As I rode down the US east coast in one of America’s rare trains, I got a glimpse of the green tech boom happening across the pond. New factories are mushrooming across the country. Biden is making good on his promise to build America back better and his success offers invaluable lessons for Europe.
Biden’s biggest success is to have combined fiscal, trade and regulatory policy into a powerful industrial climate strategy. Much ink has been spilled on the Inflation Reduction Act and US protectionism, but what few Europeans realise is that this will soon be complemented by some of the world’s most ambitious transport climate regulations.
The Environment Protection Agency has drawn up rules that require US carmakers to sell between 50-60% electric cars in 2030, with requirements kicking in from 2027. The draft trucks rule is less ambitious. Still, combined with the IRA incentives, the EPA rules will turn the US into the world’s second battery electric powerhouse (the first being China). American companies like Tesla and Rivian will be showered with federal dollars.
But there’s more. An essential part of any successful strategy to bring back manufacturing to the west is abundant, cheap green power. You simply can’t competitively produce hydrogen or do energy intensive things like refining or cell manufacturing without it. The IRA is unleashing a tsunami of cheap, clean energy that will cement American industrial leadership for years to come.
The IRA is expensive. It is estimated to cost over a trillion dollars by 2032 – four times more than first estimated. But it’s not just size that matters. The biggest shock to a European is how simple it is. There’s no need to spend millions on consultants to prove bogus “incentive effects”, impossible “matching aid” clauses or state aid loopholes to get around OPEX restrictions. Anyone that meets the criteria gets a check.
More European leaders – in particular Germans – should visit the US. They should go and see the brand new – often German – factories being constructed. They should visit republican states like Texas and Georgia raking in clean energy investments. Europe’s talks about green growth. Biden is making it happen.
The truth is there is not a single European nation that has the scale or even the legal power to do what the US is doing. The truth is also that national politics has descended into provincialism and tribalism. And so, all eyes are on the EU, just as it prepares for fateful elections.
What must be done?
First, we need to stick with the plan. The problem is not that we are going green too fast; the problem is that America and China are using “doping” in the clean tech race. Calling key regulations like fuel mandates or CO2 regs into question now will destroy investment certainty. If our aim is to help our industry compete: “The answer is: […] a European Industrial Deal at the same level of a European Green Deal […] to reinforce each other” as Belgian prime minister Decroo said last week in Antwerp (more on that below).
Second, the obvious missing piece in the EU’s toolkit still is money. Yes, there is the recovery fund, but that is an old fashioned stimulus programme. What we need now is a climate-industrial investment plan that is big (we propose 400bn – 300 for a revamped innovation fund, another 100bn for investEU guarantees), simple and 100% focused on clean tech, clean materials and clean energy deployment.
This is not “a nice to have”. It is so important that Von der Leyen should refuse to lead a Commission that does not get the resources to get the job done.
Third, we need a reset on trade and competition. We are the only ones left following the WTO rules. The China electric car investigation points the way. But it will not be enough. Massive overcapacity is pushing battery prices in China towards $55/kwh – half of global market prices. European battery makers simply can’t compete with that, just like they won’t be able to compete with IRA subsidised batteries.
From America to Antwerp
As I rode home on a perfectly normal, but by US standards strikingly modern train, I read the Antwerp declaration, a manifesto signed by over 400 of Europe’s captains of industry. The Antwerp declaration rightly identifies industrial transformation, funding and clean energy deployment as top priorities. It’s not all good, but still I was struck by how much common ground there was between what industry says is needed, and what we think is needed.
What’s equally striking is that for all the talk of backlash and green deal fatigue, Europe’s CEOs are not calling for the green deal to be reversed. They are calling for it to be implemented, and for Europe to learn from what works in the USA.
