U.S. May Make Inflation Reduction Act Concessions to EU as Permanent Solution Sought (2)

By Mathew Carr

Jan. 20-21, 2023 — EU Trade Commissioner Dombrovskis on discussions with the US about the unfairness of the Inflation Reduction Act (IRA). The EU regards the IRA as anticompetitive because it discriminates in favor of US industry…Eg it favours US electric vehicles:

“We see progress on some issues, for example on clean-vehicles tax credits. There are some openings indicated from the U.S. Others, for example, on raw materials.”

There are more negotiations to come, the commissioner said.

“It means that we (the EU) cannot continue to give free emission allocations to our energy-intensive industries.

“So we need to start putting a price on carbon on those industries. But if we start putting a price of carbon, we need to see what is a way to avoid carbon leakage.” (Carbon leakage is jargon for when a global corporation shifts investment and production to countries with weak environmental protection.)

The G7 and G20 and many other nations are seeking a global climate solution to limit temperature rise that balances historical emissions, trade, equity and justice, — a goal so complex and challenging it has escaped them and the entire world for more than 30 years.

Patching differences between the EU and the US could create a domino-like collapse of barriers standing in the way of that goal — with the next dominos of China and India being potentially pretty difficult to shift, with further negotiations likely required in the middle of and in November of this year at UN level.

The EU was avoiding carbon leakage by not really putting a price on carbon in a proper way because of the free allowances handed out to the region’s industry every year since 2005, the commissioner acknowledged.

“As we move to carbon neutrality, that’s not a viable option. So we’re putting a [proper] price on carbon and then we are putting the same price of carbon on imported goods.”

So free allowances to industry will become a thing of the past, yet his words hint that the expected timing of that (around the early 2030s) may still be in play.

“Whatever (price) we put on our domestic producers, we put on imported goods,” he said.

And if a third country is going to price carbon, it can be offset against the EU’s carbon border adjustment mechanism (CBAM), the commissioner said.

Unlike the IRA, the CBAM provision — a tax levied at the border of the EU via blockchain — will be motivated by environment protection rather than trade protection, he said, (or he at least implied this).

For context and a CarrZee readout/comment, and for a trade-climate coalition update, see below:

Something new for the USA – less selfishness?

 ‘A new approach to trade to create so-called inclusive prosperity

Euractiv story Jan. 18 (snip of this):

The United States administration will seek a new approach to trade to create so-called inclusive prosperity, according to a visiting official, at a time the European Commission is set to respond to the US Inflation Reduction Act (IRA).

Visiting Brussels on Tuesday (17 January), US trade representative Katherine Tai met with stakeholders to discuss EU-US trade relations currently overshadowed by the IRA, which offers large-scale subsidies for green technologies.

“President Biden has instructed me to bring a new approach to trade that advances the needs of our workers, protects the environment, and creates an inclusive prosperity,” said Tai during a press conference with the European Commission’s Executive Vice President Valdis Dombrovskis.

Meanwhile, Dombrovskis announced a Commission proposal for an EU response to the IRA on the first of February.


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