“You should do the same”: that’s how Joe Biden’s energy secretary, Jennifer Granholm, rebuffed European complaints about the massive subsidies provided by the Biden administration through the Chips Act and Inflation Reduction Act (IRA). Adopted in the summer of 2022, these two laws subsidize the microprocessor industry and energy transition to the tune of $52 billion and $369 billion (€49 and €347 billion) respectively. There is something for everyone, so much so that the White House has published a small explanatory text of… 184 pages on the IRA. And the entire American energy sector was rejoicing in early March at CERAWeek in Houston, the oil and energy forum organized by S&P Global, the parent company of the rating agency, because this policy is changing the industrial landscape across the Atlantic.
In the United States, it doesn’t matter whether energy is blue or green. Thanks to West Virginia Senator Joe Manchin, a Democrat who increased his demands in order to vote for the bill in the summer, everything is eligible for credits: nuclear, hydrogen, solar, wind, grid, electric cars, auto factory and power plant conversions, individual home insulation. In the form of investment aid or production credit – a certain sum is paid for every clean kilowatt-hour produced or a certain amount of CO2 sequestered – provided, among other things, that wages meet federal state requirements.
In short, national jubilation is spreading, in the name of strategic independence and the energy transition that the United States wants to champion. Donald Trump had dreamed of “America first” but it is Joe Biden who is making it come true. The sacred union is such that Elon Musk was even welcomed at the White House and publicly thanked on Twitter by Joe Biden for making his network of car charging stations available. All this is done in splendid isolation, with a country that is closed to immigration and suffers from a labor shortage.
‘Carrot or stick’
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In this atmosphere of elation, few critical voices can be heard. But this was also the case when Joe Biden passed an ill-timed and excessive stimulus package early in his term that contributed to bringing back inflation. Spread out over ten years, the sums involved look small – less than 0.2% of GDP each year – but they boost margins and reduce facility costs, suddenly making many investments profitable. So the effect is more significant than it seems.
Added to this are massive subsidies offered by state and local governments. At the beginning of February, the Financial Times reported on how states had rolled out the red carpet and public subsidies to welcome foreign companies’ factories: in Georgia, $360 million for the Norwegian battery company Freyr, in Michigan, $715 million for their Chinese competitor Gotion, while Indiana and Ohio have land reserved for future investors. The craze involves all states, including the Republican oil strongholds of the MidWest, and is attracting Europeans en masse. “From the European perspective, you’re lucky,” sighed Josu Jon Imaz, CEO of Spanish oil company Repsol, in Houston on March 6. “What you have here is a carrot; what we have in Europe to accelerate the energy transition is a stick.”
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