The race is on to achieve supremacy in key technologies for the energy transition. The first official day of talks at the World Economic Forum in Davos, Switzerland has offered clear glimpses of one of the main dynamics of our time, which could be good news in terms of the powerful boost that investment in this sector can provide to the fight against climate change. But there are also problematic elements, as this technology race represents a new form of deeply protectionist competition among the world’s major powers.
The president of the European Commission, Ursula Von der Leyen, made the most of the Davos exposure to jointly present the EU’s plans before her influential audience. She explained that the Green Deal Industrial Plan is “our plan to make Europe the home of clean tech and industrial innovation on the road to net zero. Our Green Deal Industrial Plan will be covering four key pillars: the regulatory environment, financing, skills and trade.”
The initiative can be understood as Brussels’ answer to the Inflation Reduction Act passed by the US Congress last summer and containing a powerful subsidy plan for the national development of green technology worth almost €400 billion. This plan is being eyed warily by the EU because of its highly protectionist approach. Simultaneously, powers such as China, Japan or India are also making inroads on similar projects of their own.
The first pillar of the European strategy envisions a new Net-Zero Industry Act to streamline the paperwok involved in establishing industrial projects in this area. “We will especially look at how to simplify and fast-track permitting for new clean-tech production sites.” said Von der Leyen, adding that The Net-Zero Industry Act will go hand in hand with the Critical Raw Materials Act, which will seek to end dependence on China for rare earth and lithium. The EU proposes forming alliances with partner countries, including the US, on this front.
It is not difficult to glimpse, in the energy transition sector, a potential battlefield between the two superpowers, with Europe faced with the problematic question of defining its own position in the midst of clear internal disagreements
And then there is the tricky question of financing. In this regard, Von der Leyen said that the second pillar of the Green Deal Industrial Plan will boost investment and financing of clean-tech production, and announced that “we will propose to temporarily adapt our state aid rules to speed up and simplify.” But there is a great distorting potential in relaxing these rules, to the benefit of the countries with the greatest financial muscle within the EU, and so Brussels is proposing the creation of a Sovereignty Fund, which will make it possible to compensate for this imbalance. Implementing such a fund will be a difficult task. The Dutch Minister of Finance, Sigrid Kaag, has already requested that the new fund be set up with existing resources, not with additional ones.
The third pillar of the Green Deal Industrial Plan will be developing the skills needed to make the transition happen, said the EC leader. The fourth pillar will be “to facilitate open and fair trade for the benefit of all.” At this point, Von der Leyen alluded explicitly to China, which has strong subsidies for its industry, restrictions on access to its market, and is trying to lure European companies with promises of cheap energy and labor, as well as a more lax environmental regulatory framework.
Ngozi Okonjo-Iweala, director general of the World Trade Organization (WTO), called on world powers not to launch into a “subsidy race” on this matter. But the race seems already unleashed. Belgium’s Prime Minister, Alexander de Croo, admitted that there are problems deriving from the impact on Europe of US legislation, but he urged leaders not to lose sight of the extraordinary global value that this initiative has in the fight against climate change. Indeed, the billions of euros that the great powers will invest in the coming years represent a fundamental asset in the development and implementation of technologies to reduce polluting emissions. But the connection between this goal and the turbulent state of global relations also opens the way for potentially serious friction.
The US is embarking on a vigorous campaign to block China’s access to cutting-edge technologies, believing that Beijing has long engaged in unfair competition, and it is pushing for its Western allies to go along with that move to complete China’s isolation on this matter. It is not difficult to glimpse, in the energy transition sector, a potential battlefield between the two superpowers, with Europe faced with the problematic question of defining its own position in the midst of clear internal disagreements, above all between an eastern flank that leans towards the US, and a western sector more in favor of establishing a more middle-of-the-road position between Washington and Beijing. Beijing now seems highly motivated to try to keep the link with Europeans alive, and its leaders were no doubt comforted by the recent visit of Chancellor Scholz of Germany with a large group of entrepreneurs. France’s Emmanuel Macron also plans to travel to Beijing soon.
In Davos, China’s Vice Premier Liu He tried to convey a message of openness to the world, inviting investment in the country and speaking out against protectionism and in favor of reglobalization. But the West has been denouncing for years that investments in the Chinese market are subjected to unfair conditions and that state aid is extensive. Liu is scheduled to meet US Treasury Secretary Janet Yellen on Wednesday in their first face-to-face meeting since the pandemic.
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