The law aims to kick-start the US transition away from climate-changing fossil fuels with tax credits and rebates that favour clean technology made in North America
Norwegian startup Freyr will first build batteries to power electric vehicles and store clean energy in a remote town near the Arctic Circle. Up next? An Atlanta suburb. That's because a new US clean energy law offers generous tax credits — up to 40 per ce of costs — in what is a “massive, massive incentive” for producing in America, CEO Tom Einar Jensen said.
Across Europe, companies seeking to invest in the green energy boom — churning out everything from solar panels to windmills and EV batteries — are making similar calculations, weighing up the US Inflation Reduction Act's $375 billion in benefits for renewable industries against a fragmented response that European Union leaders have been scrambling to patch together for months.
The law aims to kick-start the US transition away from climate-changing fossil fuels with tax credits and rebates that favour clean technology made in North America. It blindsided the EU when it became law in August, putting the US on course to eclipse the 27-nation bloc in the global push to reduce carbon emissions and leaving EU leaders fuming over rules that favor North American products, threatening to suck green investment from Europe and spark a subsidy race.
The EU's executive branch responded with plans aimed at ensuring least 40 per cent of clean technology is produced in Europe by 2030 and limiting the amount of strategic raw materials from any single third country — typically China — to 65 per cent. It also opened negotiations with President Joe Biden on making Europe-sourced minerals for EV battery manufacturing eligible for US tax credits.
Executives, simply looking for the most money they can get to boost their businesses, are hailing the US program's simplicity. Some complain that the EU plan is underwhelming, confusing and bureaucratic, putting Europe at risk of falling behind in the green energy transition, notably as the auto industry moves to EVs. “While the United States are catching up thanks to the Inflation Reduction Act, Europe is more and more lagging behind,” Volkswagen's board member overseeing technology, Thomas Schmall, posted on LinkedIn.
“The conditions of the IRA are so attractive that Europe risks to lose the race for billions of investments that will be decided in the coming months and years.” Volkswagen said last month that its new PowerCo battery business would build its first gigafactory for EV battery cells outside Europe in St. Thomas, Ontario — following two others under construction in Germany and Spain.
The Canadian plant, set to open in 2027, is expected to benefit from the IRA because of provisions for US neighbours and free-trade partners Canada and Mexico. Meanwhile, the German auto giant has reportedly put on hold a decision for a battery plant in Eastern Europe while it waits for more information on the EU's plan. Volkswagen didn't respond to a request for comment. Another Scandinavian battery startup, Sweden's Northvolt, was poised to build a third gigafactory, and the first outside its home country, in northern Germany.
The US law led it to hit pause, and it's looking over the new EU proposals before deciding next month where to put that facility. The EU keeps a tight rein on state aid for businesses to avoid distorting competition in the bloc's single market, where some countries — like Germany and France — are much larger and richer than others. But to compete with the US, the EU relaxed those restrictions for clean industries, marking a fundamental change for Brussels from its long-held view that government should take a hands-off approach to free markets.
European business leaders say the US incentives could upend the global ways of producing technology. "We're building cars in the US but sometimes the engine or other parts come from Europe. The IRA puts this model in question because it requires manufacturing to take place in the US," said Luisa Santos, deputy director general of BusinessEurope, a Brussels-based lobby group. “You might have more proximity, but the cost will be much higher” if global supply lines disappear, she warned. "Will the consumer be willing to pay?”
Italian energy giant Enel credited the IRA when it announced plans in November to build a massive solar panel factory in the US. Enel's factory initially will be able to churn out 3 gigawatts of solar panels and cells, ultimately expanding to 6 gigawatts. The plant is expected to be operating by the end of 2024. It's not just Europe. Companies in Asia also want a piece of the IRA.
South Korean tech giant LG last month unveiled plans to build a $5.5 billion battery manufacturing complex in Arizona, which it called the biggest single investment ever for a standalone battery manufacturing facility in North America. By setting up manufacturing in the US, LG “aims to respond to the fast-growing needs for locally manufactured batteries on the back of the IRA,” the company said. The factory is scheduled to start making electric car batteries by 2025 and batteries for energy storage systems a year later.
For its part, Freyr is expanding its footprint from its first battery gigafactory being built in Mo i Rana in northern Norway to a second in Coweta County, Georgia, each costing $1.7 billion. “It's 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 in both places,” CEO Jensen said at an opening ceremony for a pilot plant in Mo i Rana.
He said in an interview that the IRA provides up to $45 in tax credits toward the typical cost of making a battery, which is $110 to $115 per kilowatt hour. The IRA has stoked so much demand for standalone energy storage systems like the ones that Freyr makes — big banks of batteries that utility companies use to store renewably generated electricity — that the company moved the US completion date up by a year to 2025, Jensen said.
Freyr is now trying to figure out “how we can fast-track it even further” because “our customers are really screaming for locally produced" batteries, which, Jensen said, allow them to get their own incentives. “That, of course, increases demand for our product,” he said.