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Green tech race? The US Inflation Reduction Act and the EU Net Zero Industry Act

Author

Listed:
  • David Kleimann
  • Niclas Poitiers
  • André Sapir
  • Simone Tagliapietra
  • Nicolas Véron
  • Reinhilde Veugelers
  • Jeromin Zettelmeyer

Abstract

The 2022 United States Inflation Reduction Act (IRA) is a significant and welcome climate law. It also includes trade‐distortive subsidies, including local‐content requirements prohibited under World Trade Organisation rules – the first time the US has done this and a blow to the international trading system that could trigger protectionism in other countries. The expected IRA green subsidies are of similar size to those available in the European Union, except in renewable energy production, where EU subsidies remain larger. However, there are important qualitative differences. In this article, we conduct a quantitative and qualitative comparison of the IRA with its preexisting European counterparts. We identify three main differences: European subsidies are less discriminatory, more focused on innovation rather than deployment and more fragmented than the IRA. Some IRA subsidies discriminate against foreign producers while EU subsidies do not. IRA clean‐tech subsidies are simpler, longer‐term and less fragmented, and they focus mainly on mass deployment of green technologies rather than innovation. We then examine the proposed EU reaction to IRA, the Net Zero Industry Act and discuss how it should be improved by the EU co‐legislators (the European Parliament and the EU Council) so as to become a useful building block towards a more comprehensive EU green industrial policy.

Suggested Citation

  • David Kleimann & Niclas Poitiers & André Sapir & Simone Tagliapietra & Nicolas Véron & Reinhilde Veugelers & Jeromin Zettelmeyer, 2023. "Green tech race? The US Inflation Reduction Act and the EU Net Zero Industry Act," The World Economy, Wiley Blackwell, vol. 46(12), pages 3420-3434, December.
    • Handle: RePEc:bla:worlde:v:46:y:2023:i:12:p:3420-3434
    DOI: 10.1111/twec.13469
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    References listed on IDEAS

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    1. André Sapir & Tom Schraepen & Simone Tagliapietra, 2022. "Green Public Procurement: A Neglected Tool in the European Green Deal Toolbox?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(3), pages 175-178, May.
    2. David Kleimann & Niclas Poitiers & André Sapir & Simone Tagliapietra & Nicolas Véron & Reinhilde Veugelers & Jeromin Zettelmeyer, 2023. "How Europe should answer the US Inflation Reduction Act," Bruegel Policy Brief node_8764, Bruegel.
    3. Kimberly A. Clausing & Catherine Wolfram, 2023. "Carbon Border Adjustments, Climate Clubs, and Subsidy Races When Climate Policies Vary," Journal of Economic Perspectives, American Economic Association, vol. 37(3), pages 137-162, Summer.
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    2. Ren, Feng & Li, Rongrong & Wang, Qiang, 2026. "Sustainable or unsustainable? Semantic insights into two decades of Arctic oil and gas research for sustainable development," Renewable and Sustainable Energy Reviews, Elsevier, vol. 228(C).
    3. Islam, Md. Monirul, 2025. "US-China bi-lateral mineral trade and energy transition in the landscape of global value chain pressures, geo-economic fragmentation and US-China geopolitical risks," Applied Energy, Elsevier, vol. 399(C).
    4. Andrzej Graczyk & Paweł Brusiło & Alicja Małgorzata Graczyk, 2025. "Hydrogen as a Renewable Fuel of Non-Biological Origins in the European Union—The Emerging Market and Regulatory Framework," Energies, MDPI, vol. 18(3), pages 1-39, January.
    5. Schütz, Marlies & Ploder, Michael & Polt, Wolfgang & Kattel, Rainer & Czarnitzki, Dirk, 2025. "Zeit für eine Industriepolitik in Deutschland? Eine Auseinandersetzung mit Rechtfertigungen, Risiken und Rahmenbedingungen," Studien zum deutschen Innovationssystem 4-2025, Expertenkommission Forschung und Innovation (EFI) - Commission of Experts for Research and Innovation, Berlin.

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