EU policy ‘superior’ to US Inflation Reduction Act, say European economists

(EurActiv, 25 Sep 2023) The European approach to building climate-friendly industries is “superior” to the USA’s Inflation Reduction Act (IRA), German and French economists have argued in a new paper, calling for less panic in the response to the US subsidies.

Since the US launched its flagship subsidy plan for green industries just over a year ago, EU policymakers have feared that European manufacturers will relocate production across the Atlantic, investing in new sites on US soil as opposed to in the bloc. 

However, German and French government advisers have now called for less alarmism, arguing that the EU’s green industrial policy is “clearly a superior approach”.

Concerns of relocation are often overestimated, the French and German Councils of Economic Experts argue in a joint statement, saying that “the IRA is likely to have relatively small effects on US production and production shifts to the United States”.

While the US is mostly relying on subsidies to build up climate-friendly industry production, the EU’s main policy instrument is the Emissions Trading System (EU ETS), which puts a price on the carbon emissions of traditional CO2-emitting industries – the revenue of which is also used to promote the uptake of clean production.

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EurActiv, 25 Sep 2023: EU policy ‘superior’ to US Inflation Reduction Act, say European economists