Varadkar says EU and US must avoid ‘tit-for-tat’ in green subsidies dispute

Taoiseach Leo Varadkar said on Thursday in Davos that the European Union needs to avoid a “tit-for-tat scenario” as it develops a response to major subsidies that the United States has committed for green investments, which has become subject of transatlantic trade tension.

The US Inflation Reduction Act, passed last year, provides for a record $369 billion (€341 billion) spending on climate and energy policies, including tax breaks for US-made electric vehicles, aimed at speeding up the transition to a low-carbon economy.

However, the law has been heavily criticised by the European Commission and some EU countries, who see it as discriminatory against some industries, such as carmakers, on this side of the Atlantic. The standoff has been a major talking point at the World Economic Forum (WEF) in Davos this week.

The commission is planning to present its proposal for a response to the US move on February 1st, a week before an EU summit in Brussels, where member states are expected to discuss the matter in detail.

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Commission president Ursula von der Leyen said at the WEF on that her officials are drafting planned laws to support the region’s green industries – with the help of state aid and a sovereign wealth fund.

[ EU must boost clean tech funds to counter US, Von der Leyen says ]

“There has to be a European response,” Mr Varadkar said. “So, the risk is a tit-for-tat scenario, whereby both the US and EU try to compete with each other when it comes to subsidies, at the expense of our own taxpayers – or to try and bring in trade restrictions on each other. That never works.”

He added: “Europe and America benefit from free trade and won’t benefit from any form of protectionism. We’ll be very much a voice at the table in Brussels in February ... for the EU and in the US to come together and really agree on how we can work together to boost those green industries, which we want to do as well.”

Mr Varadkar noted that Brexit leading to the departure of a key pro-free-trade country from the EU means that “the case of protectionism is made more strongly, and the case for free trade [is] not made as strongly as it was in the past”.

“We’ve seen an unprecedented level of globalisation in the past two decades, that is retreating a bit,” he said. “But I think the arc of history points towards globalisation, and points towards free trade and free enterprise, because the world, for lots of reasons, particularly technologies, is becoming a smaller place all the time.”

“But generally what we’ll do is get together with other like-minded countries, particularly the Netherlands, Austria, Nordic countries, Germany, a lot of the time, sometimes Malta and Cyprus ... to make the case for free trade,” he said.

Meanwhile, Mr Varadkar rejected a claim from Sinn Féin that a European Parliament vote by Fine Gael, Fianna Fáil and Green MEPs on Wednesday, in favour of moving from unanimity to qualified majority voting when it comes to human rights abuses and sanctions against Russia, amounts to the Government seeking to roll back on neutrality.

Davos: Politics, business and climate change converge at the WEF

Listen | 32:49

Climate change is one of the themes of this year’s World Economic Forum in Switzerland. Markets Correspondent, Joe Brennan, reports from Davos where a recent winter heatwave means the highest town in Europe has significantly less snowfall than usual. The Taoiseach, Finance Minister and a delegation from the IDA are there as part of Ireland’s attempt to court FDI. All three parties are awaiting news from Microsoft on how many Irish jobs will be among the plans announced today to cut its workforce by 10,000, globally.

Hungary used its veto last year to hold up for weeks a planned oil embargo against Russia, following its invasion of Ukraine.

Sinn Féin’s Spokesperson on Foreign Affairs and Defence John Brady has claimed the Government parties are trying to “to remove Ireland’s veto in Europe” by voting in favour of a report on EU foreign and security policy during a plenary session in Strasbourg.

“I don’t agree with that interpretation. Ireland is a neutral country. We’re not going to be joining any military alliances like Nato,” the Taoiseach said. “But we are deeply involved in European common security, foreign and defence policy. We’ve been taking part in that now for quite some time and we want that to continue.”