How the EU can match the US Inflation Reduction Act

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How the EU can match the US Inflation Reduction Act

Last August, the US Congress adopted the Inflation Reduction Act (IRA). It became the epicentre of EU fears of seeing cleantech projects, like battery or solar panel gigafactories, settling in the US rather than in the EU. There is some rationality behind that fear. The IRA indeed provides sizable public funding, with 10 years predictability and the simplicity of having a single federal level scheme. Moreover, the IRA does not only subsidize cleantech manufacturing. For instance, in the case of electric vehicles, the IRA supports the mining of critical minerals, the manufacturing of the battery, the purchase of the electric car and the production of renewable electricity. In other words, with IRA the US now has a genuine long-term climate investment plan.

The IRA is a wake-up call for the EU, as is China’s Five years Plan and Japan’s 20 trillion Yen Green Transformation Programme. Let’s be clear. Seeing major Governments organising long-term climate investment plans is great news for climate action. In our latest brief published today, I4CE argues that the logical solution is an EU long-term climate investment plan. Yet, there is currently little political appetite for such a discussion. The Institute therefore recommends the European Commission to use the existing political momentum around the IRA and cleantech, to propose an EU Cleantech Investment Plan that focus on the scale-up and manufacturing of key clean technologies. The EU should scale green public procurement and launch EU-wide support schemes, as part of this plan.

Today the 27 Heads of States and Governments of the EU reconvene for a Special European Council. They should use this opportunity to provide political backing to an EU cleantech investment plan, and task their ministers to map and assess their own national schemes to identify synergies and gaps. This would help the European Commission design its Net-Zero Industry Act, tabled for 08 March 2023. However necessary, such Cleantech Investment Plan should only be the first step for a wider discussion. The EU needs to build a long-term climate investment plan that tackles all climate investment needs, such as public transport infrastructure or targeted support for low-income and middle-class Europeans. This is crucial to ensure EU, national and private investments turn all the European Green Deal objectives into tangible realities for businesses, workers and families.

For years, the European Union assumed it would lead the cleantech race because it was the only one running in it. Mistakenly so. With the Inflation Reduction Act, the US quickly catches up. This brief argues that the best EU policy answer to the IRA is an EU longterm climate investment plan. As the political appetite for such a plan is currently limited, the European Commission should use the political momentum to propose a targeted investment plan that focuses on the development, scale-up, manufacturing and deployment of clean technologies in the EU. It identifies three first bricks that can already be laid out to build this plan.

Landscape of climate finance in France – 2022 edition
To build a climate investment plan, the European Union should develop a more detailed understanding of the public and private climate investments currently happening in the EU. It also needs to asses the gap between existing investments, and investments needed to achieve the Green Deal objectives. I4CE has been evaluating climate investments and the investment gap in France for many years, with its Landscape of Climate Finance. We invite you to (re)discover this groundbreaking work, as the Institute now intends to replicate this analysis at EU level.

Environmental budget assessments training in Europe
EU Member States already invest public money for climate. Identifying climate-friendly and climate-unfriendly spending in their national budgets is a necessary step towards developing a national climate investment plan. That is why I4CE has already trained 500 civil servants of member states' Finance and Environment Ministries on 'Green Budgeting'. Our experts are also meeting with think tanks and NGOs in these EU countries to give them the keys to a Green Budget that feeds their national debates on financing the transition to a climate neutral economy.

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