EU's green deal as alternative to US's IRA

WEF in Davos: EU could confront the US climate game changer with own green deal

The European Union announced on Tuesday that it would mobilize state subsidies and a sovereignty fund to deter businesses from migrating to the United States. It will be a kind of EU green deal in response to American efforts to accelerate its energy transition.

Ursula von der Leyen, the president of the European Commission, stated at the annual gathering of the World Economic Forum (WEF) in Davos that the actions will be a part of the EU’s Green Deal industrial plan to make Europe a hub for clean technology and innovation.

Green deal goals

The objective will be to concentrate investment on strategic projects throughout the whole supply chain. She said in a speech at the gathering that the EU will specifically look at ways to make the permission process simple and quick for new clean tech production locations.

Von der Leyen stated that in order to maintain the appeal of European business, it is necessary to match the deals and benefits now offered by countries outside the EU.

Energy security – the biggest factor driving investments

Earlier, Fatih Birol, executive director of the International Energy Agency (IEA), said at a WEF panel that energy security was the biggest factor driving climate investment today.

The U.S. Inflation Reduction Act (IRA), which President Joe Biden signed last year, according to Birol, would encourage investment in cleaner energy and is the most significant climate agreement since the historic 2015 Paris Agreement.

Larry Fink, CEO of BlackRock, the largest asset manager in the world, shared this viewpoint when he said that the IRA was a game-changer for the U.S. government’s efforts to finance a quicker transition in the world’s largest economy.

The green deal needs green subsidies

John Kerry, the U.S. climate envoy, stated before a different panel on how to pay for the transition to a low-carbon economy that governments and businesses must spend heavily in order to prevent catastrophic climate change damage.

Kerry stated that the lesson he has learned over the past few years is that the world needs money to achieve the 2015 Paris Agreement objective of keeping global warming to 1.5 degrees Celsius above pre-industrial levels.

While European nations have welcomed the new energy transition promise made by Biden’s administration, some worry that it may hurt their industry.

Does the IRA threaten EU interests?

On the same WEF panel as Birol, Jozef Sikela, the Czech minister of industry and trade, stated that he understood the Act’s significance from a U.S. perspective but added that he should also consider European interests.

Gas prices increased by approximately 90% last year compared to the previous year as a result of Europe’s energy crisis, which was brought on by Russia’s invasion of Ukraine last year.

According to Sikela, the cost of the global energy crisis is being borne primarily by European people and businesses, and the new U.S. legislation will drive away investors and push governments into a “dangerous” subsidy competition.

Green deal will provide grants and loans

Later, von der Leyen informed reporters that the new fund would provide both grants and loans. This is a concept she first proposed in September but has not yet received backing from all EU states, particularly Germany.

As the EU is ready to launch this fund, which aims to boost local industries’ competitiveness, particularly against American and Asian firms, she said that a temporary solution for financing the green industry will also include loans and grants.

She told reporters in Davos that the clean-tech sector needs a very clear message and signal right away that Europe is their home and future and that it makes sense to invest here.

Von der Leyen said, without going into specifics that as this will take some time, EC will look at a bridging option to provide immediate and targeted help where it is most required. She added that the Commission was identifying the needs of the green industry.

Fossil fuel companies can be included in the green deal

Occidental Petroleum Corp. CEO Vicki Hollub previously referred to the US Act as one of the most revolutionary pieces of legislation ever passed.

She did, however, criticize European governments for punishing fossil fuel companies that were simultaneously working on renewable energy sources.

Also, she said that with all due respect to Europe, she must admit that she doesn’t think it was the finest idea to impose a windfall profit tax on the oil companies who are working hard to expand wind and solar in Europe.

She added tothe WEF panel with Birol and Sikela that subsidies are crucial for the advancement of new technology.