Germany responds to USD 369 billion US climate law with its own green initiatives

The EU has accused the Inflation Reduction Act of providing unfair subsidies to American manufacturers. French President Emmanuel Macron has long pushed for a so-called Buy European Act, which would reserve public tender offers and subsidies for manufacturers on the continent. Scholz and Habeck are pushing for the revival of free trade talks between the EU and the US with the goal of sealing an industrial tariff agreement or a tariff-free economic area for technologies that aid the green transformation.

Who

The German government plans to respond to President Joe Biden’s USD 369 billion climate law, the Inflation Reduction Act, by streamlining the distribution of existing European Union funds and increasing incentives at the national level. Chancellor Olaf Scholz and economy minister Robert Habeck do not see the need for an EU-wide subsidy programme as there are still billions of euros in untapped funds in existing programmes. They are also against introducing protectionist provisions obliging manufacturers to use European products, as this would undermine the EU’s free trade agenda.

Why it matters

At the national level, Scholz’s coalition government is ready to spend more than EUR 10 billion over the next couple of years to encourage heavy industries to invest in green technologies. The German plan would compensate manufacturers with high energy consumption, such as those working with steel, aluminum and cement, for the additional costs incurred by switching to more climate-friendly production methods. The contracts would also subsidize expenditures linked to operating costs, breaking with a long-standing tradition in Germany.

The German government’s proposal to focus on national measures instead of more aggressive EU-wide measures could impact the ability of the bloc to respond effectively to the Inflation Reduction Act and other challenges related to the green transition.

The final design of the national subsidy programme could still change, but Germany would like to begin the programme in early 2023. The prerequisite is that the respective companies produce exclusively with renewable electricity.