EU, U.S. Spar Over Green Energy


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Bloc's competition chief calls subsidies toxic, says proportionate response is planned

Multinational companies are racing to invest billions of dollars in the U.S. to capture generous clean-energy incentives, igniting a backlash among governments in Europe and Asia and sparking a move by some to come up with their own green subsidies.

Margrethe Vestager, the European Union's competition chief, said the new incentives from the U.S. are toxic and contain what she called questionable provisions that run the risk of diluting the shared sense of purpose on tackling climate change.

The U.S. incentives, included in 2022's Inflation Reduction Act, have spurred companies to rethink where they're putting their money and increasingly prompted America's trading partners to consider a response.

The EU is considering policies that "will be firm, but of course remain proportionate," Ms. Vestager said at a clean-tech conference in Brussels.

They include a plan to relax government-subsidy rules and are broadly expected to focus on the same clean-tech sectors as the U.S. legislation. Adaptations to state aid rules "must be targeted to the sectors that are really strategic," she said.

Companies such as Swiss solar-panel maker Meyer Burger Technology AG and the battery-making unit of Turkey's Kontrolmatik Technologies Energy & Engineering say the U.S. incentives have prompted them to shift their investments.

They also say that future investment in the U.S. could come at the expense of their home regions.

"You can spend every dollar or euro only once," said Gunter Erfurt, Meyer Burger's chief executive.

The Inflation Reduction Act includes $369 billion in incentives and funding for clean energy, mostly via tax credits for projects ranging from solar farms to battery manufacturing to facilities that remove climate-warming carbon dioxide from the air.

Global renewable-energy manufacturers and developers have announced tens of billions of dollars in new U.S. investments in the past half year, with many saying the subsidies spurred their decisions.

The shifting investment landscape has prompted a backlash in Europe, Asia and Canada, with some governments exploring policies to keep green investment at home.

Politicians and companies like South Korea's Hyundai Motor Co. argue some of the incentives are unfair for favoring manufacturers that produce in the U.S., and are lobbying for the rules to be interpreted in ways that would get them a bigger chunk of support.

Multinational companies are seizing on the moment to press foreign lawmakers for subsidies similar to those in the U.S.

At the World Economic Forum 2023, in the Swiss mountain town of Davos, executives clustered around Sen. Joe Manchin (D., W.Va.), one of the principal proponents of the U.S. legislation. Henrik Andersen, the chief executive officer of Danish company Vestas Wind Systems A/S, one of the world's biggest wind-turbine makers, said he was telling other leaders in Europe to copy the U.S. law and just give it a new name. "Hero," he said, pointing to Mr. Manchin.

"Instead of moaning and groaning, Europe should come out with something similar," Mr. Andersen said later in an interview with the Journal.

But Mr. Manchin was also dealing with blowback from French, German and other delegates, who are afraid their companies and communities will lose out if money and jobs flow across the Atlantic.

"We didn't write this bill intending to harm anybody," Mr. Manchin said in an interview. "I'm talking to France, I'm talking to the U.K., I'm talking to everybody."

Mr. Manchin is also wrangling at home with the Biden administration as the Treasury Department sets rules for exactly who qualifies for the Act's tax incentives.

He plans to introduce a bill to block the Treasury from issuing new tax credits for electric vehicles with batteries or other components made outside the U.S. The senator has bemoaned what he sees as loopholes for foreign-made vehicles, saying they undermine attempts to spur domestic production. The bill faces an uphill battle.

Some economists and policy makers warn that wide-ranging government support such as contained in the act isn't always effective and doesn't necessarily create the strong industries it is supposed to.

Projects might not get built and companies could end up failing, wasting money, they argue.

But for now, executives and industry experts say the cost of locating clean-energy projects in the U.S. has plummeted, making the country one of the most attractive places in the world to invest. The credits could reduce the cost of manufacturing blades for wind turbines in the U.S. by 34%, solar panels by 29% and battery cells by 28%, according to estimates from energy consulting firm Wood Mackenzie.

More than $35 billion in manufacturing investment for solar, wind and battery components in the U.S. has been announced since the law was signed, according to an analysis by The Wall Street Journal. In the last quarter of 2022, utility-scale solar, wind and battery power developers unveiled more than $40 billion in projects, more than the total investment for all such developments installed in 2021, according to estimates from business lobby the American Clean Power Association.

Andres Gluski, CEO of Arlington, Va.-based renewable-energy supplier AES Corp., said the company is putting about 70% of its investment into the U.S. already, up from 50% a few years ago.

"The IRA will tilt more to the U.S.," Mr. Gluski said, using an acronym for the act.


Phred Dvorak, Jenny Strasburg and Kim Mackrael

The Wall Street Journal