Europe Is Wrong to Blame the U.S. for Its Energy Problems
As the depth of winter approaches, Europeans are increasingly worried about their ability to heat homes and power factories. Although natural gas storage levels are nearly full and prices have eased, the European gas price is still four to five times higher than average in recent years — and President Vladimir Putin of Russia has just threatened to cut what little Russian gas still flows to Europe.
Despite the economic pain and Mr. Putin’s best efforts, the West has remained largely united in confronting his aggression in Ukraine. Yet fissures are now beginning to show in the trans-Atlantic alliance as European leaders — especially President Emmanuel Macron of France, who has been visiting Washington this week — blame U.S. energy and climate policy for worsening their energy predicament. These attacks are not only misguided but also risk aiding Mr. Putin in his conquest of Ukraine.
In recent remarks to French business leaders, Mr. Macron complained about the cost of U.S. imports of liquefied natural gas and “massive state aid schemes,” referring to the clean energy subsidies in the Inflation Reduction Act. “I think it is not friendly,” he said.
Other European leaders have joined in, using inflammatory rhetoric to blame three aspects of U.S. policy.
Some European officials have accused U.S. companies of war profiteering for selling relatively inexpensive U.S. natural gas at much higher prices in Europe. These accusations are baseless. American liquefied natural gas, or L.N.G., is sold in Europe at a price set by the market. While that price is more than five times the U.S. natural gas price today, most of that L.N.G. is sold to middlemen, usually at the U.S. price plus some markup. Those middlemen, not U.S. export companies, benefit when the overseas gas price is much higher. Most of these resellers are not American. The largest are European companies — TotalEnergies and Shell.
European attacks on the United States are particularly perplexing given that American L.N.G. has played such a pivotal role in helping Europe replace gas from Russia, which had supplied around 40 percent of Europe’s imports before the war. Indeed, many European leaders questioned America’s opposition to the Nord Stream 2 pipeline, which would have further increased that dependence on Russian energy. The United States not only was the largest L.N.G. exporter in the world in the first half of 2022 but also supplied more than three-quarters of the European Union’s additional needs in the first half of the year. Unlike most other L.N.G. suppliers from other countries, whose contracts restrict where the liquefied natural gas can be sold, the vast majority of contracts for gas from the United States have no constraints on their destination, and thus most of those L.N.G. cargoes were diverted to Europe to help with the crisis.
Several European leaders have also criticized the very large clean energy subsidies in the climate provisions of the Inflation Reduction Act. “Nobody wants to get into a tit-for-tat or subsidy race,” the Irish trade minister, Leo Varadkar, said recently. “But what the U.S. has done really isn’t consistent with the principles of free trade and fair competition.”
The new law does have implications for Europe. It will, for instance, make it cheaper to produce low-carbon fuels, such as hydrogen and ammonia, in the United States than in nearly any other place, according to the consultancy BCG. Europeans are concerned this may encourage companies to shift investment plans to the United States or relocate energy-intensive industries, such as steel, to where the cheap low-carbon energy is.
It is understandable that Europeans are worried about a wave of deindustrialization. But the culprit is Europe’s lack of competitiveness without cheap Russian gas, not America’s new climate law. After years of criticizing the United States for being a laggard on climate action, it is puzzling to see European leaders condemning the country for investing too much in clean energy. America’s new climate mandates can begin a cycle of competition in clean energy technologies that accelerate decarbonization rather than lead to protectionist policies that retard it.
Finally, European leaders fear the Inflation Reduction Act will disadvantage European companies. To qualify for the tax incentives, clean energy products often must be made in the United States or, in some cases, neighboring or ally nations. For example, the new climate law requires that electric vehicles be assembled in North America to qualify for the subsidies and that their batteries be made from an increasing percentage of components mined or processed in the United States or its free-trade partners. The European Union is not one of those partners.
Europeans are right to express concerns about protectionism. Industrial policy is back in vogue, and the Inflation Reduction Act is the latest action in a growing trend aimed at boosting domestic industries, creating jobs and securing supply chains — something the European Green Deal does too. China’s own protectionism and use of its industries for geopolitical influence have made Western governments favor trade with allies — so-called friend-shoring.
Yet Europe’s current energy crisis has nothing to do with the new U.S. clean energy subsidies. Moreover, the provisions Europeans find objectionable are far from universal; for example, commercial vehicles, such as delivery vans and trucks, have no domestic manufacturing requirements to receive subsidies. Still, U.S. officials should use what discretion they have in putting the law into effect and in trade negotiations to allay potential harms to Europe and other allies such as South Korea and Japan.
With deft trade diplomacy, the Inflation Reduction Act’s sweeping new climate provisions should create more opportunities for cooperation with the European Union than it creates risks to the trans-Atlantic relationship. For example, U.S. and E.U. officials can leverage strong climate action on both sides of the Atlantic to carry out a recent agreement to restrict steel and aluminum imports, notably from China, that do not meet certain emission standards and work together to create preferential trade terms for countries that do meet such standards or impose a carbon fee on imports that don’t.
Diplomacy was underway Thursday in a meeting between President Biden and Mr. Macron. The French president spoke of the need to “resynchronize” his nation’s economic partnership with the United States to “succeed together.” Mr. Biden said he makes “no apologies” for the Inflation Reduction Act but also acknowledged the law had “glitches” and said, “There’s a lot we can work out.”
This is a positive step. Trans-Atlantic cooperation will be required more than ever to accelerate the shift to clean energy and secure those new supply chains. It is also what’s required to hold firm against Russia’s aggression in Ukraine. European leaders should tone down the rhetoric and work with their U.S. counterparts on collaborative approaches to accelerate climate action, enhance energy security and help Europe cope with its energy crisis.
Jason Bordoff (@JasonBordoff) is the founding director of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs, a former senior director on the staff of the U.S. National Security Council and a former special assistant to President Barack Obama.
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