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Europe's Answer to the
Inflation Reduction Act
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This week: War speeds the energy transition; green budgets get a boost.
Welcome back. The European Union has a plan to respond to the generous green incentives of the Inflation Reduction Act.
EU officials proposed the Green Deal Industrial Plan on Wednesday. It would match foreign incentives and streamline the process for companies investing in low-carbon facilities to access cash, among other plans. The hope is it will persuade European low-carbon companies to stay put rather than move to the U.S.
Companies weighing up the incentives should really think of this proposal as Europe’s Build Back Better bill, not its IRA. Haunted by the loss of their domestic solar panel industry, European leaders all agree that something needs to be done to turn the tide of their innovative green companies looking abroad. However, actually reaching a deal is no simple task.
Next week the bloc’s 27 national leaders will gather in Brussels in the hopes of reaching an agreement. But there are big differences among them. Smaller nations worry rich countries will splash out in ways they can’t afford to match, unless there is EU-level fundraising, which is always contentious. Some countries will be mindful of protecting their sacred-cow industries, think Germany’s car makers or France’s nuclear industry. And then there are more ideological concerns from free-trading nations—such as the Dutch and the Danes—worried about diluting market incentives.
The proposal to significantly ease restrictions on state-aid changes one of the fundamental underpinnings of the trading bloc. “It comes with significant risk,” said the EU's competition chief Margrethe Vestager. The Danish politician for years has been the enforcer of state-aid rules in the EU, but is most likely known to U.S. readers for her crackdowns on tech companies and tax deals.
Despite the difficult politics, companies can expect European leaders to find a way to agree, eventually. To have any hope of competing with the U.S. incentives, the EU needs to move quickly, although it still has some time while U.S. officials work out the finer details of how to implement the IRA.
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Similar to how parts of the Build Back Better bill in the U.S. eventually made it into the IRA that became law, European companies can expect many parts of the EU’s proposal to make it through to its final agreement. The incentives will be important, but for many companies, streamlining the processes to access cash are also vital. There is already nearly $300 billion of unused EU Covid recovery funds available for energy transition spending.
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There is some risk that this trans-Atlantic subsidy race descends into a trade dispute. However, if the incentives mostly succeed in keeping local companies investing in local manufacturing, rather than enticing foreign ones over, it could be just the boost that the low-carbon sector needs.
The world must invest an average of $4.55 trillion each year for the rest of this decade to be on track for an orderly transition to net-zero by 2050, according to Bloomberg NEF. Global energy transition spending last year was $1.1 trillion.
Based on those figures, there seems to be a sufficient future market for a green manufacturing boom in the U.S. and the EU and even China, another region offering generous green incentives to companies manufacturing domestically.
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✍️ Let me know what you think. If you were forwarded this newsletter, you can sign up here.
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Content from our Sponsor: DELOITTE
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New EU Sustainability Reporting Rules: How Impacted US Companies Can Prepare
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New ESG reporting requirements for the EU apply to U.S.-based companies with significant operations there. Companies should take steps to understand the disclosure implications for their organization. Read More ›
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BP’s annual energy outlook is a widely-referenced analysis of the global energy market. This year’s edition contained two big changes from the 2022 edition: the war in Ukraine and the green-focused Inflation Reduction Act.
The oil and gas producer's analysis concludes that the war has made energy security a top concern once again. The impact is that most countries around the world shift away more quickly from imported fossil fuels to local energy sources, such as renewables. The effects were most pronounced in Europe and Asia.
Despite the shift in its outlook, BP's CEO plans to dial back elements of the company's push into renewable energy.
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Fears of a recession have spurred businesses to cut back, but many are planning to take a different approach when it comes to sustainability investment, writes Dieter Holger.
More than 70% of companies say they are increasing sustainability spending over the next 12 months, while only around 2% are planning to reduce it, according to a recent survey of businesses worldwide
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Hydrogen Partnership Could Improve Johnson Matthey's Innovation Credentials
Johnson Matthey on Tuesday announced a long-term strategic partnership with fuel-cell manufacturer Plug Power for the development of green hydrogen technologies. The agreement, which stretches to at least 2030, could boost Johnson Matthey's business-model and innovation profile, with positive environmental implications for the London-listed chemicals and sustainable-technology company as it that could reduce customers' greenhouse-gas emissions. The partnership involves supplying Plug Power with advanced materials, such as catalysts and membranes as well as precious metals. The two companies would also co-invest in five gigawatts of new manufacturing capacity in the U.S., production of which is expected to begin in 2025. The project, which is slated to increase to 10 gigawatts over time, would be the largest catalyst-coated membrane manufacturing facility in the world, according to
Johnson Matthey.
This is a sample of exclusive analysis of sustainability news from the Journal’s environment, social and governance (ESG) research analysts, whose work is primarily published by Dow Jones Newswires to help institutional investors and wealth managers integrate ESG factors into portfolio models, risk management programs and financial advice. The commentary by our research analysts is independent of the news coverage by reporters at the Journal. For more information about Dow Jones Newswires, click here.
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New nuclear technologies take a great leap forward as the U.S. nuclear power regulator certifies upstart NuScale’s small modular reactor design. (Reuters)
Sustainability's next big thing could be seaweed farming. (Popular science)
A chart-tastic deep-dive into the U.S. LNG industry and its role in the energy transition. (Canary)
Estonia has the only major rare earths processing plant outside of Asia, with plans to expand. (Bloomberg)
Shell has been targeted with greenwashing allegations in Global Witness complaint filed with the Securities and Exchange Commission alleging the company materially misstated is renewable investments. (Guardian)
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