Subsidies offered under the Inflation Reduction Act (IRA) to attract business to the United States, denounced by Europeans as detrimental to competition, may have only “limited effectiveness,” according to a note by Cepii, a think tank government experts, released on Tuesday. For months, the leaders of the Old Continent have warned about the risks of industrial relocations linked to the IRA, a great plan that generously subsidizes strategic sectors (batteries, solar panels) as long as they locate their production in the United States.
But “the location of a productive activity depends on many factors and the European Union has advantages in terms of attracting foreign direct investment” (market size, quality of institutions, human capital, etc.), qualifies the Center for the Study of Prospective and International Information. .
Only one in five electric cars is eligible for the tax credit
Another argument from Cepii, “if on the one hand the (US) law grants attractive tax incentives, on the other hand, the technical criteria associated with respecting local content obligations are restrictive.” Yet a US Treasury study in August 2022 found that just one in five electric cars was eligible for the $7,500 IRA tax credit for electric vehicle buyers.
“As the law provides for an increase in the local content threshold percentages, it will be increasingly difficult for entrepreneurs to meet these criteria,” Cepii anticipates. Not to mention that the IRA prohibits the use of components from China, Iran, Russia or North Korea, key suppliers of certain strategic metals such as lithium or cobalt.
France 2030 weighs proportionally as much as the IRA
Finally, the 391 billion dollars allocated by the United States to green industries represent 0.17% of the US Gross Domestic Product.
In addition, “IRA spending represents less than half that of the EU” in the same area, assessed by Cepii at 0.5% of European GDP. “There is already substantial funding for European industries,” concludes Cepii, who calls for improving the European state aid framework and making subsidies “more accessible and predictable.” In early February, the European Commission proposed relaxing the state aid framework, but closed the door on new funds, suggesting instead redirect existing funds towards green industry.
Source: BFM TV
