The fight of green technology. America has the money, and Europe has the rules

Nothing is hotter than the old transatlantic trade war, or at least some bellicose words about trade. Dealing with a global energy shock, geopolitical conflict between superpowers and domestic demands for tax breaks for electric cars has never been more contentious.
In some circles of a more intense nature in the European Union, the dispute with Washington has turned into resentment over the imposition of higher energy prices by American companies on Europe, which has increased incentives for European industry to move to America.
Energy charges are often unreasonable or excessive, and the issue of electric vehicles is easy to solve within reason. The big problem is President Joe Biden’s Inflation Reduction Act, which has set the US on a path of massive subsidies, which the European Union will have a hard time following.
First, the idea that Washington will deliberately create an energy cost differential with the European Union robbing European investment is a gross exaggeration. The United States does not control the prices of its energy companies, and it is not their fault that the European Union has become so dependent on Russian pipeline gas. There is a dark irony here: In 2018, the European Union tricked Donald Trump into abandoning a plan to impose tariffs on European cars with disingenuous promises to import American LNG. If these promises were real and not tactical, Europe would be in a better position now.
In the case of electric cars, the tax breaks attract a lot of attention, because subsidies for consumers dependent on domestic production are clearly against WTO law. However, plaintiffs – the European Union, Japan and South Korea – also have plenty of room to avoid discrimination. The three would not realistically have tax-free access to exporting their cars, but, as reported by the Financial Times, the law could be changed through clever lobbying. In the latter case, if the affected companies had their own manufacturing facilities in the US, they could pressure local senators and congressmen to ask the administration for exemptions from exports from their constituencies.
As for America stealing investment from Europe, Simon Evenett of the watchdog Global Trade Alert notes that FDI inflows reward regulatory stability more than tax incentives.
More worrying for the EU are the subsidies contained in other parts of the law, such as subsidies for the production of green hydrogen. It’s hard to get the public angry about that. Hydrogen is not as symbolic as cars, and subsidies are against WTO rules only if they are proven to harm European producers.
Underlying this tension is a fundamental difference in approach and capabilities. To put it bluntly, the EU has the rules and the US has the money. Europe’s approach to decarbonisation was initially to change relative prices through its emissions trading programme, now supported by a planned carbon cap adjustment mechanism painstakingly designed to comply with WTO rules. Having failed to create its own carbon cap and trade program, the US instead doled out hundreds of billions in subsidies and incentives with little regard for trade law.
The two retail giants also have conflicting priorities. The United States is focused on outstripping China and as such views green investment as a matter of paramount national security, the same position that drives semiconductor export controls. As for the European Union, it is more concerned with decarbonizing its economy and trying to catch up with green technology.
It is true that the European Union has its own funds for green investments, but they are not equal to those in the United States for direct support of production. Moreover, being the most affected by the energy shock, the EU has other concerns. The Bruegel think-tank estimates that EU governments have announced a total of €600 billion in payments to consumers to cushion their energy price hikes, more than the total US energy and climate change spending in the Inflation Act.
Unless the EU manages to commit hundreds of billions more to investment, there will be no good, amicable end to transatlantic tensions over cash versus rules. This is probably something that should be managed rather than solved. That’s certainly better than spending no money on green technology and not charging a price on carbon dioxide emissions at all, but having one commercial superpower focus on both is certainly not the best way to go about it.

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