As countries begin their clean energy transition, green industrial policy has emerged as a key tool in the fight against climate change. Both the European Union and the United States are using industrial policy to transform their energy and manufacturing sectors and meet the climate goals they’ve set for 2030 and beyond. This already has knock-on effects for companies and organisations, as they take advantage of green investment, subsidies, and funding while working to comply with new regulations.
To discuss global reactions to these developments and anticipate what’s coming next, FiscalNote hosted the virtual discussion “Green Industrial Policy: A Global Perspective on the EU Green Deal and US Inflation Reduction Act.” The conversation was moderated by Thomas Adlam, policy manager at FiscalNote Professional Services, and featured speakers included Thibaut L’Ortye, director of public affairs at AmCham EU, Davide Giacomello, policy analyst specialising in trade policy at EU Issue Tracker, Annika von Grey, consultant at FiscalNote Professional Services, and Olivia Brown, analyst on FiscalNote's Global Professional Services team.
Read on for the highlights of this insightful conversation.
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Global Trends in Green Industrial Policy
Early in the conversion, L’Ortye identified two themes inherent to green industrial policy on both sides of the Atlantic: climate change and competitiveness. “We’re thinking about the intersection between two important issues. There’s a lot of discussion about how we can manage to meet the ambitions of the Paris Agreement, and at the same time, how do we make sure that we stay competitive in the global economy,” he said.
The clean energy transition is not only an opportunity for the planet but also for economies to take advantage of one of the largest growing industrial sectors worldwide. As ever more governments strive for net zero milestones, whether part of an international or domestic agreement, the demand for clean technologies and the means to manufacture them has steadily increased.
Throughout the discussion, experts gave examples of how the U.S. and EU use green industrial policy to capitalise on this demand to benefit their domestic companies and industries. Von Grey noted how the U.S. government is looking to bolster the country’s electric vehicle industry by requiring all minerals in EV batteries have a domestic origin by 2029 for the company to qualify for tax credits.
Meanwhile, Brown noted that the EU is also using green industrial policy to “increase its own competitiveness in the global industry.” She mentioned two specific initiatives, the Net Zero Industry Act and the Critical Raw Materials Act, which both aim to increase the share of EU-manufactured clean technologies, and require that the EU manufacture at least 40 per cent of its strategic net zero needs within the bloc by 2030.
Although Europe already had a green energy strategy in the Green Deal and Fit For 55 package, the IRA changed the debate to become more about how to unleash private investment for carbon-neutral technologies.Thibaut L'Ortye, Director of Public Affairs
Recent Industrial Policy Initiatives in the EU and the US
The Inflation Reduction Act (IRA) is perhaps the biggest federal plan to reduce greenhouse gases and combat climate change ever introduced by the U.S. government. “The act includes a staggering almost $400 billion in incentives over a 10-year period in favour of decarbonisation, renewable energies, and energy security,” explained von Grey. This is mostly being done through a system of tax credits which allows taxpayers to deduct a percentage of the cost of renewable energy systems from their federal taxes.
L’Ortye described the IRA as somewhat of a “wake-up call” in the EU. He argued that the IRA sent a clear message to American investors that green technology is a growing and profitable industry. This caused concerns in the EU that the IRA might attract investment away from Europe.
“Although Europe already had a green energy strategy in the Green Deal and Fit For 55 package, the IRA changed the debate to become more about how to unleash private investment for carbon-neutral technologies,” L’Ortye said. “To ensure a green transition, there needs to be investment and innovation in the technology sector — and private investment is essential for that to happen.”
The EU subsequently announced its own Green Deal Industrial Plan in February 2023. Brown explained that the plan consists of four pillars — regulation, increased funding, enhancing skills, and open trade — each relating to an area that the Commission believes “needs to be addressed to transition European industry as a whole to be more climate-friendly.”
The EU Industrial Plan in the EU’s Broader Trade Strategy
The Green Deal Industrial Plan deals not only with manufacturing within the EU but also stipulates that the union must create sustainable and resilient supply chains. Explaining the rationale behind the fourth pillar, Giacomello reiterated the Commission's belief that “net zero needs to be achieved through incentives that are underpinned by the principle of fair trade and competition.”
He also noted how neatly the fourth pillar fits within the EU’s existing trade policy framework. Since the trade policy review of 2021, the EU has required that open trade investment must be sustainable and free from unfair and coercive practices. Giacomello believes that most of the Industrial Plan’s fourth pillar is more or less a reiteration of existing policy from previous years, with the addition of a few new initiatives.
Giacomello also pointed out how the Green Deal Industrial Plan, including the Critical Raw Materials Act, creates opportunities for trade deals with non-member states to aid the green transition. He gave examples of trade negotiations with Australia, Thailand, India, Indonesia, and Chile as key opportunities for the EU to import strategic raw materials without becoming dependent on volatile partners, particularly China.
Green Industrial Policy: A Global Perspective on the EU Green Deal and US Inflation Reduction Act
As the world faces the challenges of climate change and global economic recovery, green industrial policy has emerged as a critical tool for promoting sustainable economic growth while reducing greenhouse gas emissions.
The IRA is a relatively comprehensive plan that is fairly clear for companies and investors to use to their advantage. As time goes on, the eligibility requirements for companies to receive tax credits will become stricter, meaning that organisations must stay on top of the changing rules to continue benefiting from the scheme.Annika von Grey, Consultant
Staying Ahead of the Changes in the Green Industrial Policy Landscape
Companies in both the EU and the U.S. should prepare for changes in the green industrial policy landscape, not only to avoid compliance issues but also to take advantage of potential funding, tax credits, or investment.
“The IRA is a relatively comprehensive plan that is fairly clear for companies and investors to use to their advantage,” von Grey said. ”As time goes on, the eligibility requirements for companies to receive tax credits will become stricter, meaning that organisations must stay on top of the changing rules to continue benefiting from the scheme.”
On the other side of the Atlantic, L’Ortye explained how the EU’s array of 23 connected initiatives, wrapped up in various green packages, can be difficult to comprehend. There is also the issue of fragmentation between how the member states implement the same policies, which could create further confusion for companies that do business in multiple EU countries.
To stay ahead of this shifting regulatory landscape, moderator Thomas Adlam stressed the importance of monitoring new policies coming out of Brussels and Washington. A policy monitoring solution like EU Issue Tracker, with additional bespoke analysis from FiscalNote Professional Services, can serve as force multipliers for your government affairs and public policy teams by providing you with custom policy briefs and in-depth intelligence on the issues that matter most to your organisation. Receive key, timely information you can act on, and save the time and energy typically exhausted by policy monitoring to focus on more strategic tasks in managing public policy and issues.
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