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  • Writer's pictureThe San Juan Daily Star

US spending on clean energy and tech spurs allies to compete

The Roseland Solar and Storage facility in Riesel, Texas, on Aug. 5, 2023. The United States has embarked on an enormous push to bolster its clean energy industry. (Brendan George Ko/The New York Times)

By Ana Swanson, Jeanna Smialek, Alan Rappeport and Eshe Nelson

The United States has embarked on the biggest industrial policy push in generations, dangling tax breaks, grants and other financial incentives to attract new factories making solar panels, semiconductors and electric vehicles.

That spending is aimed at jump-starting the domestic market for crucial products, but it has implications far outside the United States. It is pushing governments from Europe to East Asia to try to keep up by proposing their own investment plans, setting off what some are calling a global subsidy race.

Officials, particularly in Europe, have accused the United States of protectionism and have spent months complaining to the Biden administration about its policies. Governments in the European Union, Britain and elsewhere are debating how to counteract U.S. policies by offering their own incentives to attract investment and keep their companies from relocating to the United States.

“I think we all deny that there is a subsidy race, but up to a certain extent, it’s happening,” said Markus Beyrer, director-general of BusinessEurope, Europe’s largest trade association.

The United States is deploying nearly $400 billion in spending and tax credits to bolster its domestic clean-energy industry through the Inflation Reduction Act of 2022. Another $280 billion is aimed at facilities that manufacture and research semiconductors, as well as broader technological research.

The Biden administration says the full agenda will unleash $3.5 trillion in public capital and private investment over the next decade. It is both a response to the hefty subsidies offered by governments in China and East Asia and an attempt to rebuild an American factory sector that has been hollowed out by decades of offshoring.

The administration says the investments will put the United States in a better position to deal with climate change and make it less dependent on potentially risky supply chains running through China.

But the spending has sparked concerns about taking government resources away from other priorities, and adding to the debt loads of countries at a time when high interest rates make borrowing riskier and more expensive. Gita Gopinath, the first deputy managing director of the International Monetary Fund, said in an interview in October that the spending race was “a matter of concern.”

Gopinath pointed to statistics showing that whenever the United States, the European Union or China enacts subsidies or tariffs, there is a very high chance that one of the other two will respond with its own subsidies or tariffs within a year.

”We are seeing a tit-for-tat there,” Gopinath said.

The spending competition is also straining alliances by giving the companies that make prized products such as batteries, hydrogen and semiconductors the ability to “country shop,” or play governments off against one another other as they try to find the most welcoming home for their technologies.

Freyr Battery, a company founded in Europe that develops lithium ion batteries for cars, ships and storage systems, was partway through building a factory in Norway when its executives learned that the Inflation Reduction Act was under development. In response to the law, the company shifted production to a factory in Georgia.

“We think it is a really ingenious piece of modern industrial policy, and consequently, we’ve shifted our focus,” Birger Steen, Freyr’s CEO, said in an interview. “The scaling will happen in the United States, and that’s because of the Inflation Reduction Act.”

Steen said that the company is keeping the Norwegian factory ready for a “hot start,” meaning that production could scale up there if local policies become friendlier. The company is talking to policymakers about how they can compete with the U.S., he said.

Some countries are reaping direct benefits from U.S. spending, including Canada, which is included in some of the clean-energy law’s benefits and has mining operations that the United States lacks.

Killian Charles, the CEO at Brunswick Exploration in Montreal, said in an interview that Canada’s lithium industry stands to benefit as battery manufacturing moves to the United States and companies look for nearby sources of raw material.

But in most cases, the competition seems more zero-sum.

David Scaysbrook, the managing partner of the Quinbrook Infrastructure Partners Group, which has helped finance some of the largest solar and battery projects in the United States, said that the American clean-energy bill was the most influential legislation introduced by any country and that other governments were not able to replicate “the sheer scale” of it.

“Other countries can’t match that fiscal firepower,” he said. “Obviously, that’s a threat to the EU or other countries.”

The United States has sought to allay some of its allies’ concerns by signing new trade agreements allowing foreign partners to share in some of the clean-energy law’s benefits. The U.S. signed a minerals agreement with Japan in March that will allow Japanese facilities to supply minerals for electric vehicles receiving U.S. tax credits. American officials have been negotiating with Europe for a similar agreement since last year.

But at a meeting in October, the United States and Europe clashed over a U.S. proposal to allow labor inspections at mines and facilities producing minerals outside the United States and Europe. Officials are continuing to work toward completing a deal in the coming weeks, but in the meantime, the lack of agreement has cast a further pall over the U.S.-EU relationship.

Biden administration officials have continued to defend their approach, saying that the Inflation Reduction Act does not signal a turn toward American protectionism and that climate spending is badly needed. Even with such significant investments, the United States is likely to fall short of international goals for curbing global warming.

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