The protection of the planet and the mitigation of climate change represent key challenges of contemporary international policy. Both the European Union and the United States have adopted ambitious strategies to promote the energy transition and the development of low-emission technologies. Within the EU, the European Green Deal [1] plays a central role – its most recent extension being the Clean Industrial Deal (CID) [2] of 2025, while in the U.S., the Inflation Reduction Act (IRA) [3], adopted in 2022, constitutes the largest legislative package of subsidies and tax incentives for green investments in American history.
Although both instruments pursue the same overarching goals, which are climate neutrality and enhanced economic competitiveness, they differ significantly in legal structure and mechanisms of state-aid support. The EU favours a regulatory approach based on harmonisation of standards and internalisation of environmental costs, whereas the U.S. model relies on direct financial incentives and elements of industrial protectionism. These divergences may, on the one hand, foster transatlantic cooperation in the field of low-emission technologies and regulatory standard-setting, while on the other, they risk generating trade tensions due to differing systems of public support and subsidy models. The analyses of relationship between CID and IRA thus offers insight into both the prospects for cooperation and the potential conflicts shaping transatlantic climate policy. At the same time, subsequent amendments introduced under the Trump administration’s One Big Beautiful Bill Act [4] of 2025 partially revised several fiscal instruments associated with the IRA, particularly within the field of clean-energy incentives. These developments do not deprive the IRA of analytical significance, but rather demonstrate the structural and politically contingent nature of the American subsidy-based model of climate governance.
The European Green Deal is a comprehensive legislative programme encompassing both legally-binding acts and soft-law instruments aimed at achieving climate neutrality by 2050 and a 55% reduction of greenhouse gas emissions by 2030, as set forth in Regulation (EU) 2021/1119 [5]. This Regulation grants legal force to previously political goals, introducing a binding reduction trajectory and a scientific monitoring system implemented by the European Environment Agency.
Within this framework, the Fit for 55 [6], which is a package of legislative proposals, plays a crucial role, covering reforms in the energy, transport, construction, and industrial sectors, along with compensatory mechanisms such as the Social Climate Fund. Among its key legal acts is the revised EU ETS Directive [7], which expands the EU Emissions Trading System by gradually phasing out free allowances and reinforcing the “cap-and-trade” principle [8]. Complementing the ETS is the Carbon Border Adjustment Mechanism (CBAM) [9], which obliges importers to pay charges equivalent to the EU carbon cost. Although criticised as protectionist, CBAM functions as an instrument of exporting EU environmental standards—a manifestation of the so-called “Brussels effect” [10], exerting regulatory pressure on third countries.
After a very brief presentation on the structure of EU’s approach to environmental legislation, it is the Clean Industrial Deal (CID), presented by the European Commission in 2025, that serves as a strategic response to the global race for competitiveness in green technologies. CID, that remains part of the European Green Deal, provides for energy market reform, demand stimulation for clean technologies (with preference for EU-made products), mobilisation of funds under the Innovation Fund, and development of the circular economy. It also emphasises administrative simplification and greater efficiency in public spending.
The financial component of the CID is elaborated in the Clean Industrial Deal State Aid Framework (CISAF) [11], which defines the conditions for granting and approving state-aid for environmental investments. CISAF sets out criteria of compatibility with the internal market that are based on necessity, adequacy, and proportionality. Simultaneously, it introduces simplified approval procedures along with requirements to demonstrate measurable outcomes in decarbonisation and energy efficiency of the investment. Together, CID and CISAF, alongside other elements of the European Green Deal, form a coherent legal framework where market mechanisms such as ETS and CBAM are complemented by public-law instruments designed to drive structural transformation of the EU’s industrial and energy sectors towards climate neutrality.
The Inflation Reduction Act (IRA) of 2022 initially constituted the cornerstone of U.S. climate policy, distinct from the European model in both legal design and operational tools. Unlike the EU’s binding and market-based regulatory system, IRA is primarily fiscal and investment-oriented. It establishes no federal emission caps or unified carbon price but allocates over USD 370 billion in tax credits, subsidies, and grants to promote clean energy, electromobility, hydrogen technologies, and carbon capture and storage [12]. Although the IRA initially represented the most ambitious federal climate-investment programme in U.S. history, later legislative reforms adopted in 2025 under the Trump administration modified or limited selected support mechanisms. This demonstrates the comparatively flexible and politically changeable character of the American fiscal approach to climate transition, especially when compared with the more institutionalised and regulatory framework of the European Union.
The Act rests on four pillars: (1) tax incentives for renewable energy (the Production Tax Credit and Investment Tax Credit mechanisms) [13], consisting mostly of well-known, although redefinied fiscal instruments, (2) support for electric vehicle production and purchase, (3) subsidies for the battery and critical minerals industries, and (4) programmes advancing energy efficiency in buildings and local communities. The “Buy American” [14] provisions underscore the Act’s protectionist and geostrategic nature—reinforcing domestic industrial capacity and reducing dependence on foreign raw material imports, particularly from Asia.
Unlike the EU’s normative and regulatory model, the U.S. approach is market-oriented, pragmatic, and subsidiarity-driven, integrating climate goals with industrial and economic security policy. In this sense, IRA embodies a form of “green protectionism,” where climate policy operates as an instrument of reindustrialisation [15]. The EU’s Clean Industrial Deal and CISAF represent a partial response to this paradigm, introducing elements of fiscal support and “European preference” within competition law. However, their success will depend on the effectiveness of implementation and the European Union’s ability to balance state-aid mechanisms with the market-based logic of its climate transition.
The Inflation Reduction Act (IRA) of the United States and the Clean Industrial Deal State Aid Framework (CISAF) of the European Union represent two distinct models of subsidizing environmental investments, differing in both institutional structure and intervention philosophy. The American model is fiscal and market-driven, based primarily on tax credits whose scope depends on corporate investment decisions and consumer demand. This support intended to provide long-term and market-oriented, while additional assistance, through investment credits and production subsidies, was available to entities meeting specific criteria, such as location or domestic content requirements. By contrast, CISAF develops EU state aid law by offering support at the initial stage of investment, aiming to define criteria for accelerated approval of state aid while maintaining the principles of proportionality, transparency, and competition protection.
Significant differences between the two models emerge in the renewable energy sector. CISAF requires tender procedures compliant with the principles of competition, transparency, and non-discrimination, and aid can only be granted after demonstrating a funding gap: the difference between total investment costs and expected revenues. The IRA, on the other hand, grants tax credits (see: sections 45Y and 48E) in a more flexible and less quantitatively restricted manner, facilitating rapid project implementation but reducing uniformity and oversight transparency. In the U.S. model, subsidies are ex post, contingent upon project completion, whereas in the EU they are an ex ante mechanism governed by state aid regulations.
Regarding the protection of critical mineral supply chains, the IRA adopts a distinctly protectionist approach by conditioning tax credits on the share of materials sourced from the U.S. or North America and progressively increasing domestic content requirements. CISAF remains geographically neutral, allowing aid only after demonstrating that an investment would not proceed without public support. The EU framework also introduces a clawback mechanism [16], requiring beneficiaries to return part of their profits if the investment proves more profitable than initially expected, thereby preventing overcompensation and ensuring proportionality.
Unlike the IRA, CISAF does not impose origin requirements for components, focusing instead on objective eligibility criteria and reporting obligations. Conversely, the IRA explicitly links climate policy with industrial and economic security, excluding non-U.S. products. As a result, the EU model adheres to the internal market logic of EU law, while the U.S. approach merges ecological objectives with economic protectionism.
In terms of financial instruments, CISAF introduces two-way Contracts for Difference (CfD) [17], which stabilize investor revenues and balance private profit with public interest. This mechanism functions in a typical for EU’s ex ante perspective way and relies on competitive tenders. The IRA, by contrast, offers tax credit, both investment and production-based, that can be transferred or converted into cash payments. While both systems aim to enhance liquidity and investor confidence, they differ in risk allocation: CISAF distributes risk between the state and the investor, whereas in the IRA it remains primarily on the private side.
In conclusion, the IRA is characterized by greater flexibility, dynamism, and emphasis on domestic production, whereas CISAF maintains the regulatory rigor of EU law, emphasizing competitive balance and procedural transparency. The two frameworks thus reflect contrasting philosophies of industrial transformation support: American fiscal pragmatism versus European regulatory control.
Both legal systems, the EU and the U.S., seek to accelerate decarbonisation and enhance industrial competitiveness, albeit through divergent normative and fiscal philosophies. The European model is built upon regulatory harmonisation and state aid constrained by competition law, whereas the American framework prioritises fiscal incentives, flexibility, and economic protectionism. These differing paradigms may lead to trade frictions and potential disputes before the WTO, yet they also create opportunities for transatlantic cooperation in technological standard-setting and supply chain security. Ultimately, the practical implementation of these instruments and each side’s capacity to reconcile climate objectives with market competitiveness will determine whether transatlantic climate policy evolves into a foundation for strategic partnership or becomes an arena of intensifying economic rivalry. The later partial revision of the IRA framework by the Trump administration additionally reveals that the durability of American climate policy remains closely linked to current political majorities and fiscal priorities. At the same time, the economic effects already generated by IRA-supported investments demonstrate that even partial legislative rollback may not entirely reverse the structural consequences of green industrial policy, particularly in sectors linked to employment and domestic manufacturing. In this respect, the comparison between CISAF and IRA extends beyond purely technical legal analysis and illustrates two fundamentally different models of economic governance and ecological transformation on both sides of the Atlantic.
[1] The European Green Deal is a comprehensive political strategy of the European Union announced by the European Commission on 11 December 2019 (European Comission, The European Green Deal, COM(2019) 640 final, Brussels, 11.12.2019), which aims to achieve climate neutrality by 2050 by transforming the EU economy into a sustainable development model that combines economic growth with environmental protection. The literature emphasises that the European Green Deal is not only a plan for energy and climate transformation, but also a project to redefine the EU’s economic model towards a low-emission, resilient and inclusive economy (see more: J. Delbeke, P. Vis, Towards a Climate-Neutral Europe: Curbing the Trend, Routledge, London–New York 2020, p. 15–28).
[2] U.S. Congress, legislative reforms adopted in 2025 under the Trump administration, commonly referred to in political discourse as the “One Big Beautiful Bill Act”, introducing amendments to selected fiscal instruments connected with the Inflation Reduction Act of 2022.
[3] European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — The Clean Industrial Deal: A Joint Roadmap for Competitiveness and Decarbonisation, COM(2025) 85 final, Brussels, 2025.
[4] United States Congress, Inflation Reduction Act of 2022, Public Law 117–169, enacted August 16, 2022, 136 Stat. 1818.
[5] Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999 (European Climate Law), OJ L 243, 9.7.2021, p. 1–17.
[6] The Fit for 55 package, presented by the European Commission on 14 July 2021 (COM(2021) 550 final), constitutes a comprehensive legislative framework designed to implement the objectives of Regulation (EU) 2021/1119 by ensuring a reduction of net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. The package includes a wide range of legislative proposals revising key energy and climate instruments such as the EU Emissions Trading System (ETS), the Effort Sharing Regulation, the Renewable Energy Directive (RED III), and the Energy Efficiency Directive (EED). It also introduces new mechanisms, notably the Carbon Border Adjustment Mechanism (CBAM) and the Social Climate Fund, aimed at supporting a fair and economically viable transition toward climate neutrality by 2050. See more: European Commission, Communication from the Commission — ‘Fit for 55’: Delivering the EU’s 2030 Climate Target on the Way to Climate Neutrality, COM(2021) 550 final, Brussels, 14.7.2021.
[7] Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, OJ L 275, 25.10.2003, p. 32–46.
[8] The cap-and-trade system sets an overall limit (cap) on greenhouse gas emissions for covered entities and allows the trading of emission allowances within that cap. Companies and other entitled subjects that reduce emissions can sell their surplus allowances, creating a market incentive for cost-effective abatement. This approach combines regulatory certainty on the total emission volume with flexibility for individual emitters.
[9] Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism, OJ L 130, 16.5.2023, p. 52–104.
[10] The “Brussels Effect” describes the EU’s ability to externalize its regulatory standards globally through market mechanisms, even without formal international agreements (see more: Bradford, A. The Brussels Effect: How the European Union Rules the World, Oxford University Press, 2020).
[11] European Commission, Communication from the Commission – Framework for State Aid measures to support the Clean Industrial Deal (CISAF), OJ C, C/2025/3602, 4.7.2025.
[12] BlackRock. (2023). The Inflation Reduction Act’s impact on clean energy. RBC Global Asset Management. [accessed 2025 Sep 8]; https://www.rbcgam.com/documents/en/articles/inflation-reduction-acts-impact-on-clean-energy.pdf.
[13] Both PTC and ITC were first adopted in 1990’s and 1970’s respectively. The IRA extended and modified both by increasing the base credit value subject to prevailing wage and apprenticeship requirements, and introduced “bonus” enhancements for projects that satisfy domestic content or energy-community siting criteria.
[14] The “Buy American” ideology in the context of the Inflation Reduction Act refers to the statutory preference for domestically manufactured steel, iron and manufactured products—often via bonus credits or eligibility requirements—to promote U.S.-based clean energy manufacturing and supply chains. First introduced by the U.S. Congress in 1933, see more: Buy American Act, 41 U.S.C. §§ 8301–8305 (1933)
[15] Farber, D. A., Turning Point: Green Industrial Policy and the Future of U.S. Climate Action, Texas A&M Law Review, 303 (2024), p. 5.
[16] Under CISAF, where state aid per undertaking per project exceeds EUR 30 million, Member States must put in place a claw-back mechanism allowing recovery of a share (no less than 70 %) of additional gains realised by the aided project, verified over a period of 5-10 years after project operation begins. See more: section 3, pts. 118-120 of the CISAF.
[17] Ibid., sections 4.5.3 and 4.5.4 of the CISAF.
Both legal systems, the EU and the U.S., seek to accelerate decarbonisation and enhance industrial competitiveness, albeit through divergent normative and fiscal philosophies. The European model is built upon regulatory harmonisation and state aid constrained by competition law, whereas the American framework prioritises fiscal incentives, flexibility, and economic protectionism. These differing paradigms may lead to trade frictions and potential disputes before the WTO, yet they also create opportunities for transatlantic cooperation in technological standard-setting and supply chain security. Ultimately, the practical implementation of these instruments and each side’s capacity to reconcile climate objectives with market competitiveness will determine whether transatlantic climate policy evolves into a foundation for strategic partnership or becomes an arena of intensifying economic rivalry.