How Industrial Policy in the US and EU is Shaping the Green Transition

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.

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.

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.