bneGREEN: Renewable energy was a hot topic in Davos but for Europe, much work remains

bneGREEN: Renewable energy was a hot topic in Davos but for Europe, much work remains
Europe Commission President Ursula von der Leyen (pictured) proposed a Net-Zero Industry Act at the World Economic Forum / Sandro Halank
By by Roberta Harrington in London January 25, 2023

‘Cooperation in a fragmented world’ was the theme at the World Economic Forum (WEF) in Davos, but Europe is still struggling to catch up with the cleantech policies of the US and China.

In a special address in Davos, European Commission President Ursula von der Leyen proposed green technology goals in a “Net-Zero Industry Act”, meant to help the 27-member bloc compete for investment in a world altered by the US’ Inflation Reduction Act (IRA). China also has strong pro-renewable energy policies.

The IRA, signed into law in August. includes $369bn in funding to tackle climate change and to bring the US closer to President Joe Biden’s goal of halving 2005 climate pollution levels by 2030. 

Significantly, the IRA includes higher subsidies for US-made cleantech components, such as wind turbine nacelles and blades and for other items such as batteries for electric vehicles (EVs). It has been called ‘protectionist’ by critics.

The EU will mobilise state aid and a sovereignty fund to keep firms from moving their business to the US, von der Leyen told WEF.

The moves will form part of the EU's Green Deal industrial plan, she said. "The aim will be to focus investment on strategic projects along the entire supply chain. We will especially look at how to simplify and fast-track permitting for new cleantech production sites," she said.

“The aim will be to focus investment on strategic projects along the entire supply chain,” she said, according to reports. “We will especially look at how to simplify and fast-track permitting for new cleantech production sites.”

“It is no secret that certain elements of the design of the Inflation Reduction Act raised a number of concerns in terms of some of the targeted incentives for companies,” continued von der Leyen.

"To keep European industry attractive, there is a need to be competitive with the offers and incentives that are currently available outside the EU," she continued. Loans and grants will be available for green industry, as will tax breaks, she told reporters afterwards.

Von der Leyen’s recommended moves had previously been echoed by Thierry Breton, the EU’s internal market chief.

“Other countries across the globe – suffice to name China – are adopting measures to attract our industrial capacities,” he wrote on social media. “It’s not just a temporary issue. It’s the new reality. So Europe needs its own plan, not only to accelerate the deployment of clean technologies, but also to develop the necessary manufacturing base. It’s not about a subsidies race. It's a matter of ensuring our security of supply, competitiveness, export ability and job creation. “

He continued: “Faced with this new structural reality, the framework we put in place cannot only be about short-term temporary solutions. And it cannot simply favour big industrial countries. We need solutions that work across the European Union, with its different specificities and varying levels of fiscal capacity.” 

The sovereignty fund will be discussed later this month at an EU mid-term budgetary meeting, von der Leyen said. Von der Leyen has her work cut out. Not all EU members are on board, such as Germany, which is a fiscal hawk. 

The IRA was widely lauded at WEF. This was in spite of the WEF usually being a bastion of globalisation and free trade, noted the Financial Times (FT).

The International Energy Agency’s (IEA) executive director Fatih Birol told a panel that the IRA was the most important climate deal since the landmark 2015 Paris Agreement, reported Reuters. The IRA is a “game-changer”, agreed Larry Fink, CEO of BlackRock, the world's biggest asset manager, speaking at an WEF event, the news service continued.

 “The US programme is very smart, and huge,” an enthusiastic Jan Jenisch, chief executive of Swiss building materials company Holcim, told the FT. “So much needs to be built, from factories, to logistics and infrastructure. For the next 10 years, this will be an engine for growth.”

Climate change is altering the economics conversation. Kristalina Georgieva, managing director of the IMF, told the FT: “We are too ideological when we say we shouldn’t subsidise . . . Speed is the most essential ingredient. We are in the ditch [of climate change] and we must get out of it.”

Karen Karniol-Tambour, co-chief of sustainability investment Bridgewater Associates, the world’s largest hedge fund, also lauded IRA, adding: “For so many years [market intervention] was a bad word to talk about everything should be based on markets, governments should not pick winners and losers.”

Europe’s politicians were less enthusiastic at WEF. The German Chancellor, Olaf Scholz, warned: “Protectionism hinders competition and innovation and is detrimental to climate change mitigation.” And Grant Shapps, the UK’s Business Secretary, labelled the IRA as “dangerous”.

Some indeed fear that an aggressive EU response to the IRA could prompt a trade war. When French President Emmanuel Macron visited Washington in December, he issued a blunt warning that the IRA and another US semiconductor law – which is also protective – might “fragment the West” and lead to less transatlantic investment.

Biden in response talked of “tweaks” to the IRA and the CHIPS Act, and there has been some movement recently in Washington on giving European makers of EVs greater access to the US market.

Even so, Ngozi Okonjo-Iweala, director-general of the World Trade Organisation, suggested at WEF that the US’s unhappy trading partners should talk to Washington rather than file a formal complaint. “It’s far better for them to speak to the US and try to resolve this and see if there’s any way to take account of their concerns than to come to the dispute-settlement system of the WTO,” Okonjo-Iweala said, according to the FT.