With the multi-billion dollar IRA, the United States wants to invest hundreds of billions of dollars in promoting climate-friendly technologies. Washington wants to lure battery manufacturers into the country with tax credits. Therefore, the IRA is associated with a number of protectionist rules.
Concern about investment outflow to the US
One of them concerns the origin of the raw materials used in the batteries. This excludes European manufacturers from subsidies. The EU fears that investments will flow to the USA.
This concern is justified: The Swedish battery cell manufacturer Northvolt has stopped the plan for a factory in Germany for the time being and wants to expand its business in the USA. Tesla has also downgraded plans for battery construction in Brandenburg.
The USA wants to use the IRA to attract battery manufacturers in particular to the country. The USA therefore fears an outflow of investments.
(Photo: dpa)
The IRA requires that 40 percent of a battery’s critical minerals come from the United States or a country with which the United States has a free trade agreement. That’s Canada and Mexico. The proportion of locally produced raw materials is set to rise to 80 percent by 2027. The EU could have been among the beneficiaries, but the transatlantic zone TTIP failed in 2017.
A commodity partnership could now be recognized as a kind of mini free trade agreement. US Treasury Secretary Janet Yellen plans to present a guideline by the end of March. It is intended to clarify the specific implementation of the IRA with a view to the batteries.
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In German government circles it is said that the negotiations for the mini-trade agreement should take around two years. It is not yet clear whether European manufacturers will be excluded from the IRA during this period.
Europeans want to make a partnership palatable to the Americans
Business expects Scholz to clearly express its concerns in Washington: “It is important for German industry that Germany promotes improvements to the IRA specifications that disadvantage European and other foreign companies,” says Siegfried Russwurm, head of the IRA Federation of German Industry (BDI).
In addition to Scholz, the responsible EU Commission Vice President Valdis Dombrovskis originally wanted to be in Washington on Friday. He had to cancel his trip because of a Covid disease.
The Europeans hope to make the partnership palatable to the Americans: Together, dependence on China for critical raw materials can be reduced. Some see an agreement between Washington and Brussels as the start of a global commodities club that brings together countries with large deposits such as Chile or Australia and industrialized countries with high demand.
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The EU was able to defuse the most problematic part of the IRA for the European auto industry in December. The USA initially linked its support package to the fact that the final assembly of electric cars takes place in the United States. The US government subsequently exempted leasing vehicles from this rule – which is helping the German auto industry in particular.
In principle, however, the US government does not want to revise its climate law. Biden sees the IRA as his central achievement. “We finally made it,” he shouted in Virginia Beach this week. “We launched the historic Inflation Reduction Act.”
The European concerns are admittedly acknowledged in Washington. But recent tensions between the US and China are increasing the pressure on the US government to align its supply chains with the “Made in America” principle.
There is only room for minor modifications. At the G20 finance ministers’ summit in India a few days ago, Yellen outlined the option of a commodities club that would “allow Europe to qualify as a free trade partner.”
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In practice, according to lobbyists in Washington, European manufacturers could submit applications for exceptions with reference to the raw materials partnership in order to apply for the incentives. However, no one can predict how complicated these applications would be.
Vestager warns against protectionism
European battery companies are calling on EU countries to take action. Benoit Lemaignan, founder of French battery manufacturer Vercor, recommends that the EU also limit subsidies to locally made products. “We should be realistic: we need a bit of protectionism in Europe,” he says. This is also how China has built up its clean-tech industry.
Competition Commissioner Margrethe Vestager warned this week against relaxing state aid rules too much or even falling into protectionism. The EU must not sacrifice the single market for more subsidies, she stressed.
In the long term, the European economy would lose out if companies competed for state money instead of innovations. “A well-functioning internal market is worth billions and billions in state aid,” said Vestager.
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