America’s vast $369 billion green subsidy package nestled in Biden’s Inflation Reduction Act (IRA) set alarm bells ringing across Europe when it was unveiled a year ago. And for a good reason: Europe was already battling economic headwinds from the pandemic and the Ukrainian crisis.
Many had expected this to be the final straw – a siren call luring away Europe's elite cleantech companies to the promise of U.S. tax incentives, leaving Europe in the dust, devoid of future jobs, innovation, and investment.
But one year on, the doomsday scenario hasn’t played out as predicted.
Niclas Poitiers from Brussels' Bruegel think tank explained, "There was this looming dread that post-pandemic and with the Ukraine conflict, the IRA would be the last straw for the EU economy." Yet, he argues, concerns might have been blown out of proportion. The data, so far, doesn't reflect any significant investment drift from Europe to the U.S. due to the IRA.
The EU, sensing the impending competition, cleverly played its cards in March by allowing member states to match the U.S. subsidies. This move was aimed at ensuring that European companies saw no massive advantage in heading stateside.
And how is it playing out? Big corporations like Thyssenkrupp are placing their bets closer to home. The German conglomerate is pouring roughly 3 billion euros into a green steel plant in Duisburg, with over two-thirds of this amount being state-subsidized.
There's also a broader perspective to this narrative. The EU had already earmarked a whopping 37% of its 800 billion euro post-pandemic recovery fund for eco-friendly projects. Thus, much of Europe's 'counter' to the IRA was already in the pipeline even before Biden showcased his climate-centric vision.
However, it's not all roses for the EU.
A proposed European Sovereignty Fund meant to underpin the region's green shift met a premature end, largely due to nations' hesitancy to further burden their wallets, especially amidst the specter of increased energy prices and challenges like the Ukraine crisis.
While the EU's measures are commendable, they seem to benefit big players, sidelining smaller businesses that find the funding maze hard to navigate. The U.S. model, with its decade-long promise of reduced production costs, does seem more enticing in comparison.
The relaxed EU state aid framework, meant to level the playing field with the U.S., ironically may have thrown the EU market off-balance. While economic powerhouses like Germany, France, and Italy can readily pump in corporate subsidies, their less affluent counterparts can't. This disparity risks a potential rift in the EU's coveted single market.
While Europe remains tethered to China for pivotal green tech components, the continent is in a race against time.
EU lawmakers are scrambling to push through crucial acts like the Critical Raw Materials and Net Zero Industry initiatives. Should they falter, the torch passes to a new parliamentary assembly post-April 2024, likely pushing decisions to 2025.
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All said and done, the U.S.'s IRA has indeed shaken things up for Europe, but perhaps not in the ways most initially feared. Whether Europe's reactive measures prove sustainable remains to be seen, but for now, the Old Continent isn't ready to be overshadowed just yet.
By Michael Kern for Oilprice.com
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