‘Green incentives’ competition between the US and Europe is gaining momentum

Developed economies are stepping up their investments in clean energy technologies to strengthen their energy security.

Following US tax cuts and incentives for green energy technologies under the Inflation Reduction Act (IRA), the European Union (EU) reacted decisively to US protectionism to prevent that industrial companies and investments in green technologies flee to the US after the energy crisis preparing to implement their plan.

In addition, it is claimed that the decisions taken so far are not enough, while Europe refrains from risking an open trade conflict with the US.

While the green incentives are reminiscent of a new “trade war”, experts say the stimulus race between the US and the EU could help fight climate change, despite concerns about breaching trade rules.

US ‘GAME CHANGING’ LAW

The “Reducing Inflation Act”, passed by US President Joe Biden in August last year and billed as the largest “climate package” in US history, is considered a “change game” in this context.

While the law, which includes comprehensive health, weather and tax regulations to reduce inflation, aims to reduce greenhouse gas emissions and steer consumers toward green energy, $369 billion is earmarked for investment in energy security and combating climate change. It is indicated that 270 billion dollars of this resource will be provided through tax incentives.

With these investments it is intended to reduce the energy bill between 500 and 1000 dollars per year in the country, and reduce carbon emissions by 40 percent by 2030.

The law, which also provides incentives for the purchase of electric cars with tax rebates, includes regulations such as tax rebates of up to $7,500 for electric vehicles that use batteries produced in North America and that contain minerals from mines in this region.

In addition, with the law, it is estimated that the US budget deficit will decrease by almost 2 trillion dollars in 20 years.

According to the International Energy Agency (IEA), the Inflation Reduction Act (IRA) is seen as the most important “climate action” after the Paris Agreement signed in 2015.

The Inflation Reduction Act offers a new industrial strategy with tax cuts and incentives for the production of electric vehicles, batteries and renewable energy.

It is claimed that this strategy will encourage global companies operating in the field of green energy to relocate their production to the US and will attract more capital to the country.

EU GREEN RECONCILIATION INDUSTRIAL PLAN

The US Inflation Reduction Act poses a significant risk to the EU green tech industry, especially in the wake of the energy crisis. The law is claimed to have the potential to attract clean energy capital from Europe, where green incentives are lower and energy bills are relatively higher compared to the US.

The EU is concerned that the new regulation, which makes tax cuts contingent on US-produced content, will disadvantage European car companies and manufacturers in the green economy, including batteries and equipment of renewable energy.

European governments argue that the provisions of the Reducing Inflation Act regarding locally produced content discriminate against EU companies and therefore violate World Trade Organization (WTO) rules.

Canada and Mexico are exempt from the scope of the law in the US, while the EU seeks exemptions from the US under this law for its own companies. Negotiations between the EU and the US on this issue are still ongoing.

It is stated that the US is unlikely to change the Inflation Reduction Act through Congress, but the US Treasury Department may make some changes during the implementation phase.

Faced with US steps to increase industrial competitiveness, the EU is also trying to mitigate the impact of the law on competitiveness by announcing some improvements to ease public incentive rules.

Finally, with the European Green Reconciliation Industry Plan, which was presented at the beginning of February, it aims to increase the competitiveness of the EU industry in the field of net zero emissions and to support climate-friendly transformation.

The plan includes relaxing EU public support rules, redirecting existing EU funds, speeding up green project approvals, channeling worker skills into these areas and signing new trade deals to ensure security of raw materials supply. critical premiums.

Under the plan, there is talk of the possibility of redirecting additional funding of approximately 250 billion euros from the “RepowerEU” fund, which was established to make the EU energy independent, to net zero sectors. Noting that there is an additional harmonization fund of 100 billion euros for this resource, EU officials claim that member countries can use these resources for tax reductions and incentives for net-zero industry.

CHINA LEADER IN GREEN TECHNOLOGIES

As the race to support green production heats up between the US and the EU, China has the upper hand in this area.

China’s industrial policy spending is estimated to exceed $240 billion in 2019, according to research from the Center for Strategic and International Studies (CSIS).

The IEA data also reveals that China dominates the processing of many minerals that are important in the production of green technology. It should be noted that China has 70 percent of the world’s share in cobalt processing and 60 percent in lithium and nickel.

The Chinese economy also accounts for more than 70 percent of the world’s production capacity for solar panels and batteries.

In the IEA Energy Technology Outlook Report, it is claimed that China alone can supply the entire global market for solar modules, a third of the global market for electrolysers and 90 percent of the world’s electric vehicle batteries by 2030.

‘EU POLICY IS BASED ON PENALIZATION’

S&P global ratings analyst Nora Wittstruck told Anadolu Agency (AA) that as the driver of the US Inflation Reduction Act, the Biden administration’s goals are to promote clean energy and renewable development that will help reduce greenhouse gas emissions and support technologies associated with the energy sector. .

Stating that the law also provides rebates for consumers to buy more energy-efficient devices, Wittstruck noted that the tax breaks provided by the law could also support more jobs in the manufacturing sector if companies’ production moves to the US. .

On the EU side, Wittstruck pointed out that the main concern is the difference in political strategy between countries, “while the US Inflation Reduction Act ) is mainly based on sanctions for companies that do not comply with the reductions of greenhouse gas emissions”. saying.

Nora Wittstruck added, however, that the EU is considering making some policy changes to remain competitive.

Wittstruck, who also assessed the impact of the US Inflation Reduction Act on the global economy, stated that this is not clear at this stage, they think this will likely become apparent when the full regulatory framework is implemented. under the law, and they I think the implementation will take place in the next 30 to 45 days.

Wittstruck stated that the effects of green incentive competition between the US and the EU on the global economy are also uncertain and they expect the EU to change some of its current policies in a way that maintains its competitiveness vis-à-vis the US ( AA)