EU Struggles To Match Renewable Energy Incentives In Inflation Reduction Act

The European Union is at rock bottom. Due to the Russian invasion of Ukraine, supplies of methane gas have been cut, raising the price of electricity needed to keep the country’s industries moving out of manufactured goods. In addition, supply chains have been disrupted [Volkswagen used to get wiring harnesses for its ID. branded electric cars from Ukraine, for instance], which further drives up the prices of finished goods. One way out for Europe is a massive increase in its renewable energy resources.

Europe has seen the light on thermal production. It now knows that it cannot rely on Russia or any other country to supply it with methane gas. It needs to shut down its coal-fired power plants to lower carbon emissions, so it needs to switch to renewable energy as soon as possible. But there is a problem. The US has crammed a whole lot of tax credits and other incentives for wind and solar energy development into the so-called Inflation Reduction Act, which was passed last August. Leah Stokes, a professor of political science at the University of California Santa Barbara, estimates that the total amount of IRA tax credits could total more than $1 trillion if fully maximized.

Grumbling in Davos

At the recent meeting of the World Economic Forum in Davos, Switzerland, several senior European leaders were heard muttering darkly about the Inflation Reduction Act. “It is no secret that certain elements in the design of the Inflation Reduction Act raised a number of concerns regarding some of the targeted incentives for businesses,” Ursula von der Leyen, the president of the European Union, told delegates on Tuesday. according to New York Times.

On stage at the forum last Tuesday, von der Leyen announced a plan for a “Net-Zero Industry Act” that would focus investment on projects to meet clean tech targets by 2030, as well as temporarily alter state aid to “keep European industry attractive .”

The next day, Olaf Scholz, Germany’s chancellor, said the local content requirements in the law “must not result in discrimination against European companies.” While he said he welcomed the plans for clean energy investment, he added that “protectionism hinders competition and innovation and is harmful to climate change mitigation.” EU members are “talking to our American friends about this.” Out in the halls, talk of a “trade war” was heard in unguarded moments.

“We’re on the cusp of a pure technological arms race,” David Victor, professor of innovation and public policy at the University of California San Diego, told Ashkat Rathi on Bloomberg Green recently. Rathi writes that sometimes an arms race can be a zero-sum game where US investment means Europe loses, but it doesn’t have to be. If the U.S. and Europe can work together to give their industries access to each other’s markets, Victor said, then investments in technologies can deliver greater results. That kind of cooperation is in Europe’s interest.

Solar power plant in Crimea, Ukraine (currently occupied by Russia). Photo by CleanTechnica.

Renewable energy and political predictability

Although a late entrant, the US already has the edge when it comes to climate technology. The US is a larger market with more regulatory consistency and offers fewer barriers to access and scaling new industries – as well as more financing options. The European Union, on the other hand, consists of 27 independent countries. “The European market is fragmented,” says Hans Kobler, managing partner of Energy Impact Partners, a venture capital fund that invests in clean-energy startups. That’s why “there’s a big clamor for global climate technologies coming to the United States.”

As climate solutions attract larger sums of money, touch ever-expanding areas of the world economy, and attract more and more people, they are bound to create friction between major powers. What is clear is that most of these powers see a great opportunity. That is why, despite the challenges that an era of competition will bring, the rich and powerful at the Davos meeting welcomed increased investment in a green future.

“Having a competition to drive things faster and on a larger scale is not a bad thing,” Jennifer Morgan, Germany’s climate envoy, said in an interview at the World Economic Forum in Davos this week. “It’s kind of like: Game On.”

That Washington Post reports that senior EU official Thierry Breton said in Davos last week that the IRA “is obviously at the front of everyone’s mind” and that Europe’s response to US or Chinese industrial policy “cannot be only about short-term temporary solutions. Europe needs its own plan, not only to speed up the deployment of clean technologies, but also to develop the necessary manufacturing base. It’s not about a subsidy race. It’s about ensuring our security of supply, competitiveness, exportability and job creation.”

French Finance Minister Bruno Le Maire added, “there is no time to lose in establishing a new European industrial policy to support green industry and encourage industries to move to European territory.” He suggested simplifying the process of allocating state aid to industry and making aid faster and on a much larger scale to clean energy sectors.

While the risk of lost investment in Europe is obvious, some delegates said it was more important to praise Washington for its huge investment plans in clean energy and technology, after the nation had previously been mocked for not taking enough action on climate. New York Times reports.

“In my opinion, the Inflation Reduction Act is by far the most important climate action after the 2015 Paris Agreement,” Fatih Birol, the executive director of the International Energy Agency, said in an interview. “I understand that many countries, including the European countries, see that this may create some challenges for them.” Although they have legitimate concerns, he added: “I would say that Europe can develop its own clean energy industrial framework as a complementary tool.”

Takeaway

Policies have consequences. The Inflation Reduction Act will drive massive investment in clean energy technologies. Already manufacturers of solar panels such as Qcells and EV chargers such as Tritium have announced that they are building new factories in the US. Offshore wind projects are moving forward, and companies such as Mercedes, Volvo, BMW, Volkswagen and Hyundai are investing in new factories to manufacture electric cars in the United States, bringing employment opportunities to tens of thousands of American workers.

The key to the IRA is the security it provides businesses when investing in America. Europe has every right to look after its own interests, but the US is leading the way. It will be up to Europe’s leaders to figure out how to keep up with and attract investment in renewable energy and clean production.


 


 


 

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