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European cleantech companies are eyeing US factories for generous tax breaks

origin 1Wind turbines in fields near Palm Springs, California ©Ashley Landis/AP

European clean-tech companies are looking to the US for a better base of operations, thanks to a recently passed clean energy law offering billions of dollars in benefits.

The US Inflation Reduction Act, passed late last year, is the most significant climate legislation in US history and includes $375 billion (€341 billion) in benefits for renewable industries.

A European start-up, Norway’s Freyr, is building a factory for its electric car batteries in an Atlanta suburb, with company CEO Tom Einar Jensen crediting the new US law with a “huge, massive incentive” to production in the United States.

Across Europe, companies looking to invest in the green energy boom – producing everything from electric vehicle batteries to solar panels to windmills – are making similar calculations, amid a fragmented response that industry leaders European Union have been trying to piece it together for months.

The US blindsided the EU when the act became law in August, putting the US on course to eclipse the 27-nation bloc in the global push to cut carbon emissions and leaving EU leaders enraged over rules that favor North American products, threatening to suck green investment out of Europe and spark a run on subsidies.

The EU’s executive branch has responded with plans to ensure that at least 40% of clean technology is produced in Europe by 2030 and to limit the amount of strategic raw materials from any single third country, typically China, to 65%. He also entered into negotiations with US President Joe Biden to make European-sourced minerals for the production of electric vehicle batteries eligible for US tax credits.

Executives, simply looking for as much cash as possible to boost their businesses, are hailing the simplicity of the US program.

Some complain that the EU plan is underwhelming, confusing and bureaucratic, putting Europe at risk of falling behind in the green energy transition, particularly as the auto industry switches to electric vehicles.

Researchers in the US are resurrecting dead birds and taking them back to the skies as hi-tech drones

Is the EU lagging behind in the green race?

“While the US is catching up with the Inflation Reduction Act, Europe is increasingly lagging behind,” Thomas Schmall, a Volkswagen board member who oversees the technology, wrote on LinkedIn.

“The conditions of the IRA are so attractive that Europe runs the risk of losing the race for the billions of investments that will be decided in the coming months and years”.

Volkswagen said last month that its new battery business PowerCo will build its first EV battery cell gigafactory outside of Europe in St. Thomas, Ontario, following two more under construction in Germany and Spain. The Canadian plant, scheduled to open in 2027, is expected to benefit from the IRA due to provisions for US neighbors and free trade partners Canada and Mexico.

Meanwhile, the German auto giant has reportedly suspended a decision for a battery plant in Eastern Europe pending more information on the EU plan. Volkswagen did not respond to the Associated Press’s request for comment.

Another Scandinavian battery start-up, Sweden’s Northvolt, was set to build a third gigafactory, its first outside its home country in northern Germany.

US law has led it to pause and it is reviewing new EU proposals before deciding next month where to put that facility.

The EU keeps a tight lid on state aid to businesses to avoid distorting competition in the bloc’s single market, where some countries – such as Germany and France – are much larger and wealthier than others.

But to compete with the US, the EU has eased those restrictions on clean industries, marking a fundamental shift for Brussels from its long-held view that government should take a direct, free-market approach.

European business leaders say US incentives could upend global ways of producing technology.

“We are building cars in the US, but sometimes the engine or other parts come from Europe. The IRA questions this model because it requires manufacturing to take place in the US,” said Luisa Santos, deputy managing director of BusinessEurope, a pressure group based in Brussels.

“You may have more proximity, but the cost will be much higher” if global supply lines disappear, he warned. “Will the consumer be willing to pay?”

Italian energy giant Enel gave credit to the IRA when it announced plans in November to build a massive solar panel factory in the United States.

Enel’s factory will initially be able to churn out 3 gigawatts of solar panels and cells, eventually expanding to 6 gigawatts. The plant is expected to be operational by the end of 2024.

For its part, Freyr is expanding its footprint from its first giga battery factory under construction in Mo i Rana in northern Norway to a second in Coweta County, Georgia, each costing $1.7 billion ( 1.55 billion euros).

“It is important for us to produce batteries on both sides of the Atlantic because our customers and our supply chain partners want us to be present on both sides,” CEO Jensen said during an opening ceremony for a pilot plant in Mo i Rana.