US climate subsidies unsettle Europe’s green industry plans
By Sebastien ASH
Heide, Germany (AFP) Feb 4, 2023
An empty field near Heide in a corner of Germany known more for its cabbage farming is the chosen site for a huge battery factory and potential pillar of the country’s future green economy.
Manufacturer Northvolt chose the location in the northern region of Schleswig-Holstein primarily for the abundance of renewable energy produced by the wind whipping in off the North Sea.
With that power the Swedish company hopes to build the “cleanest” battery factory in the world — which would eventually produce cells for one million electric vehicles a year — reducing Europe’s reliance on Chinese manufacturers.
But massive green subsidies on offer in the United States — totalling $370 billion (339 billion euros) — have unsettled the plans and sent European policymakers scrambling to find a response.
The financial incentives for domestic industries, approved by Washington under the banner of the Inflation Reduction Act (IRA) in August, have put a question mark over the Northvolt project in Heide.
Combined with the surge in energy prices in Europe following the Russian invasion of Ukraine, Northvolt was “at a point where we can give priority to expansion in the United States” with other projects delayed, CEO Peter Carlsson said in October.
– ‘Committed’ –
In Heide, officials were “surprised” by Northvolt’s comments but remain optimistic that the factory will be built.
The potential for thousands of jobs and creating a new local industry was “very important” for the region, as well as Germany and Europe, Heide mayor Oliver Schmidt-Gutzat told AFP.
Germany’s future as an “auto nation” depended on having a domestic industrial base capable of building “the most important components in terms of added value”, including batteries, local IG Metall union leader Martin Bitter told AFP.
“Europe has to react” to stop industries and jobs from drifting towards the United States, the union official said, calling for more state support.
For its part, Northvolt remained “committed to its expansion in Europe”, a spokesman said.
The battery maker was not “stepping on the brake” but pushing forward with discussions on the factory, Bjoern Joergensen, a local government official representing the communities around Heide, told AFP.
Were European officials to agree a response to the IRA, “then they (Northvolt) are more likely to be here”, said mayor Schmidt-Gutzat.
– ‘Opportunity’ –
Other industries have started to review their investments. Solar panel makers, such as Italy’s 3Sun and Meyer Burger from Switzerland have already announced the expansion or installation of new projects in the United States.
Dirtier sectors are also exercising pressure on governments to back their efforts to decarbonise.
“I think matching the IRA is almost non-negotiable,” said ArcelorMittal CEO Aditya Mittal, whose group plans to invest 1.7 billion euros to reduce emissions at its sites in the industrial heartlands of northern France.
The European Commission on Wednesday put forward its first proposals in response to the IRA, including a controversial relaxing of state aid rules.
Officials have floated the possibility of creating a new EU fund to back green industries, but the idea has already been strongly opposed by some member states.
“Starting a large-scale and excessive subsidy competition with the United States is not government policy,” German Finance Minister Christian Lindner said at the end of January.
Similarly, German industry is hoping for a response but has warned against the risks of a trade confrontation with the United States.
The two sides needed to hold “discussions between friends”, said Siegfried Russwurm, head of the influential BDI industrial lobby.
“Transatlantic cooperation is more important than ever.”
Karine Vernier, head of sustainable investment fund InnoEnergy in France, said the EU should see the US plans “not as a threat, but an opportunity” to boost its own green infrastructure.
“The Americans created the IRA for reasons of energy sovereignty, Europe must do the same,” she told AFP.
France urges ‘transparency’ over US climate subsidies
Paris (AFP) Feb 4, 2023 -
French Economy Minister Bruno Le Maire has called for “transparency” between the United States and Europe over the controversial granting of green subsidies and tax breaks.
Le Maire and his German counterpart Robert Habeck travel to Washington on Tuesday to meet Treasury Secretary Janet Yellen and discuss a landmark US spending bill that has Europe on edge.
The Inflation Reduction Act (IRA) funnels $370 billion into subsidies for America’s energy transition — including tax cuts for US-made electric cars and batteries.
While the US wants to reduce dependence on Chinese imports, Europe is worried about unfair competition and the collateral damage if companies relocate outside the EU.
“We must be realistic. The IRA is a game changer,” Le Maire told AFP in an interview on Friday.
“The IRA offers competitive advantages which, coupled with very low energy prices in the United States, poses a risk to our industries.”
The EU is pushing the United States to make exemptions for European companies. But a special joint task force set up to address Brussels’ concerns has yielded little fruit.
“The most important thing is that we cooperate with allies to have transparency about the amount of subsidies and tax credits that will be granted,” said Le Maire.
“If you know at what price green hydrogen will be released in the United States and at what price it will be released in Europe, this allows you to guarantee fair competition conditions.”
Le Maire said that the European Commission had proposed clauses aligning with the American subsidies, “but for these alignment clauses to work, we still need to know how much the subsidies will be.”
To head off the threat to European industry, the EU on Wednesday unveiled proposals such as the controversial relaxation of state aid rules, to level the playing field.
However, member states do not agree on how to approach the problem.
In Washington, Le Maire hopes to secure a “cooperative approach to the most strategic investments in sensitive areas such as semiconductors.”
“It’s not like there is an overproduction of batteries, an overproduction of solar panels, or an overproduction of semiconductors. On the contrary, there are not enough of them,” he said.
“The challenge is not to steal very competitive markets. The challenge is that we manage to develop together, in the United States and Europe, an efficient, competitive green industry that is the most innovative on the planet.”
After the Washington visit, European Union leaders will hold a summit later in the week that aims to begin crafting a response to the US measures.