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Global policy on clean energy is rapidly shifting from an era of free trade to an era of protectionism, as countries around the world race to gain a foothold in the burgeoning field of decarbonization. The global subsidy movement was sparked by fears of being left behind and unable to compete in the global clean energy market. As a result, Europe seems likely to suffer.
After decades of a global emphasis on trade liberalization, “countries are creating a mosaic of favorable regulations and public policies to attract green industries such as electric vehicles, storage, solar power, and hydrogen.” “Subsidies are driving major changes in industrial policy around the world,” according to a recent report in the New York Times.
This transition phase was largely initiated by the one-two punch of the Trump and Biden administrations in the United States. President Trump has defied global trade agreements by imposing a slew of heavy tariffs on a wide range of products and countries, including many European allies. President Biden then introduced a huge subsidy bill called the Inflation Control Act. While the law does nothing to curb inflation, it introduces $500 billion in new spending and tax cuts, much of it aimed at boosting the nation’s clean energy sector.
The move caused much turmoil in Europe, with free and open trade considered “crucial to the project of European integration,” in the words of the New York Times. Massive anti-inflation legislation runs counter to this approach, and many other countries (such as Canada and India) have begun reactionary tax credit policies that they feel they have no choice but to follow suit or be locked in. . We will withdraw from the clean energy market.
However, while the origins of the global policy shift can be traced back to the United States, the Inflation Control Act itself was enacted in response to China’s aggressive expansion of its clean energy manufacturing and production capacity. it was done. China has no hesitation in open, free and fair trade, and has used all strategies to direct the world’s clean energy supply chain. And it’s been a huge success.
According to a BloombergNEF analysis, China alone will be responsible for almost half of the world’s spending on renewable energy in 2022, amounting to a whopping $546 billion. This is nearly four times the $141 billion spent by the United States and three times the $180 billion spent by the European Union. The Chinese government is also working tirelessly to establish its presence in clean energy supply chains around the world. As a result, China has near-monopoly over many key clean energy supply chains. China produces about 80% of the world’s solar panels, 60% of electric vehicles, and more than 80% of EV batteries. It also produces 60% and processes nearly 90% of the world’s rare earth minerals, a key component of clean energy production.
That’s why countries like the United States have decided to respond to China’s dominance of clean energy markets by adopting protectionist policies. Many see this as the only realistic option at this late stage, when China has already beaten the competition and the chances of competition are becoming increasingly slim. This puts Europe in a very difficult position, forcing it to either abandon the political principles it has adopted for very good reasons or be left behind.
Jumping into the subsidy competition carries certain risks. In the US, subsidies represent 200% of a company’s investment costs, while in Europe the figure is around 20-40%. Many European politicians and economists want to maintain the status quo so they don’t waste money on start-ups that can never operate profitably on their own. “The market will decide which projects will be successful. Our goal as a government is to mobilize as much private capital as possible,” said Anne-Marit Bjornflaten, Secretary of State at Norway’s Minister of Trade and Industry. . York Times.
Some believe that failing to participate in the global subsidy drive could be a fatal mistake for Europe. For a country like Norway, which previously aspired to become a clean energy powerhouse, the stakes are high. Instead, they are watching investors move west, noting the very real possibility of continuing to rely on domestic oil and gas instead.
Written by Haley Zaremba, Oilprice.com
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