Europe is struggling to support green industries one year after the US passed a law to boost technologies needed to stop the planet heating.
The Inflation Reduction Act (IRA), which offers companies hundreds of billions of dollars in tax breaks to make clean technologies in the US, prompted EU officials in March to support homegrown manufacturing in sectors crucial to cleaning up the economy.
But analysts and industry groups say their response has been stymied by a lack of cash and coordination.
“It’s very much the EU masquerading as if it is doing industrial policy,” said Johanna Lehne, an analyst at the climate thinktank E3G. “When you look into the package itself – the fact that there is no new funding, that they are basically leaving it up to member states, that they haven’t been able to create a really cohesive and coordinated approach – it’s not more than the sum of its parts.”
Under its green deal industrial plan, the EU has announced a target to make 40% of “strategic net zero technologies” within its borders by 2030. It has loosened rules that stop member states giving money to industries and plans to cut red tape that holds back companies waiting for permits to build clean energy projects.
The European Commission also wants member states to add €10bn (£8.6bn) to existing pots of funding in the hope the money will encourage €160bn of investments, including those from the private sector. In the US, the IRA is expected to provide at least €350bn in federal spending alone.
“The big gamechanger that the IRA brought was this immense amount of funding, and there we are falling way behind,” said Niklas Nienaß, a German MEP with the Green party. “I would call [the EU response] a sleight of hand. The magician shows you this card, the IRA response you are looking for, but in fact we have just shifted one card for another.”
EU officials do not have control over budgets on the scale of the US or China. They have also been reluctant to let member states subsidise industries themselves because they fear it would distort the single market. Richer countries such as France and Germany have more money to help domestic companies than poorer ones such as Romania and Bulgaria.
Despite this, the EU has temporarily loosened state aid rules, a process that started during the Covid-19 pandemic and sped up after Russia invaded Ukraine. But the commission has rejected the idea of “unrestricted subsidies” and said it would rather help green industries by playing to the strengths of the single market.
“Europe is very good at rule setting,” said Frauke Thies, the head of the climate thinktank Agora Energiewende. “I think we should also recognise that this, dull as it may sound, is a real advantage.”
The EU has some of the highest environmental standards in the world and its regulations are sometimes adopted by other governments. For companies who sell their goods around the world, it is often worth complying with EU rules everywhere rather than manufacturing different versions of the same product.
“Europe has a very strong legislative track record on this that the US can’t replicate,” said Lehne from E3G. “Both sides are able to provide something. On the US side, you have the cash. On the EU side, you have the rules.”
But the rules have sometimes frustrated its own industries. Clean energy companies have criticised the EU’s funding proposals not just for being smaller than the uncapped US tax credits, but also harder to access, with longer wait times. They also worry the funding arrangements are too closely linked to the innovation fund, which the EU has used to bring clean technologies out of the lab and on to the market.
“This is not about innovation, it’s not a technology challenge, it’s a pure volume challenge,” said Giles Dickson, the CEO of the industry lobby group WindEurope.
To meet targets from national governments, he added, Europe must add 20GW of offshore wind turbine capacity a year from 2027, but can only build and install enough turbines itself to add 7GW a year. “We’ve had 30 years of innovation, we have very advanced turbines. We just need more factories to build more of them.”
The European parliament and council are now fighting over the European Commission’s industrial plan before it comes into force. A parliamentary committee on industry, research and energy has proposed deleting lines in the text that specify which technologies to support.
Christian Ehler, a German MEP from the centre-right European parliamentary party grouping who is in charge of the file, has called to shift the plan’s focus to cover all technologies that can help cut emissions, not just the ones highlighted by the commission. A coalition of clean technology groups, including electricity grid operators and battery makers, has said that widening the scope would seriously weaken the proposal.
“China has shown very clearly that focusing on a few key technologies and pushing for them is what made them a leader,” said Walburga Hemetsberger, the CEO of the industry lobby group SolarPower Europe.
“We need to invest in those technologies that will be decisive for our future economies,” she added. “We cannot just put our heads in the sand any more and hope that someone else is doing it for us.”
EU officials are not just worried about clean technology companies moving factories to the US. Since Russia invaded Ukraine, sparking an energy crisis across the continent and beyond, European governments have grown more sensitive to the dangers of depending heavily on one country for key supplies, as they did with Russian gas.
Global supply chains for clean technologies draw heavily from just a handful of countries. China supplies 60% of rare earth elements and refines 90% of them, according to the International Energy Agency. It also refines 60-70% of lithium and cobalt, which are needed in huge volumes to make electric batteries.
“We are facing dependence, particularly on China,” said Marie-Pierre Vedrenne, a French MEP with the market-liberal Renew Europe group. “The European Union’s desire, which is shared by the commission and parliament, is really to diversify supply and control the integrity of the supply chain.”
