European economist says EU policy is ‘better’ than US anti-inflation law

Europe’s approach to building climate-friendly industries is “better” than the US’s Inflation Control Act (IRA), German and French economists argue in a new paper, adding that they are “better” than the US Inflation Control Act (IRA) in response to US subsidies. He called for less panic.

Since the U.S. launched its flagship green industry subsidy program nearly a year ago, EU policymakers have warned that European manufacturers will move production across the Atlantic and move production to new locations on the U.S. mainland rather than within the region. I have been concerned that the company may invest in a new base.

But government advisers in Germany and France are now calling for caution, insisting that the EU’s green industrial policy is “clearly a better approach”.

French and German economic expert councils claim in joint statement that relocation concerns are often overestimated statementsaid, “The IRA’s impact on U.S. production and production shifts to the U.S. is likely to be relatively small.”

While the United States relies primarily on subsidies to build climate-friendly industrial production, the EU’s main policy instrument is the Emissions Trading System (EU ETS), which It would set a price on carbon emissions, and the revenue would go to the EU. It is also used to promote the adoption of clean production.

“Investment and production subsidies alone are less effective than the European approach in addressing environmental externalities,” the economists said.

“Without carbon pricing, the amount of subsidies needed to meet decarbonization targets would be even higher,” the experts added.

Taking a carrot-and-stick approach to reducing carbon emissions, like Europe’s, could be five to six times cheaper than relying on subsidies alone, the experts wrote.

Bidenmix vs emissions trading

The large-scale use of subsidies in the United States is part of Joe Biden’s “Bidenomics” approach, which seeks to combine investments in the green transition with incentives to bring industrial production back to the United States, particularly reducing dependence on China. It’s the purpose.

It is also seen as a response to the failure to introduce carbon pricing, which has faced far greater resistance in the US than in Europe.

In contrast, the EU recently hired A significant tightening of carbon markets is expected to increase prices for both CO2-intensive industrial production and production. Fuel heating and transportation.

Revenues from the carbon market will go mostly to the national budget and partly to a fund organized by the EU, which will also be used to promote the adoption of green technologies. But experts say these intake programs are often too complex.

“Europe should learn from the simplicity and convenience of the IRA approach,” the experts said, adding that “IRA tax credits and the conditions under which companies can obtain them are easy to understand and predict.”

“In contrast, EU subsidies are typically awarded through an application process, the outcome of which is uncertain by design,” they added.

The EU and its member states are therefore creating bureaucratic and Efforts to reduce the burden should be strengthened.

However, the experts point out that overall, “the overall level of funding of the EU program is comparable to the IRA” and “it already exceeds the IRA in financial support for renewable energy”.

Relax, the EU is ahead.

The IRA has raised concerns that Europe is lagging behind in green industry, when in fact EU manufacturers are leading the way in technologies such as electric vehicles (EVs) and electrolyzers for hydrogen production. Experts say it will.

“Europe is outperforming the US in EVs,” they note, adding: “We do not expect the expansion of the US electric vehicle market to attract significant demand or production from Europe.”

In any case, experts argue that the production base for cars sold in Europe is likely to remain in Europe, as most cars are not transported long distances to the point of sale due to high transportation costs.

Similarly, “German manufacturers are technological leaders in producing the efficient electrolyzers needed for hydrogen production.” Therefore, a US subsidy system that promotes hydrogen production would also benefit European companies, as it would “stimulate European high-tech demand.”

As a result, Europe’s policy response to the US should focus only on a small number of areas in which “EU countries have a comparative advantage and generate significant externalities”, rather than entering into a broad subsidy competition with the US. It is.

A bigger concern for European policymakers is energy prices, which are likely to remain high for a longer period of time than in the United States.

“A joint effort to reduce energy prices in Europe is therefore of first importance,” the experts asserted, “and a rapid expansion of energy supplies by accelerating the expansion of renewable energy supplies.” There is a need,” he added.

To facilitate this, Germany and France should also resolve their ongoing conflicts over the use of nuclear energy and instead “support each other in these efforts,” experts say.

[Edited by János Allenbach-Ammann/Nathalie Weatherald]

Read more at EURACTIV