The global clean energy race began some time ago, yet it is only now that the European Union is hitting its stride. Can the European ‘upstart’ keep up with the trailblazers’ tempo? While avoiding a subsidy shakedown, European countries should adopt a bottom-up approach and double down on their efforts to attract green investment.
China leads the way as a true green superpower. Its dominance in low-carbon technologies is simply undisputed as it tops the clean energy charts by producing the world’s largest share of renewable technologies, like wind and solar energy. But how did it assume this leadership position? Without a doubt, economic opportunism combined with a carefully directed state machinery, political commitment, and enormous industrial capacity gave China a head start in the clean energy race.
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Back in 2009, Beijing spotted an opportunity to pit state-owned enterprises against each other to foster the right market conditions to speed up the development and production of clean energy technologies.
These initial forays were intended to boost exports, rather than a concerted effort to lead the clean energy transition. But Beijing was forced to forge ahead with its domestic transition when conditions for outward investment and trade turned sour. The US is a solid runner up. Ironically, the fear of falling behind China, and not decades of activism and warnings from climate scientists, drove the US to act on clean energy.
American competitiveness in low carbon technology had completely eroded. To address this, a bipartisan effort has brought close to half a trillion US dollars to the service of growing the manufacture and deployment of clean energy and low-carbon technologies at scale.
The jury is still it out if the massive influx of capital will be enough for the US to win the clean energy race, or, at least, match the position of China, but it has caused fears in Europe that it will tempt many big local industrial players into seriously considering a move to the US.
Many echoes of the Chinese and American experience are now ringing through the current debate in Europe as it gears up to meet its net-zero targets, whilst desperately trying to maintain its industrial competitiveness.
The old continent is currently scrambling to shore up its supply of green technologies, and secure the rare earths needed to build them. Two proposals unveiled last week are at the centre of this ambition: the Net-Zero Industry Act and the Critical Raw Materials Act.
The Net-Zero Industry Act
Against the backdrop of geopolitical uncertainty, nobody takes issue with the broad goals of the initiative: to end Europe’s reliance on Chinese low carbon technologies and protect the bloc’s manufacturing capabilities from increased international competition. As a consequence, the Net-Zero Industry Act requires at least 40 per cent of clean tech that the EU needs to meet its climate goals to be made inside the bloc. A colossal endeavour for the old continent.
Europe is aware that to meet these ambitious targets, existing funds will not be enough: such an endeavour requires access to new money. However, the proposal to set up the European Sovereignty Fund, which would facilitate new joint borrowing for member states, has not been welcomed by all, with some concerned it’s a waste of taxpayers’ money.
Despite some legitimate concerns, the dissenting voices in the EU should not get caught in the trap of thinking that the green transition comes at the detriment of economic growth.
Quite the contrary. It will usher in a new era of decarbonisation and a surge in manufacturing capacity across Europe. There are clear economic opportunities associated with the ‘made in Europe’ clean energy technologies of the future. In parallel, European countries should double down on their efforts to attract green investment. Not so long ago, Belgium, Netherlands and Germany all launched their pro-business charm offensives to convince Tesla’s CEO Elon Musk that their country is the best host for Tesla’s gigafactory.
France is now setting the tone on this. In 2021, Engie and Masdar, French and Emirati leaders in renewable energy technologies, committed investment worth five billion US dollars to create a green hydrogen production centre.
Boosting European manufacturing capacity
The French case is a useful example of how a bottom-up approach could boost European manufacturing capacity with the help of like-minded partners. It is a model for those countries who are sceptical about the top-down approach currently being discussed in Brussels.
There is likely more to come: last week, French President Emmanuel Macron welcomed the President Designate of COP 28, Dr Sultan al Jaber, who is also the CEO of the Abu Dhabi National Oil Company (ADNOC) and Chairman of Masdar, one of the leading global investors in the renewable energy space. Al Jaber is a staunch advocate for clean energy technologies and their vital role in tackling climate change. The President of COP28 embodies the mindset European countries seeking investment should look for in potential investors.
The EU and its member states need to act fast. There are multinationals that are threatening to relocate their operations from Europe in order to benefit from the US subsidies. Others are asking for massive subsidies or postponing their final investment decisions. Europe cannot afford to loose jobs, taxes and undermine its standing in the global market.
That said, Europe should be careful to avoid investors who are using this an opportunity for a subsidy shakedown. There are legitimate partners out there who can assist them in developing a bottom-up approach to boost Europe’s position in the clean energy race.
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