Last year, Washington passed the landmark Inflation Reduction Act (IRA) that contains around $370 billion in subsidies for green energy, as well as tax cuts for US-made electric cars and batteries, to speed up the transition to a low-carbon economy.

EU countries have however poured criticism on the IRA, seeing the “Buy American” domestic production requirement as a threat to European jobs, especially in the energy and auto sectors.

But the bloc’s members are divided over how to respond, with some, including France, calling for Europe to bring in its own substantial subsidy scheme. 

“There is no time to lose in establishing a new European industrial policy to support green industry and encourage industries to relocate to European territory,” Le Maire said before talks between the bloc’s finance ministers.

#Eurogroupe I Déclaration de @BrunoLeMaire à son arrivée à la réunion de l'Eurogroupe. pic.twitter.com/WZGvbBmPz2

— La France dans l’UE 🇫🇷🇪🇺 (@RPFranceUE) January 16, 2023

He called for a “simplification shock” to the state aid framework in Europe as well as larger subsidies for sectors including hydrogen, electric batteries, solar panels and semiconductors.

EU nations hope to agree on a way forward before a summit next month to avoid European businesses rushing to invest in the United States.

But some members fear a hardline response by the EU to the IRA could provoke a trade war, while others worry a subsidy race within the bloc would benefit wealthier nations.

“I think it’s important we respect the single market in all aspects,” Irish Finance Minister Michael McGrath told reporters. “The state aid rules… are there to ensure that there is a level playing field.”

European Commission President Ursula von der Leyen has previously proposed a new EU fund to support Europe’s green transition.