technologies to Chinese companies. However, for this strategy to be effective, its allies must align with this policy. Without the prospect of privileged access to the U.S. market, Europeans have less incentive to follow American policy choices.

The MP group Renew Europe has sent a statement castigating the IRA. The group believes that this law will weaken Europe vis-à-vis China. The adoption of the IRA would therefore be counterproductive in their view, including for the United States.

Ayatollah Ali Khamenei calls for modernising the oil industry and expanding export markets as Tehran faces the possible reactivation of 2015 nuclear deal sanctions.
The Ukrainian president demanded that Slovakia end its imports of Russian crude, offering an alternative supply solution amid ongoing war and growing diplomatic tensions over the Druzhba pipeline.
The United States cuts tariffs on Japanese imports to 15%, while Tokyo launches a massive investment plan targeting American energy, industry, and agriculture.
Brazil’s Cop 30 presidency aims to leverage the Dubai commitments to mobilise public and private actors despite ongoing deadlock in international negotiations.
Brasília has officially begun the process of joining the International Energy Agency, strengthening its strategic position on the global energy stage after years of close cooperation with the Paris-based organisation.
During a meeting in Beijing, Vladimir Putin called on Slovakia to suspend its energy deliveries to Ukraine, citing Ukrainian strikes on Russian energy infrastructure as justification.
Vladimir Putin and Robert Fico met in China to address the war in Ukraine, regional security and energy relations between Russia and Slovakia.
Slovak Prime Minister Robert Fico plans to meet Vladimir Putin in Beijing before receiving Volodymyr Zelensky in Bratislava, marking a diplomatic shift in his relations with Moscow and Kyiv.
The three European powers activate the UN sanctions mechanism against Iran, increasing pressure on the country's oil exports as Tehran maintains high production despite Western measures.
Iran once again authorises the International Atomic Energy Agency to inspect its nuclear sites, following a suspension triggered by a dispute over responsibility for Israeli strikes.
First suspect linked to the Nord Stream pipeline explosions, a Ukrainian citizen challenged by Berlin opposes his judicial transfer from Italy.
Ukrainian drones targeted a nuclear power plant and a Russian oil terminal, increasing pressure on diplomatic talks as Moscow and Kyiv accuse each other of blocking any prospect of negotiation.
A Ukrainian national suspected of coordinating the Nord Stream pipeline sabotage has been apprehended in Italy, reigniting a judicial case with significant geopolitical implications across Europe.
Russia continues hydrocarbon deliveries to India and explores new outlets for liquefied natural gas, amid escalating trade tensions with the United States.
Azerbaijani energy infrastructure targeted in Ukraine raises concerns over the security of gas flows between Baku and Kyiv, just as a new supply agreement has been signed.
The suspension of 1,400 MW of electricity supplied by Iran to Iraq puts pressure on the Iraqi grid, while Tehran records a record 77 GW demand and must balance domestic consumption with regional obligations.
Beijing opposes the possible return of European trio sanctions against Iran, as the nuclear deal deadline approaches and diplomatic tensions rise around Tehran.
The United States plans to collaborate with Pakistan on critical minerals and hydrocarbons, exploring joint ventures and projects in strategic areas such as Balochistan.
Around 80 Russian technical standards for oil and gas have been internationally validated, notably by the United Arab Emirates, Algeria and Oman, according to the Institute of Oil and Gas Technological Initiatives.
Baghdad and Damascus intensify discussions to reactivate the 850 km pipeline closed since 2003, offering a Mediterranean alternative amid regional tensions and export blockages.

Log in to read this article

You'll also have access to a selection of our best content.