Margrethe Vestager, a top European Union official, says damage from U.S. subsidies is likely to be limited

Kim Mackrael, WSJ

Brussels
Energiesnet.com 02 24 2023

Europe is dialing back its criticism of U.S. clean-energy subsidies, after months of denunciations of the measures contained in a package of climate, tax and healthcare legislation signed by President Biden last year.  

European Union Executive Vice President Margrethe Vestager, one of the bloc’s leading voices on the issue, said in an interview that a closer analysis of the subsidies suggests the main threats to European competitiveness will be limited to a handful of sectors.

She also said that some European companies may be drawn to invest in the U.S. over their home continent by the measures, but she expects their decisions will be based on more than just the new American subsidies.

“If people think that it’s easy to do business in the U.S. just because of the ease of getting a subsidy, they’re wrong,” Ms. Vestager said. She pointed to permitting challenges for big projects, like wind farms or electric-vehicle battery factories, which can be hard on both sides of the Atlantic. 

“I think there’s a lot of detail to add to the equation,” she said.

The Danish politician has been at the helm of Europe’s competition policy for nearly a decade, emerging as a force in regulating large, mostly American, tech companies such as Google parent Alphabet Inc. and Amazon.com Inc. She is now leading part of the bloc’s response to the Biden administration’s Inflation Reduction Act, which includes $369 billion in funding for clean energy.  

Her remarks come amid a broader rethink across European industries and within governments about and how to respond to the IRA.

After the U.S. bill was signed into law last year, some European leaders railed against the made-in-America provisions attached to some of its clean-energy subsidies. Those provisions mean some of the subsidies are available only for goods made in the U.S. or North America, or for those containing locally sourced raw materials. French President Emmanuel Macron called for a “Buy European” response that could channel the bloc’s own subsidies to domestic manufacturers.

The EU’s internal markets commissioner, Thierry Breton, who is French, pulled out of a high-level meeting with U.S. officials in December, piqued by what he said was a lack of willingness to discuss European concerns with the IRA.

Since then, Brussels has proposed the measures it says will help boost the attractiveness of the continent to businesses being lured by the U.S. subsidies. The European Commission, the bloc’s executive body, set out options this month, including loosening the rules for EU member government subsidies and speeding up permitting.

Those moves have reassured some European business leaders. Ignacio Galán, executive chairman of Spanish renewable giant Iberdrola SA, said this week that he thinks the European response is moving in the right direction. He said the bloc had previously allocated nearly as much money to encouraging a green-energy transition as the U.S. did through the IRA.

“The point is not the funds, the point is how to accelerate the execution,” Mr. Galan said.

Ms. Vestager said in the interview that the IRA’s subsidies for renewable hydrogen, for instance, include made-in-America provisions, but those might not have a significant impact on Europe’s industry.

“The U.S. subsidy is quite generous, but hydrogen is not easy to transport,” she said. “So there’s a lot to say, ‘well, you need European investment as well, if you want to be in that market.’”

Ms. Vestager added that some industries, like wind turbines, EV batteries and the mining and refining of the raw materials used to make those products, could be drawn to the U.S. through its subsidies.

Several European companies have announced plans to expand their U.S. footprint after the IRA’s passage. Italian energy company Enel SpA, for example, said last fall that it was planning a new solar manufacturing plant that it said could be among the largest of its kind in the U.S. The company said at the time that the IRA was a catalyst for boosting its solar manufacturing ambitions in the U.S.

The U.S. subsidies could also “pause the acceleration of green industries in Europe,” creating a risk that some investments ultimately won’t go through, Ms. Vestager said.
But she said European leaders are looking at what they can do in the short term to prevent any loss of investment, including by making it easier for individual EU governments to offer their own financial incentives. Changes to the bloc’s subsidy rules could happen quickly, she said.

The EU was caught off-guard by a recent announcement outlining U.S. plans to limit federal funding for electric-vehicle chargers to those that are made in America, Ms. Vestager said. She said she planned to raise the issue with her U.S. counterparts.

Ms. Vestager said Europe still offers a good environment for clean-tech growth and has shown its commitment to the industry through spending that continued through the pandemic and the war in Ukraine.

“Europe has quite a lot of things going for herself as well,” Ms. Vestager said.

That argument is made easier by the growing chorus of officials, business groups and analysts who have said in recent weeks that the U.S. subsidies might be less harmful to Europe than they had initially appeared. For some, the focus has shifted away from worries about dollar amounts to a push to make sure companies can access European funding that is already available and don’t run into bureaucratic delays.

“We’ve moved from a debate on what the U.S. shouldn’t have done, to ‘What do we do now? How do we take care of our own fate and destiny?’’ said a separate senior EU official.

The Dutch government recently published an analysis that said the EU has set aside more money for climate-related spending than the U.S., although it acknowledged that European support could be simplified and accelerated.

Simone Tagliapietra, a senior fellow with Brussels-based think tank Bruegel, said only about $40 billion of the $369 billion in the IRA’s clean-energy spending risks serious harm to European industry because of the made-in-America provisions.

“We need to calibrate the European response in an adequate manner to what really is in the IRA,” Mr. Tagliapietra said. “And I think the situation is not as dramatic as initially thought by many.”

Write to Kim Mackrael at kim.mackrael@wsj.com

Appeared on The WSJ in the February 25, 2023, print edition as ‘Europe Tempers Criticism Of Biden’s Green Subsidies’.