It looked like the start of a transatlantic
trade war over climate policy.
As US President Joe Biden hosted his
French counterpart in Washington on Dec. 1, not
long after finalizing a $369 billion green
tax-break bonanza, there was a rupture in the
usual diplomatic cooperation on global warming.
Just a day earlier, and in front of US
lawmakers, French President Emmanuel Macron
criticized protectionist features of the
Inflation Reduction Act that would be “super
aggressive” toward European businesses.
US President Joe Biden,
right, and Emmanuel Macron, France's
president, at the White House on Dec. 1. Photographer:
Al Drago/Bloomberg
Some of those European companies
— first in private and later in public — have
since then started making noise about the wave
of American money. German chemicals giant BASF
SE and steelmaker ArcelorMittal threatened to
shrink their presence in Europe, where they’re
grappling with soaring energy prices, in favor
of the newly incentive-rich US. Swedish battery
maker Northvolt AB put an estimated $8 billion
total on the tax credits that would come by the
end of the decade from moving production to the
land of the IRA. The world’s biggest
ball-bearings maker, Sweden’s SKF AB, decided to
put its new facility in North America.
If this was what Europe’s political
leaders feared, then its policymakers this week
appear far from alarmed.
Eight months after passage of the
lavish US climate law, the
European Union is considering a policy
response that marginally improves on the
three-year-old Green Deal roadmap for tackling
climate change over a decade. The measures set
to be proposed by the European Commission on
Tuesday don’t suggest a Washington-vs.-Brussels
arms race for the green future. New policies in
the Net-Zero Industry Act would accelerate
permitting and set production targets for
technologies including solar panels, wind
turbines, heat pumps, batteries and
electrolyzers, according to a draft document
reviewed by Bloomberg.
This is stay-the-course stuff rather
than dramatic moves to counteract a sudden shift
by the world’s biggest economy into much more
heavily incentivizing clean energy and climate
technology. No one has reached for the panic
button, even as companies shift their postures
in response to competing incentives.
Unlike the EU’s policies, which have
focused on subsidies to boost the adoption of
green products and technologies, the IRA is
aimed at enticing manufacturers who can bring
jobs to the US. It worked on Roeland Baan, chief
executive officer of green-hydrogen producer
Topsoe A/S based in Denmark. His company is now
considering adding a second plant in the US
following construction of a 500-megawatt plant
in Denmark using next-generation electrolyzers
that split water in hydrogen and oxygen.
“Look at the amount of money. The EU,
with all its schemes together, is not so much
different in scale,” he said. “But it’s more
accessible in the US. There's much more clarity
and certainty on what you get and how.”
Baan sees growing demand for green
hydrogen on both sides of the Atlantic, so the
simpler incentives in the US open up additional
avenues for growth. This may be the conclusion
other businesses come to as well: It’s not time
to shut down production in Europe, but rather
increase investments in North America.
The EU’s green programs will add up to
$1 trillion in spending this decade, according
to projections from researchers at BloombergNEF.
From a certain point of view the US is playing
catchup with its $369 billion green spending
measure — and because some of the American tax
incentives are uncapped, the final total could
be far higher.
An employee fits components
to the body of a Volkswagen ID. Buzz electric
microbus on the assembly line in Hannover,
Germany. Photographer: Alex
Kraus/Bloomberg
For European companies, getting access
to existing funding has become increasingly
cumbersome as new funding programs with
different climate requirements and goals were
launched, often forcing companies to employ
additional staff just to go through tedious
administration and paperwork. That’s where the
IRA’s appeal lies: using the simple and
well-understood incentive of tax breaks to boost
sales of electric cars, deployment of vehicle
chargers, domestic manufacturing of heat pumps,
and production of futuristic fuels such as green
hydrogen.
“I would rather have a positive
competition with the US on climate than to
complain that the Americans are doing nothing,”
said Pascal Canfin, a French lawmaker who heads
the European Parliament’s environment committee
and Macron’s trusted man in Brussels. He sees
the EU’s long-running embrace of carbon pricing
and stricter rules on green investments,
alongside established financial incentives for
clean technologies, giving the bloc an advantage
in the shared push to curb greenhouse gas.
If anything, Canfin said, the IRA has
prodded the EU to improve its policy framework.
“And like in any race,” he added, “it’s now on
us Europeans to be on the winning side.”
Pascal Canfin Photographer:
Kenzo Tribouillard/AFP/Getty Images
The real risk for European industrial
production — and what really irked EU officials
— is the IRA’s domestic-content requirements.
One provision would provide tax credits for
vehicles at least partly manufactured and
assembled in North America, a direct blow to
European car manufacturers that could contravene
global trade rules. Volkswagen AG has already
reacted by accelerating its investments in the
US, spending $2 billion on an electric-vehicle
plant in South Carolina.
In order to fix flaws in the business
side of the EU’s climate strategy, the European
Commission in February put forward the Green
Industrial Plan with the aim to simplify
regulations, speed up access to finance, develop
skills for green industries, and create a “more
supportive environment” for
manufacturing. The commission, as the bloc's
regulatory arm, is set to take this a step
further on Tuesday by introducing
a package of measures including the Net-Zero
Industry Act.
While formal approval may take about a
year, the act could deliver a boost for some
industries. The slow permitting process has been
the “overriding biggest challenge” in Europe,
Henrik Anderson, chief executive officer of
Vestas Wind Systems A/S, one of the biggest wind
turbine manufacturers, told Bloomberg in
November.
It’s become clear that the EU is not
seeking to adopt a carbon copy of the IRA. For
starters, the bloc can’t follow suit because it
doesn't have a unified corporate tax system. One
way the EU is trying to directly counter the
threat is to allow countries to give subsidies
for production of green technologies that would
“match” those provided outside Europe, according
to a plan unveiled last week by European
Commission President Ursula von der Leyen.
Though no money-figure was attached to the plan,
which will have to go through the months to
years long EU process before it can become
reality.
Until then, however, Europe benefits
from a more united stance against global
warming. Unlike Democrats in the US, who must
contend with Republicans uniformly opposed to
climate legislation, European lawmakers don't
have to worry as much about marketing a
clean-energy support package as anything other
than a climate bill.
“The optimal policy mix is carbon
pricing, investments and regulation,” said
Simone Tagliapetra, a research fellow at
Bruegel, a think tank in Brussels. That’s
Europe’s approach. “But politically that's a
no-go” in the US.
On Zero, Bloomberg
Green’s Akshat Rathi talks to Katie Rae, CEO
of The Engine, an MIT-affiliated fund in
Boston that invests in climate tech startups
often led by scientists and engineers. Listen now to
find out why she thinks that’s a better model
than that of conventional entrepreneurs.
Subscribe to Zero on Apple, Spotify or Google to get new
episodes every Thursday.
The EU’s headline climate goals have
unanimous support across its 27 member
countries, even if there’s differences on
implementation. That level of agreement allows
for tariffs on carbon-intensive goods imports
and using environmental, social and governance
(ESG) rules to align the financial system with
climate targets. These measures have long been
seen as non-feasible in US politics, although,
in a sign of changing winds, the idea of taxing
carbon imports is gaining traction among some
Republicans.
The IRA may not end up being the boon
that some manufacturers are expecting. An
analysis from the Rhodium Group shows domestic
manufacturing of green technologies may only get
10% of total subsidy dollars. The vast majority
will go toward deployment of solar panels, wind
turbines, and electric cars.
As time goes on, calmer minds on both
sides are likely to see the bigger picture. Both
the US and the EU need to find ways to create
meaningful competition to the world’s clean-tech
manufacturing leader: China. The two Western
powers announced last week they’re working on a
preliminary agreement around critical EV
materials which could allow EU companies access
to some of the IRA’s benefits.
“The moment you start thinking that
China might use clean tech the same way Russia
used gas, then you start to see it’s not good to
be overexposed to one country,” Tagliapetra
said.
The two economic superpowers also bring
different strengths to the clean energy
transition. The US still has a long way to go to
gain the EU’s credibility and sway in
international climate negotiations. The EU, for
its part, will need to get more business savvy
as it competes with a big, green industrial
machine across the Atlantic.
“Having a competition to drive things
faster, and bigger scale, is not a bad thing,”
said Jennifer Morgan, Germany’s climate envoy.
“It’s kind of like, game on. Let’s go.”
--With assistance from Will
Mathis, Ania Nussbaum, Ewa Krukowska, Rafaela
Lindeberg, Stefan Nicola and Alonso Sot
Like getting
the Green Daily? Subscribe to
Bloomberg.com for unlimited
access to breaking news on climate and
energy, data-driven reporting and graphics and
Bloomberg Green magazine. Read and share this
story on
the web.
|