EU fights back in green race
Europe has long seen itself as the preeminent global center for the green industrial revolution, through measures such as the EU Emissions Trading System, the Green Deal and RepowerEU. However, there is a growing sense in the continent that its edge in this “race” is being imperiled as the assertive industrial strategies of the US and China recognize the massive upfront costs of the energy transition in a bid to dominate the green economy of the future. While the $369 billion US Inflation Reduction
Act has been in the EU’s firing line in recent months, European Commission President Ursula von der Leyen spent much more time in her keynote address at the World Economic Forum last month focused on China.
The European Commission accuses Beijing of using “unfair” and “market-distorting” subsidies to gain an advantage in the race to produce clean technologies. Yet, it is the Inflation Reduction Act that has sent shockwaves across Europe, with its massive subsidies for US green industries in areas from renewable power to electric cars. Key EU politicians and firms assert that the legislation discriminates against firms exporting to the US and fear it will lure a critical mass of their businesses, costing jobs and shuttering factories in the green tech sector.
To be sure, the EU is still widely seen to lead the US on rolling out green tech overall. However, the new law means America is now the most attractive investment environment for several key industries.
It is in this concerning context of change for the continent that Von der Leyen announced on Wednesday, in a plan leaked earlier in the week, a series of measures, including loosening state aid rules and a new European sovereignty fund. The initiative is intended to preserve the EU’s competitive advantage on critical and emerging technologies, including biotechnology and clean tech.
As powerful as the new measures might be, however, the EU is hampered vis-a-vis China and the US in this global green race. That is, in part, because the bloc’s industrial policy is fragmented across its 27 countries, with the post-Ukraine energy crisis widening those gaps.
While intra-bloc differences on these issues are real, they may soon shrink given the growing warnings that the European continent’s industrial base could end up structurally uncompetitive, especially if high energy costs persist.
As well as addressing factors such as high energy costs, other issues will also need to be looked at by Brussels. One of these may be the high reliance that the EU has traditionally had on carbon pricing as its key tool for stamping out emissions, with a reluctance to instead wield capital as a key driver of the green transition. While the final form of
Europe’s counterattack is therefore not yet set in stone, the political imperative to act is growing. Differences will remain across the bloc, but there is collective determination to try to restore a level playing field with the US and China to preserve Europe’s economic attractiveness in the global green race.