EU-US climate and energy relations in light of the Inflation Reduction Act

Briefing 19-01-2023

EU response to the US Inflation Reduction Act

The war in Ukraine has put Europe's dependence on energy imports under the spotlight. The United States (US) has stepped in and pledged to increase its exports of liquefied natural gas (LNG) to Europe. While this helps address the shortfall in energy imports from Russia in the short term, it raises the question as to how far the EU wants to build an energy partnership with the US. Closely intertwined with the energy challenge is the fight against climate change. With the European Union (EU) committing to more ambitious policies within the framework of the Green Deal, it has an interest in international partners also raising their level of ambition. Here, too, the US is a key partner. As one of the world's largest CO2 emitters, the US also plays a key role in bringing the world closer to reaching the goals of the Paris Agreement. The US Inflation Reduction Act, a huge investment bill pouring billions of dollars into the American economy by favouring US-made clean energy and technology, brings these considerations together. The EU will have to consider how to integrate its climate, energy and industrial policies, so as to contribute towards climate goals and energy security while at the same time retaining the global competitiveness of its economy. This, in turn, has far-reaching repercussions for related policy areas such as international trade, as well as for the ongoing debate over the future of the EU's budget and its macroeconomic governance framework.