10- Countdown to #Unshackle #EU #Cleantech: Clear #Market #Signals

Day 7:?The countdown continues! For those catching up, each day until the European Council on 9-10 February, I’ll be sharing one actionable?#idea?a day that can help accelerate the?#energytransition?and make Europe a global leader in?#cleantech?#innovation?and?#deployment.?

Clear Market Signals: The Secret Sauce of the IRA?

?

You have to give it to the IRA – it was a superb marketing exercise – starting with the name. How brilliant to refer to a green industrial program as the ‘Inflation Reduction Act’ in the midst of a cost-of-living crisis. Points scored with large parts of the domestic audience, including the opposition which did not use the IRA against the government in the midterm elections which subsequently followed.

?

Externally, the marketing strategy worked wonders as well – as a clear and unmistakable market signal that the US was open for business and entering the #cleantech race in full force. I have spoken to countless businesses in my travels in past months - from Egypt and the US to UAE and across Europe - and it’s been staggering how these market signals have resonated because critical sectors and technologies are clearly identified, and each is associated with?a subsidy package of tax breaks, grants or loans. As an example, IRA?allocates more than $5 billion to low-carbon construction materials, including more than $2 billion for public procurement and deployment of low-carbon construction materials. This provides innovators and investors with a clear market signal to invest in production and deployment capacity. The same is true in clean hydrogen where tax credits for investment and production are very succinct: up to $3/kg, with the value tied to carbon intensity (the lower the carbon intensity, the higher the credit). This is estimated to cost the government $9 billion over the ten years the credit will be valid but that can only be estimated at this point. It could be less or a lot more depending on how many producers are able to claim the credit. Either way, it’s an unmistakable -and widely understood - price and market signal.

?

And now, a pop quiz: what are the market signals in the Green Deal Industrial Plan (GDIP)?

To be clear, the GDIP that the Commission announced last week is an important milestone and contains many good elements like the competitive auctions for fixed premium #greenhydrogen support. However, in reading the communication several times, it strikes me that the text falls short of calling clear sectoral objectives like the IRA.?As part of the Green Deal Industrial Plan, the Commission proposes to put forward a Net-Zero Industry Act. That already had many people in industry confused. What is the difference between the NZIA that President von der Leyen announced in Davos, and the Green Deal Industrial Plan? Which one is the main document? Is one part of the other?

Also, in the NZIA?the Commission announces that it will provide a simplified regulatory framework for production capacity of products that are key to meet our climate neutrality goals, “such as batteries, windmills, heat pumps, solar, electrolysers, carbon capture and storage technologies”. Later, in another chapter, it says that the Temporary Crisis and Transition Framework (TCTF) for state aid will simplify aid for?“all renewable technologies (under RED II) and to renewable hydrogen and biofuel storage”. Then, in the section on the ‘Green Deal General Block Exemption Regulation’ we learn that it will “support measures in key sectors, such as hydrogen, carbon capture and storage, zero-emission vehicles and energy performance of buildings”. Finally, the “Innovation Fund supports […]?solutions that decarbonise energy intensive industry, boost renewable energy and energy storage (including batteries and hydrogen) and […] the manufacturing of critical components for batteries, wind and solar energy, electrolysers, fuel cells and heat pumps.”?

?

In fairness, I know fully well that such a hotchpotch of priorities is often the result of building a (necessary) compromise in the European Commission’s interservice consultations as well as a long-standing tradition of ‘tech neutrality’, but one does need to be aware that the absence of more clarity is blunting the market readability of the EU’s response to the IRA.

?

This lack of prioritization is striking?even if you compare it to REPowerEU, the EU’s response to the energy crisis, which had very clear sectoral objectives, like raising the renewables targets, or mandating the share of renewable hydrogen in industry by 2030.??

Prioritization and tailor-made approaches to clean technologies can make a difference

?

Going forward, I propose to have at least a rudimentary technology ‘wish list’ that provides some clear market signals – a mixture of political prioritization, investment incentives, demand creation and complimentary efforts around standardization/regulation/state aid, etc. In addition, there needs to be a clear recognition that technologies need a tailor-made, targeted approach. A mature technology exposed to intense global competition (often fought on an unlevel playing field), such as wind, will need a different approach than a nascent technology, such as green cement. In clean technologies, one size does not fit all, and while that creates certain challenges, it is also an opportunity because Europe has key players across the value chain, from young startup, to established mid-sized companies to global industrial player.?

That's a wrap for Day 7 of #unshackle #eu #cleantech

#greendealindustrialplan #netzeroindustryact