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U.S. Addresses European Concerns Over Climate and Tax Law Amidst Fears of Subsidy War

Wally Adeyemo, the deputy Treasury secretary, said the United States was continuing to look for ways to improve coordination with Europe on climate and energy security initiatives.Credit…Johanna Geron/Reuters

The Biden administration is actively working to alleviate European concerns regarding America’s new climate and tax law, which some allies fear could spark a protectionist industrial policy detrimental to their economies. Over a year after the passage of the Inflation Reduction Act, European officials remain frustrated by the legislation, which injects over $300 billion into America’s clean energy industry through spending and tax credits, making the U.S. a more attractive destination for investments.

Wally Adeyemo, Deputy Treasury Secretary, sought to clarify the U.S. stance during a speech in Germany. He emphasized that the Inflation Reduction Act does not signal American protectionism or initiate a subsidy race. Instead, Adeyemo stressed the Biden administration’s commitment to improving coordination with Europe on climate and energy security initiatives. The U.S. aims to maintain a strong industrial base in countries like Germany while diversifying supply chains away from China—a strategy referred to as friendshoring.

Europe, already under economic pressure due to reduced Russian energy purchases and support for Ukraine, expressed concerns that U.S. incentives for the auto industry might divert investments from their economies. President Biden’s law includes over $50 billion in tax credits to encourage Americans to purchase electric vehicles assembled in North America. To address these concerns, the Biden administration has been negotiating agreements with Western allies, allowing a critical mineral they produce to count towards U.S. tax credits for electric vehicles. Adeyemo highlighted the potential for these agreements to benefit both the U.S. and Europe by scaling up clean energy production.

Meanwhile, the European Union has responded with its own clean energy subsidies. A recent European Commission report stated that the impact of the U.S. climate law on the EU’s clean technology investments hinges on the effectiveness of the EU’s response and policies to enhance its long-term competitiveness and technological edge.

As tensions persist, the global community closely observes these negotiations, understanding the potential ramifications on international trade, economic partnerships, and the future of clean energy investments. The evolving dynamics between the U.S. and Europe in this realm continue to shape the global economic landscape.

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