The US and the EU have reached common ground on the former’s Inflation Reduction Act and the latter’s European Green Deal, Ursula von der Leyen has revealed.
In a speech, the European Commission (EC) president lauded the fact that the “two biggest and most advanced economies in the world are now moving in the same direction”, leading her to “welcome the Inflation Reduction Act for its massive investment in clean tech”.
Von der Leyen (pictured) said the two sides had come to agreement on whether European carmakers would be allowed access to the US market and receive US tax breaks. She also said there had been discussion around critical raw materials for the batteries used in electric vehicles, and whether those of European origin would be treated in the same way as those emanating from the US. This, she said, would “secure strong supply chains for batteries in Europe and ensure access to the US market”.
“That is good news overall,” Von der Leyen continued. “But let me be clear: negotiations can only solve some of the most concerning issues. The big bulk of work still lies with us in Europe. We Europeans need to get better at nurturing our own clean tech industry. We need to speed up, we need to simplify procedures, we need to grant better access to public and private finance.”
In January, von der Leyen launched the Green Deal Industrial Plan, which she said would tackle the regulatory environment, financing, skills and trade, and which aims to compete with the US Inflation Reduction Act launched last year, in order to keep clean tech production and investment in Europe.
Global investment in the clean transition topped $1tn last year, 30% more than the year before. And the global market for net-zero technologies is set to triple by 2030.
“In other words: the race is on,” von der Leyen said.
“The race on who is going to be dominant in this market in the future. We must get our act together if we want to stay front-runners. We must nurture our own clean-tech industrial base, both to create good jobs, well-paying jobs here in Europe and, of course, to ensure access to the clean solutions we so urgently need. And that is what the European Green Deal Industrial Plan is all about.”
‘Make it in America’ provisions
The US Inflation Reduction Act of 2022 had provoked concern on the continent in recent months. Back in August, the head of global green energy company Fortescue Future Industries suggested it had the potential to cause Europe to miss its green targets. Speaking to the FT, Mark Hutchinson, the former head of GE Europe who is now running Fortescue, explained large-scale hydrogen projects on the continent could see the funds used to power them move to the US to take advantage of the tax credits offered under Biden’s new legislation.
On the other hand, ESG investment professionals have welcomed the Act as setting an example for the rest of the world. “It sends a strong signal to the rest of the world on the scale of ambition needed,” EQ Investors’ joint-CEO Sophie Kennedy said, with David Harrison, fund manager at Rathbone Greenbank Global Sustainability Fund, and Jennifer Boscardin Ching, client portfolio manager, thematic equities at Pictet Asset Management, calling it a “positive start“.
According to the White House’s website: “For the first time ever, the Inflation Reduction Act establishes ‘Make it in America’ provisions for the use of American-made equipment for clean energy production. The law provides expanded clean energy tax credits for wind, solar, nuclear, clean hydrogen, clean fuels and carbon capture, including bonus credits for businesses that pay workers a prevailing wage and use registered apprenticeship programmes.”
In November, Ignacio Galán, executive chair of Iberdola, predicted the US would become a more-attractive destination for clean energy investment as a result. Speaking to the FT, he said the act made the country a “very much more appealing” place in which to invest. Galán went on to criticise the EU’s proposed cap on electricity generation revenues and his home country’s potential windfall tax on big energy companies.
A version of this article was first published in ESG Clarity sister title Expert Investor.