With US funding for clean technologies increasingly uncertain, experts think that Europe may be in a position to poach some of its rival’s most innovative cleantech companies. But while options for mobilising financial support exist, the EU has more work to do if it is to create an attractive regulatory environment.
Since his return to the White House, Donald Trump has doubled down on his preference for oil and gas over clean energy technologies. He has pulled the US out of the Paris Agreement on climate change (again), ordered a freeze on funding for climate change research, and even slashed the Environmental Protection Agency’s pollution rules.
He has also pledged to undo the $369-billion Inflation Reduction Act (IRA), his predecessor Joe Biden’s flagship law. Considered the largest climate package in US history, the IRA has funnelled billions of dollars into green energy, climate resilience and ecosystem restoration projects through various tax credits, grants and loans.
Biden closed clean energy deals worth over $25 million in the final days of his presidency, but what happens next is an open question.
“The Trump administration hasn’t made clear that it intends to abide by the agreements to fund all of those projects,” said Jigar Shah, who headed the US Department of Energy’s Loans Programs Office during the Biden administration. “Uncertainty has left many companies seeking new, reliable partners with more urgency.”
This means “a welcoming EU” could have the opportunity to pick up some of these cleantech projects that could soon be deprived of support, he added.
Since many companies have already been evaluated by the US government to receive federal grants or loans, Shah pictures “a ‘copy/paste’ scenario in which the EU opts to accept the US evaluation process and streamlines its approvals.”
But funding is not the only consideration.
“One of the main criteria for this type of company is regulatory stability,” said Phuc-Vinh Nguyen, head of the Jacques Delors Institute’s Energy Centre. He points to Trump’s unpredictability as a potential push for these companies to look overseas, but adds that the European regulatory framework is not much more stable at the moment, given the European Commission’s ongoing simplification efforts.
**European incentives**
The European Commission has recently shared its plans to stimulate the bloc’s cleantech market, including releasing over €100 billion for made-in-EU clean manufacturing under the Clean Industrial Deal. It has also selected 47 strategic projects that will benefit from shortened permitting procedures to help access critical raw materials for EU cleantech players.
Jules Besnainou, the executive director of industry group Cleantech for Europe, sees “a cohesive industrial policy” taking shape in the EU. And while it is too soon to assess the impact of the Commission’s plans on keeping innovative businesses in Europe, he is “much more optimistic” now than he was last year.
The Savings and Investments Union unveiled in March, for example, marks the first time that the EU has attempted to direct private investments towards clean technologies, he said. “Even a very small move in the allocation of institutional investments makes a huge difference in the financing available.”
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Nguyen is not as positive. “The IRA, at its core, is nothing more than a response to the European Green Deal, except that this response was also financial,” he explained. This means that the EU must still catch up with the US on that front.
Questions remain, for example, about the €100 billion announced for businesses, which in part comes from revenue generated by the EU’s Emissions Trading System. This source “is not unlimited and by definition subject to volatility and thus exogenous shocks,” Nguyen said. “Besides, another €30 billion must come from the member states, which is objectively not very realistic.”
He added that possible company relocation was all about negotiation between manufacturers and politicians. If there were a leak of US cleantech firms to the EU, Trump could easily soften his anti-clean energy stance to avoid substantial job losses.
**American dominance**
In the meantime, the US president might find it harder than expected to cut down the Biden-era tax breaks.
While he foresees “modest changes and a lot of renaming of the laws,” Shah expects a continuation of IRA policies, given that the landmark legislation has been “so supremely successful” at pushing Trump’s “energy dominance” strategy.
Trump has been talking about turning the US into a global energy superpower since his first administration, in 2017. His current focus is on fast-tracking oil drilling and increasing the sale of US liquefied natural gas abroad, but the cleantech industry has increased its efforts to save key portions of the IRA, by making the case that the law serves his agenda.
“These incentives have helped to reverse the trend of growing Chinese energy dominance, enabling America to compete in key industries,” a coalition of energy groups wrote in a letter in February.
And they are not alone. A growing number of Republicans, who have heavily benefitted from the IRA, have joined the call.
“Energy tax credits have transformed local economies, creating thousands of jobs, lowering energy costs, revitalising American manufacturing and securing America’s energy dominance,” said Andrew Reagan, the president of Clean Energy for America, in reference to a letter from House Republicans. “Protecting these investments isn’t a partisan issue.”
Besnainou now expects US governors to defend the broader economic incentives brought by the IRA against the new administration’s moves to put the brakes on the clean transition. He also anticipates that the US Department of Energy will want to make use of the $300 billion that remains at its disposal for cleantech loans. “The question is: for what?”