Business shouldn’t always pay attention to politics. But if your business is active in green technologies or manufacturing, this week is a good one to tune into the action in Washington and Brussels.
That's because European heads of government are meeting this Thursday and Friday in Brussels to decide if and how the European Commission will respond to America’s Inflation Reduction Act. Europe’s leaders will decide on almost half a trillion dollars in new green subsidies—going to anything from hydrogen to smart grids; from green cement to electric cars.
Meanwhile, in preparation of that meeting, Germany and France—Europe’s two largest economies—sent their economy ministers, Robert Habeck and Bruno Le Maire, on a joint trip to Washington.
So, what explains all this political action, and what does it mean for companies?
Last Friday, European Commission President Ursula von der Leyen presented her proposed Green Deal Industrial Plan. The most eye-popping element is some $440 billion in proposed subsidies for net-zero investments and other green innovations. The net-zero portion, at €372 billion ($398 billion), matches quite closely the $369 billion the IRA foresees for similar subsidies. In her speech at Davos in January, von der Leyen made no secret about her Green Deal being Europe’s answer to America’s subsidies.
In one way, though, the corporate incentives are quite odd. At the same time as Europe and the U.S. are getting ready to hand out hundreds of billions in subsidies, America’s president is talking about a corporate minimum tax. The reason for this apparent dissonance, according to observers I spoke to, is that green technologies are seen as crucial for competing in the 21st century’s global economy.
“Leaders in the U.S. got a wake-up call,” Geert Noels, CEO of European wealth advisory firm Econopolis, and the author of Climate Shock, told me over the phone. “Many in the U.S. started to see that Europe has taken the lead in terms of climate technology. And this matters because the climate race will be a crucial part of geo-economic competition. So it matters where knowhow and R&D are based.”
The Commission’s proposal has an even more explicit geostrategic element. The “Critical Raw Materials Act” would “bring together raw material ‘consumers’ and resource-rich countries to ensure global security of supply through a competitive and diversified industrial base.” Read: Europe wants to pursue its policy of “strategic independence” from the U.S., setting up trade agreements with countries such as China.
It all points to the fact that the subsidies race is about more than meeting “net-zero” targets to save the planet from excessive climate change. Few still have doubts that industrial policy is back in the world’s largest “free market” economies. And the Green Deal Industrial Plan, like the Inflation Reduction Act, are crucial parts of it. Green enthusiasts may accept that bargain since it advances their cause.
What's also clear is that western companies that are flexible about their R&D centers and manufacturing locations will have an embarrassment of riches in terms of government support in the next few years. For those leading such pragmatic global companies, that is only good news. But for those who are free market absolutists, the next few years may be harder to watch.
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Peter Vanham
@petervanham
Peter.vanham@fortune.com
