Since the introduction of the Inflation Reduction Act (IRA), the most far-reaching climate policy in the U.S. to date, the U.S. has stolen Europe’s title as the forerunner in green energy. Strong climate pledges supported by meaningful policies have put the U.S. way ahead of the competition when it comes to renewable energy and clean technologies. Not only is the U.S. developing its domestic capabilities, but it is also attracting investors from far and wide, who were previously eyeing Europe and other parts of the world for project development.
Climate Policies Driving Investment
The IRA, introduced in the summer of 2022, provides more than $391 billion in grants, loans and other financial incentives to support the development of U.S. renewable energy capacity and clean tech advancement. This far surpassed the expectations of other governments and energy experts around the world. It supports the 2021 Bipartisan Infrastructure Law (BIL), which provides $550 billion in funding for infrastructure, including roads, bridges, mass transit and water infrastructure. It is also backed by the CHIPS and Science Act of 2022. Not only do these policies provide high levels of federal funding, but they have also helped attract even greater levels of private investment.
Private investors across a wide range of industries have been flocking to the U.S. thanks to its favorable business environment. There has been substantial growth in energy segments including wind, solar, hydrogen and nuclear power, as well as major investments in battery storage, mineral mining, electric vehicle (EV) manufacturing and clean technologies. Silicon Valley in California and Houston, Texas have quickly become major green tech hubs, building on their long-standing position in the tech and energy fields.
Following the introduction of the IRA, European Commission President Ursula von der Leyen said that the EU must “adjust” its own rules on government aid to accelerate public investment in the energy transition. The EU has since introduced a range of climate policies, to remain competitive. These include the Fit for 55 climate law – aimed at reducing EU emissions by at least 55% by 2030, and the REPowerEU plan – in support of a green transition. However, it faces challenges in catching up with the U.S., as the regional body needs to be able to convince its member states to invest large quantities of public funds into the green transition to compete with the financial incentives being provided in the U.S.
Beating Europe at its Own Game
Europe is currently leading the world when it comes to green hydrogen – which is produced using renewable energy to power electrolysis, in contrast to grey and blue hydrogen which are produced using fossil fuels. Under its REPowerEU plan, the EU aims to produce 20 million tons of green hydrogen a year by 2030, supported by tens of billions of euros in investment. However, the IRA has encouraged several companies that were eyeing Europe for green hydrogen production to reassess, with many establishing operations in the U.S. The IRA provides a $3-per-kilogram subsidy for green hydrogen production, as well as tens of billions of dollars in loans and financial incentives for international investors in the industry.
Jorgo Chatzimarkakis, the CEO of Hydrogen Europe stated, “We have a very robust framework in the EU, but we fail to attract our own companies because it’s all too complex… We have ambitious targets, but we don’t have simple and efficient instruments to incentivize businesses.” He added, “In their typical bureaucratic way, the Europeans will kill this business.”
Becoming Globally Competitive
In addition to overtaking Europe in several green energy and clean tech sectors, the Biden administration is developing its regional supply chains and enhancing its mining and battery manufacturing capacity to become more competitive at the global level. In 2023, the U.S. battery capacity pipeline overtook Europe’s for the first time. Between the launch of the IRA and the summer of 2023, an additional 436 GWh of battery capacity was added to the U.S. pipeline, marking an increase of 57.9%. The U.S. battery capacity pipeline for 2031 stands at around 1,190 GWh.
Evan Hartley, an analyst at Benchmark, stated, “Since the inception of the IRA last year, the US battery cell production capacity pipeline has experienced a growth rate significantly higher than Europe, and even China, highlighting the attraction the country now has for cell producers.”
The U.S. is now aiming to work with the EU to secure its supply of critical battery minerals. In January, the two powers failed to reach an agreement over the trade of these minerals, but they plan to continue discussions to establish a transatlantic marketplace for minerals and other components. The EU continues to view the IRA as discriminatory, suggesting it is too protectionist and does not leave room for international competition and growth. However, the creation of an international minerals market that, rivals China’s dominance in the sector, could help boost global energy security.
While the U.S. has succeeded in establishing the most far-reaching climate policy and attracting elevated private funding from international players, it can still benefit significantly from green energy partnerships with the EU. Further, while the U.S. is leading right now, the EU is expected to keep strengthening its green energy regulations and climate policies to become more competitive over the coming decades.
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Felicity Bradstock is a freelance writer specializing in Energy and Industry. She has a Master’s in International Development from the University of Birmingham, UK, and is now based in Mexico City.
