The US blindsided the EU when the Inflation Reduction Act became law in August, putting the US on course to eclipse the EU in the race to reduce emissions.
European clean tech companies are eyeing up the US as a better base of operations, thanks to a recently passed clean energy law that offers billions of dollars in benefits.
The US Inflation Reduction Act, passed late last year, is the most significant climate legislation in US history, and it includes $375 billion (€341 billion) in benefits for renewable industries.
One European start-up, Norway’s Freyr, is building a factory for its electric car batteries in an Atlanta suburb, with the company’s CEO Tom Einar Jensen crediting the new US law as a “massive, massive incentive” for producing in the US.
Across Europe, companies seeking to invest in the green energy boom - making everything from EV batteries to solar panels to windmills - are making similar calculations, amid a fragmented response that European Union leaders have been scrambling to patch together for months.
The US blindsided the EU when the act became law in August, putting the US on course to eclipse the 27-nation bloc in the global push to reduce carbon emissions and leaving EU leaders fuming over rules that favour North American products, threatening to suck green investment from Europe and spark a subsidy race.
The EU's executive branch responded with plans aimed at ensuring at least 40 per cent of clean technology is produced in Europe by 2030 and limiting the amount of strategic raw materials from any single third country - typically China - to 65 per cent. It also opened negotiations with US president Joe Biden on making Europe-sourced minerals for EV battery manufacturing eligible for US tax credits.
Executives, simply looking for the most money they can get to boost their businesses, are hailing the US programme's simplicity.
Some complain that the EU plan is underwhelming, confusing and bureaucratic, putting Europe at risk of falling behind in the green energy transition, notably as the auto industry moves to EVs.
EU falling behind in the green race?
“While the United States are catching up thanks to the Inflation Reduction Act, Europe is more and more lagging behind,” Volkswagen’s board member overseeing technology, Thomas Schmall, posted on LinkedIn.
“The conditions of the IRA are so attractive that Europe risks to lose the race for billions of investments that will be decided in the coming months and years”.
Volkswagen said last month that its new PowerCo battery business would build its first gigafactory for EV battery cells outside Europe in St. Thomas, Ontario — following two others under construction in Germany and Spain. The Canadian plant, set to open in 2027, is expected to benefit from the IRA because of provisions for US neighbours and free-trade partners Canada and Mexico.
Meanwhile, the German auto giant has reportedly put on hold a decision for a battery plant in Eastern Europe while it waits for more information on the EU's plan. Volkswagen didn't respond to the Associated Press’ request for comment.
Another Scandinavian battery start-up, Sweden’s Northvolt, was poised to build a third gigafactory, and the first outside its home country, in northern Germany.
The US law led it to hit pause, and it's looking over the new EU proposals before deciding next month where to put that facility.
The EU keeps a tight rein on state aid for businesses to avoid distorting competition in the bloc's single market, where some countries - like Germany and France - are much larger and richer than others.
But to compete with the US, the EU relaxed those restrictions for clean industries, marking a fundamental change for Brussels from its long-held view that government should take a hands-off approach to free markets.
European business leaders say the US incentives could upend the global ways of producing technology.
"We’re building cars in the US but sometimes the engine or other parts come from Europe. The IRA puts this model in question because it requires manufacturing to take place in the US," said Luisa Santos, deputy director general of BusinessEurope, a Brussels-based lobby group.
“You might have more proximity, but the cost will be much higher” if global supply lines disappear, she warned. "Will the consumer be willing to pay?”
Italian energy giant Enel credited the IRA when it announced plans in November to build a massive solar panel factory in the US.
Enel's factory initially will be able to churn out 3 gigawatts of solar panels and cells, ultimately expanding to 6 gigawatts. The plant is expected to be operating by the end of 2024.
For its part, Freyr is expanding its footprint from its first battery gigafactory being built in Mo i Rana in northern Norway to a second in Coweta County, Georgia, each costing $1.7 billion (€1.55 billion).
“It’s important for us to produce batteries on both sides of the Atlantic because our customers and our supply chain partners want us to be present in both places,” CEO Jensen said at an opening ceremony for a pilot plant in Mo i Rana.