The Inflation Reduction Act (IRA), passed in the US in August, violates the World Trade Organization’s treaties stipulating that countries may not discriminate against imported products, says the European Union.

The bill earmarks USD 369bn for climate initiatives and energy supply, and it includes a long list of advantages for solar and wind energy, electric vehicles and US infrastructure. Not least of all, it means that the tax cut schemes for onshore, offshore wind and solar energy are extended by at least ten years.

But in the first formal response from the EU, seen by the Financial Times, is that the bill may risk prompting retaliation by the union.

”If implemented in its current form, the Act risks causing not only economic damage to both the US and its closest trading partners, resulting in inefficiencies and market distortions, but could also trigger a harmful global subsidy race to the bottom on key technologies and inputs for the green transition,” reads the document submitted to the US Department of the Treasury.

It adds that the bill risks creating tensions that may lead to ”retaliatory measures.”

Across Europe, the concern is that the US policy might inhibit investments in green technologies within the EU and set off a trade war at a time when the geopolitical situation is already uncertain. And although the union is glad that US President Joe Biden is doing something for the climate, this shouldn’t occur to the detriment of others, it says.

Last week, Canada announced it would also implement tax rebates for green investments in an attempt to stop all the investments moving to the US.

Japan and South Korea, too, have complained about the IRA, according to the Financial Times.

Last week, a joint committee was formed between the US and EU to examine the situation and come up with a solution to the problem.

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