European Union (EU) Trade Commissioner Valdis Dombrovskis warned that green energy subsidies in the Democrats’ huge climate spending bill could hurt EU industries and push businesses to trade more with China, the Financial Times reported Thursday.
The $369 billion bill hands out heavy subsidies to spur domestic manufacturing of green energy technologies to reduce the nation’s heavy reliance on China and other foreign powers for products like solar panels and electric cars. However, Dombrovskis said that the “Inflation Reduction Act” (IRA) may work against its stated aims as the subsidies will make European products far less competitive compared to U.S. goods, making Chinese business deals more appealing to EU companies, according to the FT. (RELATED: Congress Stuffed Billions Into Massive Spending Bill To Combat ‘Climate Crisis’)
Dombrovskis also said that the EU could respond to U.S. subsidies by increasing its own green energy subsidies or creating new ones, the FT reported. The commissioner stressed that he did not want to start a trade war between the U.S. and the EU, indicating that any aggressive action by the EU would be met with a similar response from the Biden administration.
“We need to be careful not to engage in some kind of a subsidy race which may be expensive and inefficient,” Dombrovskis told the FT. “So clearly subsidy is going to be part of the response. But we need to calibrate properly.”
European Commission Executive Vice President Valdis Dombrovskis (L), European Commission Executive Vice President Margrethe Vestager (2nd L), US Secretary of State Antony Blinken (C), US Secretary of Commerce Gina Raimondo (2nd R) and US Trade Representative Katherine Tai (R) speak to the media following the US-EU Trade and Technology Council (TTC) Ministerial Meeting at the University of Maryland in College Park, Maryland, on December 5, 2022. (Photo by SAUL LOEB/AFP via Getty Images)
China dominates the extraction and refinement of minerals that are needed to produce electric vehicles (EVs) and other green energy technologies like solar panels. Although the “buy American” provisions within the IRA seek to shore up domestic supply chains for renewable energy, the Biden administration has continuously blocked attempts to mine “critical minerals” in America.
The climate bill includes a $7,500 per car tax credit for EVs if the car is assembled in North America and if the minerals used to manufacture the car are sourced domestically. The tax credit has drawn ire from Germany, France and EU officials who state that the EV tax credit violates preexisting trade agreements and hurts European automakers, according to The Wall Street Journal.
The administration will grant a portion of the tax credit to consumers when the vehicles’ “critical minerals” are extracted or processed in a country that has a free trade agreement with the U.S., meaning that EU companies can benefit from the credit, according to a Treasury Department memo published Thursday. Democratic Sen. Joe Manchin of West Virginia, who sponsored the IRA, called on the department to pause the implementation of the credits until they can issue guidance that serves to further U.S. interests, according to a Thursday statement.
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