Germany Wants Tax Credits for Green Energy to Counter US IRA

(Bloomberg) -- Germany is planning to introduce tax credits for solar, wind and grid investments in response the US Inflation Reduction Act.

The government is working on a new instrument for Germany that would match subsidies on offer in the US, according to a document by the Economy Ministry. Any measure would need sign off from Brussels because of state aid rules.

President Joe Biden’s IRA offers subsidies and tax credits to the tune of $370 billion for the production of electric vehicles, sustainable aviation fuel and renewable energy. The EU has been struggling to find a way to respond amid fears that companies will channel investment toward the US. 

Setting up a tax credit system is much more bureaucratic in Europe because of administrative red tape required by Brussels, Germany’s Economy Minister Robert Habeck said at a press conference. 

While Germany’s proposal is a national proposal, it would support a European-wide tax credit system, according to the document, which is based on recommendations of the country’s Energy Agency dena. 

One of the key parts of the IRA supports manufacturing, building self-reliance and ensuring the country isn’t dependent on China or other nations. 

The German government also wants to boost the nation’s photovoltaic industry to try to reduce its own dependency on China. A feasibility study is planned in March 2023.

Germany’s solar industry has waned from its peak about a decade ago when a wave of insolvencies purged many companies that had been set up with state subsidies. 

Other measures:

• To help mitigate risks for wind power production and grid expansion, the government wants to set up guarantees via its development bank KfW
• Ideas for a transformation fund should be presented by summer 2023, which according to Habeck could be a special tranche from an existing climate fund

(Updates with detail from fourth paragraph.)

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