The EU’ dilemma: balancing between the “free markets” and/or regulated growth

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The EU explores both a “sense of victimization” and a drive to change integration patterns: presently the EU-27 is being squeezed by both the US and China on most vital issues in green growth and sustainability. Trading partners from over Atlantis and the Far East are showing some positive examples; is the EU able to emulate? 

Most serious elements of the EU’s problems were instigated by the US notorious actions to subsidies “the green growth” adopted by the end of this summer. The US industry representatives noted that by attacking the Inflation Reduction Act (IRA), the European Union was missing the broader point: the actual importance of “a serious industrial policy for climate change”. The IRA’s subsidies for the US clean-tech companies are far more generous than anything that the EU can offer presently; besides, these subsidies are also technically limitless: i.e. the amounts to be paid out in tax credits and other instruments are only capped by demand. For example, the head of the European Investment Bank, Werner Hoyer says that “the EU should stop complaining about the US subsidies plan and get acting”. He noted that the EU has “a tendency to look inward more and more”; the Union reacted to the present energy crisis “totally dictated by national considerations”, which already costs the EU “a huge degree of credibility”.

The American’s IRA intention was to show that the US is now the most attractive investment region in the world for several critical industries (examples below), while the investment environment in Europe was unattractive long before the IRA.
Here are some examples provided by Politico (9.xii.2022): Swedish battery developer Northvolt said it was “holding on pause” a German factory expansion and is looking to the US market instead. Germany’s Bosch has invested just only half a billion dollars in American electric motor and battery production since the IRA was passed this summer. Swiss solar component manufacturer Meyer Burger is opening a plant in Arizona, raising questions about expansion of its German operations. Spanish utility Iberdrola just released a three-year €47 billion investment plan of which 47 percent will be spent in the US, only 23 percent is heading for the EU.
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Is clean-job boom a reality?
Definitely, maintaining free trade is not presently a feasible option in getting out of the existing and coming crises embracing the EU. However, the European angst over the IRA ignores the fact that the main target of its home-grown provisions was China, a competitor the European Union leaders failed to counter seriously.
Now both the US and China have assertive industrial strategies that recognize the massive upfront costs of the energy transition and the fact that they are both in active actions to dominate the future sustainable economy’s patterns.
However, the EU still sees itself as the “global front-runner,” as the Commission President put it in a recent speech in Bruges, Belgium. In fact, it’s on the brink of losing the race as the 27-block is at a disadvantage to its superpower nation-states’ competitors from the US and China.
The EU-wide industrial policy is fragmented across its 27 member states: present energy crisis has only widened those gaps and added an additional hurdle of extreme operating costs for any prospective new project. For years the EU has relied overly on carbon pricing as its key tool for stamping out emissions, unable or unwilling to wield capital as a weapon.
“The continent’s limited ability to develop a centralized industrial strategy, or implement any kind of local content requirements, lends itself poorly to making up for lost ground when it is already far behind,” said an October analysis from Bloomberg New Energy Finance (BNEF), shared with Politico. The BNEF found that just building the factories to supply the refined metals, electrolyzes and parts for solar panels and batteries to meet local demand by 2030 will cost $149 billion in Europe and $113 billion in the US. The IRA was aimed to lower the risk of those investments through tax credits by introducing deficit checks and payments to polluting industries to shut them down.
Iberdrola Executive Chairman Ignacio Galán said: “the energy transition needs clarity from policymakers; we need unity and ambition on energy policy to tackle the current crisis”. Thus, the EU-27 can rebalance the playing field and remain a global leader in attracting investment in clean energy only by working together to simplify and adapt the EU-wide policy frameworks.
Besides, the Commission president suddenly acknowledged recently that the IRA was “positive news” for the climate and that EU might need to loosen its state aid rules and provide “new and additional funding at the EU level.”
Solar is often held up as a warning for the EU-wide clean-technology and production industries; just to note: technology developed in the EU was used to build a Chinese industry that today dominates over 80 percent of the global supply chain.
On the surface the IRA’s subsidies should erode the prospects for European solar even further. But the sense in the industry is that it might have finally broken the EU’s slavish adherence to carbon pricing and innovation as its main drivers of transition. Solar is one of five industries highlighted in the Clean Tech Europe platform launched this December by the European Commission; the move was actually instigated by the IRA; in mid-December the Commission also launched a European Solar Industry Alliance.

Note: see recent post in the EII: = Supporting green growth in the Baltic Sea States, December 16, 2022; = European energy market: recent transformations, December 14, 2022; = Batteries in the European market: opportunities for business, December 12, 2022.


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