US at Risk of a ‘Carbon Subsidy War,’ Canada says

(Photo Credit: Michael Fousert/Unsplash)
(Photo Credit: Michael Fousert/Unsplash)

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There’ve been cold wars, trade wars, proxy wars, and now possibly a subsidy war.

With the US ready to dole out hundreds of billions of dollars in government funds and tax credits for clean energy projects, its allies are feeling resentment. This weekend, Canada’s natural resources minister told the Financial Times America is leaving little room for competition and getting on the wrong side of its closest friends.

The Green Monster

The goals of the Inflation Reduction Act are not too different from what most developed countries are trying to accomplish. But the Biden administration’s $370 billion green infrastructure pledge has other nations, especially Canada and those in the EU, feeling outgunned. Plus, for the most part, under the IRA, companies must source from and build their products — electric vehicles, solar panels, microchips, etc. — in the US. That creates the potential for foreign businesses to reduce their presence in their homelands and put down stakes in America.

“(The IRA’s) very significant subsidies had created an unlevel playing field for the Europeans and for Canada,” Jonathan Wilkinson, a senior member of the Canadian Prime Minister’s cabinet, told the FT. “We don’t want to get into a subsidy war with the Americans and neither do the Europeans and Japanese.”

And while Washington DC has been trying to reassure its allies and that the IRA will not create rivalries, Wilkinson is just the latest dignitary to criticize the US’ exorbitant spending:

  • In December, French President Emmanuel Macron said the IRA could “fragment the West.” And during a closed-door meeting with Congress, he bluntly referenced the possible loss of French jobs, saying, “Perhaps this law will solve your problems, but it will make mine worse,” according to a person who attended the event.
  • In January, Belgium Prime Minister Alexander De Croo even accused the US of actively luring European companies to American soil: “They are calling firms, in a very aggressive way, to say ‘don’t invest in Europe, we have something better.’”

They’re Playing Catchup: Even so, the Europeans aren’t exactly slacking off either when it comes to government handouts. The IRA will pay out over the next decade, but the EU has already spent roughly $74 billion in green subsidies each year since 2015, according to a report from the European Commission. The EU provides an amount that “is at least comparable to the amount of money that the Americans are putting on the table,” EU climate chief Frans Timmermans said. Indeed, it takes green to go green.