BRUSSELS (Reuters) – European politicians and business leaders today seem less fearful that billions of dollars in US green subsidies will trigger an exodus of European companies overseas and, for many, the launch of a huge new counter-aid package is not the right answer.
However, EU leaders recognize the risk that the “Made in the USA” requirements to access the 369 billion dollars in aid provided by the Inflation Reduction Act (IRA) will attract some companies to the United States. Tesla’s (NASDAQ:) announcement that it will focus on battery production in the US is considered a prime example.
This risk is compensated not only by generous European incentives, but also by other factors – such as proximity to European consumers – which many companies consider fundamental in their decisions.
March will be a decisive month, as Brussels asks Washington to loosen the rules on tax credits to be granted to consumers on the purchase of electric vehicles before the US Treasury Department establishes the guidelines.
The European Commission will also present some legislative proposals ahead of a summit of EU leaders on the Union’s competitiveness. The main question will be determining to what extent the EU should relax its state aid rules.
According to the think tank Bruegel, EU aid is already equal to or even higher than the funds allocated by the US with the IRA plan. In addition, well over half of Joe Biden’s administration’s plan support goes to renewable energy generation, with very little role played by local content requirements.
According to many European-based companies, IRA will stimulate US green investment, but not at the expense of Europe.
Richard Palmer, chief financial officer of Stellantis (BIT:) considers the impact of the wrath insignificant, since the US plan focuses on the local supply of batteries and the production of electric vehicles, the only way for the company to be competitive.
Ilham Kadri, CEO of the Belgian chemical group Solvay (EBR:), said proximity to customers is key, declaring himself “very optimistic” about Europe.
Francesco Starace, CEO of Enel (BIT:) doesn’t think companies will move to the US just because of differences in subsidies.
“There’s a lot of money looking for good investments, so the real question is whether there are any good ideas,” he told Reuters.
THE REST OF THE EQUATION
According to a survey by the German Chamber of Commerce and Industry (DIHV), released on Wednesday, one in 10 German companies plan to move production to other countries, with North America as the region with the brightest business prospects. One reason cited is the cost of energy.
Belgian central bank governor Pierre Wunsch said rising energy prices and carbon emissions in Europe are likely to have a bigger impact than the IRA, which for some companies could become “the straw that breaks the camel’s back.” “.
“It is possible that in some energy-hungry sectors new business will move to the US or perhaps Asia, but in others we will gain, because the exchange rate will adjust,” Wunsch commented.
Some companies share the view that investment is driven by factors other than state aid.
Henrik Andersen, CEO of Danish wind turbine company Vestas, declares himself “absolutely against” state subsidies, referring to permits for wind farms, many of which are issued locally, creating a major obstacle.
“In Europe there are 80 gigawatts of outstanding permits for energy production. In some places it takes eight years,” he explained.
Upcoming Commission legislation includes plans to address the issue of permits, as well as a law on critical raw materials to increase supply resilience.
Holger Goerg, president of the Kiel Institute for the World Economy, said massive state subsidies would be a waste of money, often benefiting already very profitable tech companies.
Goerg believes, however, that there is room for a policy of targeted support, for example for the promotion of new green technologies.
THE TRUE COMPARISON WITH US REALITY
Other observers support targeted subsidies aimed at promoting green technologies at an early stage, so as to ensure certain levels of production of batteries and other products to make the EU more resilient and less dependent on external supplies.
Some leaders argue that rather than providing more subsidies, Europe should simply streamline the way they are delivered.
German chemical giant BASF has announced it will not move production from Europe, noting however that US tax credits offer a better incentive to invest than one-off EU aid.
However, the United States is not the panacea for European companies, also because one wonders what the next administration’s approach to the White House will be.
David Kleimann, Bruegel’s visiting fellow, believes that US companies also face regulatory challenges and difficulties in sourcing materials locally.
“The conclusion we could draw is that the IRA helps us take stock of what we are actually doing well and what to improve instead, by reducing red tape or increasing innovation subsidies,” he commented.
(Translated by Chiara Scarciglia, editing by Alessia Pé)