Berlin Scarce and expensive energy, high inflation rates and a weakening global economy mean that the German economy is facing severe headwinds. Hardly any topic electrifies companies looking for investment opportunities more than the “Inflation Reduction Act” (IRA) signed by US President Joe Biden in mid-August.
The law represents the largest government investment in combating climate change in United States history. The US government is spending hundreds of billions of dollars on the IRA.
Almost 400 billion dollars in subsidies are to flow into the energy transition, 260 billion dollars alone are intended for the expansion of solar, wind and hydropower.
A few days before the start of the world climate conference in Egypt, German companies fear falling behind. Christian Hartel, CEO of Wacker Chemie AG, told Handelsblatt: “The US Inflation Reduction Act is a wake-up call for the European Union and the federal government.”
Hartel called on the EU Commission and the EU member states to “quickly and jointly develop an industrial strategy for renewable energies and climate-neutral production in Europe”, “so that investments worth billions in a climate-neutral future can now take place here in Europe”.
Climate neutrality made in Europe
Roland Harings, CEO of Aurubis AG, also calls for movement with a view to the green transformation in Europe. “Europe and Germany are in competition for the best climate-friendly technologies for our industry of tomorrow – with the USA, but also with numerous other players,” he said.
Politicians in Brussels and Berlin must follow up with concrete measures that will enable the energy-intensive industry to remain competitive in the future. “Without them, the green transformation in Europe will not succeed.”
Planning security, a stable and affordable energy supply and a practical set of rules “that can be compared with other industrialized nations” are needed.
Wacker Chemie and Aurubis are sponsors of the Climate Economy Foundation, which is meeting this Thursday for its annual conference in Berlin. It has been joined by companies that feel particularly committed to climate protection, but also regularly demand political support.
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“The US government’s Inflation Reduction Act gives the impression that the US has the money to invest, and Europe has laws and regulations,” says Sabine Nallinger, chair of the foundation. Europe must counter this impression and make it clear: “The future of Europe is climate-neutral, and climate-neutrality is the new made in Europe.” The EU must be a pioneer in climate protection and “the place for companies to invest in the climate-neutral industry of tomorrow”.
Two different approaches in the US and Europe
Economist Axel Ockenfels, Professor of Economics at the University of Cologne, describes the situation as two very different approaches are currently dominating climate policy in rich countries: “The Inflation Reduction Act relies on subsidies for the green transformation, but at the same time on green protectionism.”
Europe is betting more on carbon pricing, but at the same time considering tariffs at the border that “threaten to seal off Europe as a climate fortress,” he said. Both approaches fueled conflicts and made international climate cooperation more difficult.
What attracts investors from Europe, especially from Germany, to the US Inflation Reduction Act is the pragmatism with which the funds are allocated. They are mainly granted via tax incentives.
The terms are simple and clear. There are no narrowly defined funding conditions, as are common in Europe and Germany. This is noticeable, for example, with topics such as the storage of CO2 or the development of a value chain for climate-neutral hydrogen.
The federal government worries about falling behind when it comes to investing in the transition to carbon neutrality.
(Photo: dpa)
While the Europeans make strict specifications and place high demands on the electricity that is needed for hydrogen electrolysis, the Americans do not have such restrictions.
This also gets the Association of the Electrical and Digital Industry (ZVEI) on the scene. They do believe that “protectionist funding programs” like the IRA are the wrong way to go. However, the German government and the EU Commission are supported in their considerations for a “modern trade agreement with the USA”.
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“We need an active industrial policy more than before,” said Wolfgang Weber, CEO at ZVEI. “Germany and the EU must send out clear investment signals that strengthen the location and enable our providers of key technologies to have a strong and competitive home base.”
The federal government has recognized the problem. Chancellor Olaf Scholz (SPD) and Federal Economics Minister Robert Habeck (Greens) have made it clear that they are particularly concerned about investments in Germany and the rest of Europe that are crucial for the transformation to climate neutrality. They fear that the IRA, in combination with the extremely low gas and electricity costs in the USA, could have a strong pull effect.
Even if Habeck describes the actions of the USA as “oversubsidization”, “which will not be good for an economic playing field with Europe”, he sees the need “that we have to give our own European answer that puts our strengths first”. Otherwise Europe would have to watch as investments are “massively sucked off”.
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