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US Tax Incentives Encourage European Businesses to Embrace Clean Technology as Europe Lags Behind

A Norwegian startup, Freyr, has plans to construct batteries to act as a power source for electric vehicles and store clean energy in a town located close to the Arctic Circle. Subsequently, their plans will extend to an Atlanta suburb.

Tom Einar Jensen, CEO of the company, noted that the new U.S. clean energy legislation provides significant tax benefits -- as much as 40% of expenses -- to motivate production in the United States, which he labeled as a "huge, huge incentive".

In Europe, businesses seeking to partake in the surge of green energy -- such as solar panels, windmills, and EV batteries -- are taking into account the U.S. Inflation Reduction Act's noteworthy $375 billion intended for renewable industries, as well as the incomplete action that the European Union has been striving to assemble over the past few months.

This legislation strives to launch the United States' shift away from the use of fossil fuels that increase climate change, and to provide tax incentives and refunds to support clean technology manufactured in North America.

In August, the passing of the law in the U.S. caught the EU off guard and put them in a disadvantaged position in the international endeavor to lower carbon emissions. This has evoked resentment from the EU since the regulations provide an advantage to North American products, potentially drawing away green investment from Europe and resulting in a competition for subsidies.

The European Union's governing division proposed initiatives to guarantee that at least 40% of clean technology is made in Europe by 2030 and put a restriction on the total of strategic raw materials coming from any single foreign country, usually China, to 65%. In addition, they have initiated talks with President Joe Biden to make minerals from Europe that are utilized for EV battery production eligible for U.S. tax credits.

Executives who are wanting to capitalize on financial gain to advance their organizations are commending the straightforwardness of the U.S. initiative. Some are voicing discontentment with the EU blueprint, stating it is unimpressive, difficult to understand and overloaded with regulations, potentially making Europe lag in the shift to electric cars.

Thomas Schmall, the board member from Volkswagen responsible for technology, recently mentioned on LinkedIn that the United States is gaining ground due to the Inflation Reduction Act; however, Europe is slowly falling behind. He went on to say that the IRA's conditions are so advantageous that Europe may miss out on the billions of investments that will be made in the near future.

In July, Volkswagen announced that its new PowerCo battery company would be setting up its first large-scale production plant for EV batteries in St. Thomas, Ontario, outside of Europe. This factory, scheduled to open in 2027, is anticipated to gain advantages from the IRA because of special treatments for Canada and Mexico, two of the U.S.'s neighboring countries with free-trade agreements.

The German auto manufacturer has allegedly suspended their decision to construct a battery plant in Eastern Europe until they acquire more details about the European Union's plan. No comment was made by Volkswagen when asked.

Northvolt, a Swedish battery startup, had planned to construct a third gigafactory, the first outside its native country, in northern Germany. However, the U.S. legislation made them reconsider and they are currently examining the recent EU plans before deciding in a month where to build the plant.

The European Union strictly regulates state aid to businesses in order to prevent skewing the competition in the single market, where some nations are far bigger and wealthier than others. To compete with the United States, however, the EU modified these limitations for cleaner industries, which is a dramatic shift from its past stance that the government should stay away from the free market.

Business professionals from Europe have voiced their concerns that U.S. incentives could shake up the international methods of developing technology.

Luisa Santos, a deputy director general of BusinessEurope, a Brussels-based lobby group, remarked that the IRA has caused this model of building cars in the U.S. to become uncertain, due to the fact that some components are imported from Europe. She noted that this necessitates that the manufacturing take place locally.

She cautioned that if global supply lines vanish, the price tag will be substantially more despite the potential of having closer access. "Will buyers be ready to shell out?"

In November, the Italian firm Enel revealed its intention to establish a major solar panel production facility in the U.S., attributing the move to the Investment Recovery Act.

Enel's factory is projected to have an output of 3 gigawatts of solar panels and cells, with the potential to expand to 6 gigawatts by the end of 2024.

In addition to Europe, corporations in Asia are vying for a stake in IRA investments.

LG, a South Korean tech enterprise, declared in May their plan to construct a $5.5 billion battery production establishment in Arizona. The company labeled this as the largest individual investment ever for a solely battery manufacturing facility within North America.

LG declared that the purpose of their establishment of a manufacturing presence in the United States is to meet the increased demand for batteries manufactured domestically due to the Renewable Energy Tax Credit.

By 2025, the factory is planned to begin producing batteries for electric vehicles, with batteries for energy storage systems to be manufactured the following year.

Freyr is establishing two battery gigafactories, with the first in Mo i Rana, Norway, and the second in Coweta County, Georgia, each amounting to $1.7 billion.

At an inauguration event for a trial facility located in Mo i Rana, CEO Jensen pointed out the importance of having battery production on both sides of the Atlantic. Their clients and suppliers require that they establish presence in both regions.

In an interview, he revealed that the IRA gives a tax break of up to $45 for the usual expense of constructing a battery, which averages $110 to $115 per kilowatt hour.

Freyr's high-capacity energy storage systems have been receiving a lot of attention from the IRA, prompting them to move the U.S. finish date of the project to 2025, as indicated by Jensen.

Freyr is currently trying to discover "strategies to hasten the process" as their customers are "strongly advocating for locally manufactured" batteries that entail additional incentives for them. Jensen specified this.


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