U.S. Looks to Allay European Fears of a Subsidy War

The Biden administration is trying to ease European concerns about America’s new climate and tax law, which some allies view as a protectionist industrial policy that threatens their economies.

More than a year after passage of the Inflation Reduction Act, European officials are still frustrated by the legislation, which included more than $300 billion in spending and tax credits aimed at bolstering America’s clean energy industry. U.S. allies have complained that the legislation puts them at a disadvantage by making their economies a less attractive place to invest given the scale of the American incentives.

With wars intensifying in Ukraine and the Middle East, the Biden administration is looking to assuage those concerns and send a clear message to its closest allies that America is not trying to start a subsidy war.

“A misrepresentation I’ve often heard is that the I.R.A. signals a turn toward American protectionism or the start of a subsidy race to the bottom,” Wally Adeyemo, the deputy Treasury secretary, plans to say in a speech in Germany on Tuesday, according to a copy of his prepared remarks. “I want to be clear: It does neither.”

Mr. Adeyemo said the United States was continuing to look for ways to improve coordination with Europe on climate and energy security initiatives and made the case that the Biden administration wanted countries such as Germany to maintain a strong industrial base. The United States has been pursuing a policy of so-called friendshoring that entails strengthening supply chains with allies while diversifying away from China.

“Even as we spur American production, we recognize the need to build a resilient supply chain that includes our allies,” Mr. Adeyemo, who is speaking at the Industry 2023 conference in Berlin, will say.

Europe has been under economic pressure in the last year as it has moved away from buying Russian energy and spent heavily to support Ukraine. European officials have been particularly concerned that new U.S. incentives for the auto industry would pull investment away from their economies. President Biden’s new law contains more than $50 billion in tax credits intended to entice Americans to buy electric vehicles assembled in North America.

In recent months, the Biden administration has been negotiating agreements with Western allies that would allow a critical mineral they produce to count toward U.S. tax credits for electric vehicles. Mr. Adeyemo suggested that over time, the agreements would help both the United States and Europe scale up production of clean energy.

“Through such agreements and partnerships, we will help ensure that both the United States and Europe have access to the critical raw materials that are needed in the production of electric vehicle batteries and to power the renewable energy economy,” he will say.

The European Union has been pursuing its own clean energy subsidies in response to the U.S. incentives.

A European Commission report published last week said that it was not yet clear what effect the U.S. climate law was having on the E.U. economy and that Europe’s eventual package of clean energy incentives would determine the ultimate impact.

“The overall impact of the I.R.A. on E.U. clean technology investments will also depend on the effectiveness of the E.U.’s response and on its policies to improve its long-term competitiveness and technological edge,” the report said.

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