Europe risks an exodus of clean energy investment to the US, unless it brings in its own inflation reduction strategy, Goldman Sachs has warned.
The investment banking titan has estimated the US Inflation Reduction Act could drive up to $1.5tn of capital mobilisation into clean energy projects by 2032, with $675bn in direct investments.
It argues this could kick-start the “electrification of America” by vastly transforming its power generation and infrastructure.
This would include boosting the base of installed renewable projects from 300GW to over 1,000GW in the next ten years, while also promoting the manufacturing of solar, renewable energy storage and carbon capture technologies.
In a research note, published yesterday, Goldman Sachs warned, however, that this “attractive level of support” could pose a risk to Europe’s leadership in clean energy.
The bank also said that a successful effort to “Electrify America” could mean cement the gap between US and EU energy bills, where EU energy costs are roughly 60 per cent higher, potentially causing a further de-industrialisation of Europe.
Goldman Sachs raised concerns that frequent regulatory changes in Europe, such as MIFIDII, and the lack of meaningful reforms, in areas such as easing planning restrictions and boosting green subsidies, could hamper the trading bloc.
It fears electrification investments in EU member countries could fall short of expectations, and be worsened by inflation.
Goldman Sachs has drafted its own European inflation reduction act plan, based on the RePowerEU proposals established by the European Commission, to help boost renewables and reduce its reliance on Kremlin-backed fossil fuels following Russia’s invasion of Ukraine.
To achieve this, it has called on the European Union (EU) to bring in granular legislation to cut down the approval time of green energy projects to about one year, alongside incentives to support “out of the money” technologies such as storage, renewable hydrogen and carbon capture and storage.
The financial giant has also suggested incentives to promote the re-shoring of the supply chain for solar panels, renewable energy storage and hydrogen power technology.
It said that implementing its proposed plan could mobilise €4tn of capital over the coming ten years.
“This backdrop could drive an energy policy “race to the top” between Europe and the US, to attract capital into clean energy,” the bank said.
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