‘Sirencalls’ forEUblanket greensubsidies

Ifthere’sonetimeyoushouldjudgeabookbyitscover,itiswhencompaniesqueue upforgovernmentmoney–bythismeasureJoeBiden’sgreensubsidiesinthe InfationReductionActhavebeenarip-roaringsuccessascostsaresettorocketby $180bntomorethan$570bnby2031,writes DavidChance

Thenew co st estimate s fromthe Congressional Bud get Of fce have put Bi de n’s gr ee ning of Am erican in du str y in the si ghts of Re publican le gi slators whose e these as ‘woke subsidie s’ that di stor t the market an d ar e rip e for cut ting in a battle over fe deral de bt

European policy makers have responded with what couldturn out to be a costly and ex pansive set of countermeasures. The bigg es t worr y is Europe overreact s with measures that could threaten existing carb on abatement and set of fasubsid y race that will not only pit the bloc agains t the US, but also member states agains t each other.

Af ter the Trump era, weshould of cour se welcome US moves. We are nowa thirdof the way through a decadewhere we ne ed to cut global emissions by over 40 % ifwe want to limit warming to 1.5 degrees, and emissions are still rising

Yet, the way the US has gone aboutthis has created a headache for Europe Given the polarisation inUS politic s and the mathsof the Hous e and Senate majorities, Biden had little choice

Instead ofrelying on carb on ta xes to do the heavy lifting on climate as Europe has done, the US adminis tration was forced to deploy subsidies to cut emissions. Thisis very defnitely a second-b es t approach, and Washington has never mandated carb on prices or cap and trad e at anational level.

The result is Europe now fndsit self sque ezed between the green industrialambitions of the US and the heft of China, which is fexing it s supply chain muscles so as to bo os t it s ow n industries.

Europe spends plenty of money on energy, and was doing so well before Vladimir Putin invaded Ukraine.

According to Enerdata,a frm thatundert akes analysis for the European Commission, energy subsidies have been running at more than €170 bn a year from 2015 -20. The Covid- era Re covery and Resilience Facility has pledged 37% of €525bn ininvestment for the green transition

What Europe didn’t do was to at tach lo cal content rules to spending, whereasBiden’s ta x- break sy stem means frms can workout their savingsdire ctly

That seems to be workingand Volk swagen may abandonplans fora batter y plant in eas tern Europe and picka US lo cation

You can smell the panic in Germany. Last year, China overtook Germany to become the second larg es t car ex porter by volume and it s carmaker shave moved far faster on elec tric vehicles.

In a bid to staunch the fow of frmsand to build domestic capacit y and knowledge, Brus sels has come up withthe Net-Zero Industry Ac t which aims to make sure than 40 % of cleante chnolo gy ne eds– elec tric vehicle batteries, solar panels, and wind turbines – required to reach carb onneutralit y are met domestic ally

The Department of Enterprise last we ek sent out a consultation along withit s counterpar ts ahead of a May 23 hearing. The net-zero plans are about regulations and setting production targets,butcrucially, they op enthe do or s to a damagingsubsid y race asit will then be up to member states to approve and fundprojec ts That has produced analliance of southern states like It aly and Spain withthe nor thern ‘frugals’– including Ireland– to oppose loos ening state -aidrules.

By the time Europe gets it s plans into law, Biden’s Infation Reduction Ac t willhave been running for overa year

Since August 2022, it has racked up $150 bn ofinvestment s and says that surpas ses total investment inUS clean power projec ts commissioned between 2017-2021.

So, the pres sure is to ‘do something’ as French industry commissioner Thierr y Breton channels his innerBilly Joel.

“S ome say ‘don’t start asubsid y war,’” he told reporter s re cently “But it ’s not us who started it”

He may rue thos e words if asubsid y war kicks of f between EU member s.

The ef fe ct of dismantling prote ctions and loos ening state -aidrules will be a Europe that not only incentivis es discrimination agains t US goods,but which the 27 end updiscriminating agains t each other.

Germanyhas “more fs cal power anda stronger industrial base”, says Shahin Valle, an economis t withthe German Council on Foreign Relations.

The net-zero plans will de ep enit s lead, “accelerating the deindustrialisation of the rest of Europe”.

“France is naively pushing along with Germany, due to thehubris tic viewthat it has the fs cal space and the industrial base to match German support,” he said

Economis ts at the Hertie Scho ol,a top German univer sity for public policy, es timate that if Europe wanted to match the US production subsidies and to reach it s production target s in hydrogen, batteries, solar and wind comp onent s,itwould ne ed to spend about €264 bn over the next 10 year s. Given Europe’s weak position in solar panels, it makes better sens e to let the US and Chines e ta xpayer s pick up the tab and import

This will allow Europe toconcentrate on keyte chnolo gies like making hydrogen af fordable– which isat an early stage and is key to ke eping downstream economic sec tors comp etitive– and onbatteries, which are foundational Wind to o couldjustif ysuppor t in the medium term

“T hisrequires shaking of f some of the policy panic and ignoringsiren calls from industry thatcharac terised initialdiscussions on a response and identif ying thos e sec tors where the EU has an edge and that can likely stand on their ow n af ter an initial period of support,” the economis ts wrote

You don’thave to destroy the single market to get there. ■