As countries push forward in the renewable energy sector, the financial support that the United States, Europe, and China are providing is shaping the outlook for investors.
This year, the European Union launched the Net-Zero Industry Act to make investments in solar, wind, and other clean energy technologies more attractive. This new law aims to reduce red tape, speed up project approvals, and achieve a significant carbon dioxide storage capacity of 50 million tonnes by 2030.
Investors have noticed that these subsidies are causing companies to take significant steps. For instance, ArcelorMittal, a leading global steel manufacturer, has begun testing a carbon capture initiative in Ghent, Belgium. According to a Morgan Stanley report from June, this project will assess whether large-scale carbon capture is feasible at that location as the new regulation takes effect.
The investment firm Invesco has described this legislation as a potential “game-changer” for EU companies aiming for net-zero emissions. They predict substantial growth for European manufacturers, particularly those in solar technology, thanks to the €375 billion package of grants, tax credits, and investments under the new act.
The EU is keen to match the renewable energy incentives that the US and China have recently enacted. The $369 billion Inflation Reduction Act introduced by the Biden administration raised concerns among European officials, who feared it would draw cleantech businesses and investments away from Europe. This led to accusations against Washington of violating World Trade Organization rules. Leading figures in the European automotive sector urged Brussels to consider countermeasures to protect domestic industries.
European Commission president Ursula von der Leyen has emphasized the need for the EU to adjust its frameworks to ensure fair competition. In reaction to the Inflation Reduction Act, the EU proposed its net-zero legislation in 2023, addressing potential competition issues.
This new law seeks to enable EU manufacturers to fulfill 90% of the region’s demand for electric vehicle batteries by 2030. It also aims to curb a potential influx of Chinese electric vehicles (EVs) onto the European market, according to Marco Siddi, a senior researcher at the Finnish Institute of International Affairs.
China’s swift progress in electric vehicle production, heavily supported by government subsidies, has created intense competition. Companies like Nio have benefitted from large grants for infrastructure like charging stations, and state-backed investments have also provided substantial bailouts. Chinese battery manufacturers have received considerable subsidies, often covering over half the cost of their products.
In October, BYD, China’s largest electric vehicle company, reported higher quarterly revenues than Tesla for the first time, highlighting the competitive edge that China has developed in this sector.
Siddi notes that Europe’s challenges extend beyond subsidies; there is a pressing need for industry protection as well. Unlike China’s unified approach to green subsidies, Europe’s complex structure of 27 member states complicates the implementation of similar initiatives. The US also grapples with its own regulatory challenges, but it benefits from a robust investment ecosystem that supports clean technology.
With a possible return of Donald Trump to the White House in January, Europe’s competition landscape could become even more complicated. The former president might reduce clean energy subsidies, though a complete repeal of the Inflation Reduction Act seems unlikely. A significant faction within the Republican party has already moved to safeguard the law’s tax credits, recognizing its focus on funding projects in Republican-leaning regions.
In the US, rising electricity demands, driven by factors like artificial intelligence and re-shoring of manufacturing, are likely to push for greater renewable energy consumption.
The challenging situation for European companies is compounded by uncertainty over US tariffs. Janka Oertel, an expert at the European Council on Foreign Relations, warns that fear of making wrong decisions can stifle investments and hinder progress toward decarbonization. This results in a stagnation of growth and competitiveness for European businesses.
Oertel highlights wind power as a critical area of concern. The potential for Trump to roll back wind industry subsidies has already negatively impacted European wind company shares. If China’s wind manufacturers take advantage of the situation, Europe could find it increasingly difficult to maintain a strong industrial base in the wind energy sector, leading to a dangerous reliance on Chinese suppliers in renewable energy.
Essentially, failing to adapt to these rapidly changing dynamics could leave Europe vulnerable in the renewable energy race.