Beyond the Climate Technology Arms Race – Economics and Ecology

A year ago, the US Senate surprised the world by reaching an eleventh-hour deal to pass the largest piece of climate legislation in history. Although the Inflationary Reduction Act (IRA) was initially greeted as promising news worldwide, concerns about 'Buy American’ provisions and domestic tax incentives soon led policymakers in Brussels to criticize the legislation. Market distortions, Violation of WTO Agreement obligations and A ’Global subsidies race to the bottom’.

Today, a year into the IRA’s implementation, tensions remain. But there is evidence of softening. A New Atlantic Ocean Task Force on Inflation Reduction Act Consolidated incentives for Europe, including allowing certain EU-manufactured battery components to count towards domestic production requirements for IRA tax credits. As the EU deliberates its own green industrial strategy, so do the US and European allies Expanded collaboration Some research efforts and technical standards. US President Joe Biden and European Commission President Ursula van der Leyen jointly declared It said: 'We work against zero-sum competition so that our incentives maximize clean energy deployment and jobs – and do not frustrate private interests.’

Importance of Transatlantic Partnership

Yet, beyond the rhetoric, the question remains: Is it possible for the US and Europe to move beyond 'zero-sum competition’ in clean industry? At a time when the world needs massive new investments in climate technology – when the US and Europe need to diversify supply chains and deploy new technologies – the answer has to be 'yes’. While competition over subsidies and tax incentives continues, there is a growing need for transatlantic partners to develop substantial partnerships in climate innovation and industry.

The US and Europe must deepen their partnership to safeguard against the challenges facing the transatlantic relationship.

Consider the need for new investment. As early as 2023, a media narrative emerged that new government incentives and a wave of VC funding would create climate technology.Recession proof’ – and may give the world a fighting chance to avoid catastrophic warming. Analysts now expect the IRA’s roughly $400 billion in climate investments to result $1.7 tn public and private spending. However, there are ongoing government incentives and private funding Only a part What is needed to meet the technical requirements to achieve the Paris climate goals? In the US and Europe, there is a large funding gap for climate-focused companies, particularly in relation to the 'valley’ that runs from start-up to profitability. Bloomberg New Economy Climate Technology Alliance Assessments Investment in climate technologies should triple from 2021 to 2025 – and then double again by 2030. All of this is real work in deploying new technologies – including energy and infrastructure projects and training workers.

The US and Europe must deepen their partnership to safeguard against the challenges facing the transatlantic relationship. Europe recently introduced a first-of-its-kind carbon border adjustment mechanism – a tax on certain imported goods based on the carbon emissions associated with their production. The Biden administration has proposed a different model — a ’Green steel clubCountries that tax high-emission imports of industrial goods. While either strategy has important emissions-reduction benefits, the US and EU must coordinate their approaches – or risk serious trade tensions that could ultimately benefit them. High emission industrial producers China and elsewhere.

While it is good news that the US and Europe now have platforms for dialogue on these issues, transatlantic partners need a bolder agenda on how to join forces in support of the green transition.

Expanding cooperation

An important way to move beyond zero-sum competition is the practice of so-called 'friendships’ – transforming supply chains to include countries with common values ​​and interests. Willie Shih, a professor at Harvard Business School and an expert on supply chains, describes this logic as 'the recognition that we can’t do everything ourselves’. Discussions are ongoing between the US, Europe and other partners on how to expand the partnership. However, the work has started. Countries should systematically track which partners can provide which critical minerals and other commodities and products to enable a clean energy transition—and then, based on these analyses, examine how to selectively extend subsidies and other incentives to build supply chains. It’s a way to accelerate the clean energy transition — while deepening alliances.

Another place to start is technology. At the same time EU-US Trade and Technology Council — a coordinating body established in 2021 — expands some shared climate technology research between continents, and policymakers could go further, establishing joint research labs to address key technological challenges to net-zero transition. For example, transatlantic partners can create new collaborative centers focused on solving grand challenges in climate technology, including green hydrogen, battery storage, grid flexibility, carbon use, climate modeling and others. These new hubs can leverage countries’ diverse tools and expertise to advance research and de-risk private investment. Similar international partnerships in science and technology have a proven track record of strengthening alliances and accelerating progress on technological challenges. The United States and European Union countries, along with other world powers, jointly fund and operate International Thermonuclear Experimental Reactor (ITER), a fusion research and engineering mega project in France. Many projects — from the CERN laboratory to the International Space Station to the Human Genome Project — have followed similar models in recent decades.

An expanded transatlantic partnership in innovation and industry could go a long way toward accelerating private investment, solving technological challenges, building a sense of trust and a shared mission for the work ahead.

The Partnership for Innovation will be an entry point for wider collaboration. EU-US Trade and Technology Council Work begins How to develop common standards to expand green government procurement and electric vehicle charging. But, again, governments need to go further. For example, the United States and Europe can learn from each other on pressing questions about how to use clean technologies, including workforce development strategies such as apprenticeships and funding strategies. Green banks Other issues include permitting, utility regulation, and economic redevelopment for regions moving away from fossil fuel economy. Beyond new centers of expertise in addressing grand challenges in climate technology, the US and Europe can create new platforms for sharing best practices in public policy and providing mutual technical assistance – including at the local and regional levels of government.

Domestic politics on both continents will certainly constrain budgets and policy options. But new collaborations can – where possible – draw on existing facilities and funding while leveraging new private funding. Even as climate debates polarize, interest in investment in low-carbon technology is growing across ideological divides — even if motivated solely by business interest around EVs or safety considerations. vis à vis China.

In the age of the IRA, competition was inevitable. Countries across the Atlantic will continue to compete for corporate investment, and companies will push for subsidies. Issues such as carbon border taxes will continue to be a challenge because the EU does not put a US national price on carbon. However, an expanded transatlantic partnership in innovation and industry could go a long way toward accelerating private investment, solving technical challenges, and building a sense of trust and shared work for the work ahead. Transatlantic partners have more in common than differences in net-zero change.