Can Europe really achieve carbon neutrality by 2050?

At Asterion, we strive to think and invest for the long term...

And the long term in Europe means (among other things) achieving carbon neutrality by 2050 and a necessary transformation of our industrial arsenal.

This is why the European response to the US plan to support the zero-carbon industry was so highly anticipated.

With the Net Zero Industry Act, the European Commission is attempting to respond to its American equivalent, the Inflation Reduction Act (IRA).

Voted during 2022, this program, which includes a 370 billion subsidy package for zero-carbon industries based in the United States, may have led to fears of a mass departure of R&D teams and innovative companies across the Atlantic.

What is the IRA and what does it have to do with inflation?

The Inflation Reduction Act (IRA) is a US legislative package passed in 2022 with the aim of reducing inflation in the United States.

The bill was designed to tackle the main causes of inflation, such as raw material shortages, supply chain bottlenecks and rising labor costs in the US.

Is the IRA good news for the climate?

The IRA includes a number of climate measures and can therefore be hailed as a transition accelerator.

Among other things, the law requires energy efficiency standards for buildings and vehicles, as well as investment in renewable energies and research.

The American IRA is based on a very simple implementation plan: subsidize low-carbon technologies and investments with a 'green bonus' - provided they take place in the USA.

Why is the IRA a bone of contention with Europe?

The IRA has an obvious protectionist component, as it aims to subsidize companies that locate their industries on American soil.

For Thierry Breton, European Commissioner for the European Market, this is a clear distortion of competition, with "a risk (in the event of a failure by Europe to respond) that whole swathes of our industry will disappear".

By the end of 2022, more and more cases of investments getting drawn in by the IRA were being reported... such as “a major reprocessing company approached by the U.S. administration, which offered to fund up to 70% of its investment, guarantee ten years of market opportunities and secure a long-term energy supply contract for 4 to 5 times less than in Europe!”

The European response in detail

1. Alignment with IRA ‍

Member States are now allowed to respond immediately to IRA subsidies by providing financial support for investments in key value chains for the decarbonized industry (batteries, solar panels, wind turbines, heat pumps, electrolysers, etc.).

In concrete terms, if a company receives a subsidy offer from the USA of 100 million, European states will have the right to match this 100 million.

We can also see the twofold risk associated with this: an increase in the differences between Member States' actual support capacities, and a headlong rush to give companies the benefit of more public money than is really necessary.

2. Simplification and acceleration of procedures and permits for industrial sites, as well as financing facilities.

3. The text also sets a target for production in Europe of key technologies (solar, wind, storage, geothermal, electrolysis, biogas, capture and storage (CCS) and networks) and to strengthen training in these fields.

Why is this important for players in the European zero-carbon industry?

For Pascal Canfin (Chairman of the European Parliament's Environment Committee), "these texts reflect a profound change in European software.

They are organizing a new green industrial policy that gives a key role to partnerships between industrialists and states, a far cry from the purely competition-based vision that has reigned in Brussels over the last few decades."

Jules Besnainou, Executive Director of Cleantech for Europe, tells Sifted that the European program could be more ambitious, particularly in terms of funding, but welcomes the simplified permitting process.

The zero-carbon 2050 objective is an opportunity to create thousands of jobs on European soil and avoid importing the disruptive technologies that are being invented right now.

European decision-makers seem to have understood this, and so much the better.

To find out more :

• Behind the scenes of Biden's plan to siphon off European industry" les Echos
• "Not ambitious enough? EU's climate tech bill gets mixed reaction." Sifted
• "Europe may be more intentional than the US in its energy transition policies, but it is also backward-looking" in Social Europe
• The EU and the IRA in Polycrisis

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