U.S. tax credits could benefit global automakers — but Europe wants more

The European Union is still not completely satisfied with recent concessions from Washington on its historic set of green energy subsidies, urging the U.S. to add more benefits for European car manufacturers.

The EU and the U.S. have been at odds for a couple of months over Washington's Inflation Reduction Act — sweeping legislation, approved by U.S. lawmakers in August, which includes more than $300 billion in spending on climate and energy policies.

European leaders have publicly stated their concern over the climate bill, given it provides unprecedented tax credits for those purchasing electric car vehicles made in North America. This could therefore challenge European companies, such as Volkswagen or battery maker Northvolt, which are looking to sell into the American market. It could also make these companies less willing to invest in Europe if revenue suffers, which could impact the local labor market.

An European official, who did not want to be named due to the sensitive nature of the negotiations, told a group of journalists last week that there has been "no weakening of the 'America first' policy," but since the legislation is not yet finalized, "there is still a chance to talk."

American officials, including President Joe Biden, have been accused of protectionism. Speaking alongside his French counterpart in December, Biden said: "We can work out some of the differences that exist, I'm confident."

Back in October, U.S. Treasury Secretary Janet Yellen acknowledged that big changes to the legislation were unlikely.

There have been several discussions between American and European officials in recent months and these are unlikely to end soon. A special taskforce between both is set to meet again next week.

Additionally, French and German delegations are due to travel to the United States together next month to seek further clarity on how the upcoming subsidies will work.

The U.S. Treasury Department issued guidance in late December that would allow EU companies to benefit from certain credits without needing to alter their business models. However, other guidance on how the legislation will be implemented is still outstanding.

"New guidance issued today by the U.S. reaffirms that EU companies can benefit from the Commercial Clean Vehicle Credit scheme under the US Inflation Reduction Act. The EU welcomes this guidance," the European Commission, the executive arm of the EU, said in a statement on Dec. 29.

However, in the same statement, it added: "The EU continues to seek similar, non-discriminatory treatment of EU clean vehicle producers under the Clean Vehicle Credits of the Inflation Reduction Act. This scheme remains of concern to the EU, as it contains discriminatory provisions."

The U.S. move to go ahead with such a high level of subsidies has motivated EU nations to take a closer look at how they support businesses.

European Commission President Ursula von der Leyen has said her team will be reforming state aid rules in the coming months so governments have more leeway to support companies amid the planned green energy transition.

In addition, von der Leyen suggested that the EU should tap the markets and use those funds to raise the level of financial support — an idea that Germany and the Netherlands were critical of.

"Reforming the bloc's strict state-aid regime will not be easy. Nor will be debates over whether such a subsidy-revamp should be accompanied by an EU fund, financed by more collective borrowing, to maintain a level playing field in the bloc's single market," analysts at the consultancy group Eurasia said in a note last week.