10-Day Countdown to Unshackle EU Cleantech

In ten days – from 9-10 February, the European Council will convene heads of state and government to discuss a ‘Green Deal Industrial Plan for the Net-Zero Age’ - the EU’s response to the US’ #inflationreductionact. That’s why, starting today, I’ll be counting down to the EU Summit by sharing one actionable #idea a day that can help accelerate the #energytransition and make Europe a global leader in #cleantech #innovation and #deployment.

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First off, a remark: it’s been fascinating to witness the fallout over the #inflationreductionact in Europe. It’s understandable that subsidies, domestic production requirements and state interventions to quickly stand up new, emerging clean technologies undergo scrutiny. But why is that only happening now? For well over a decade, China has been ‘unlevelling’ the playing field, without much of a notable response from #Brussels. Last time I checked, Europe didn’t lose its #solar and #wind industries – and isn’t at risk of losing its nascent #electrolyser sector – to the United States. Nor does it rely on the other side of the Atlantic for the supply and processing of #criticalminerals. That’s why Europe shouldn’t be wasting time contemplating a trade war – instead it should be pulling out all the stops to engage in a #cleantech #racetothetop with the rest of the world.?

Now that I’ve gotten that off my chest, here’s my recommendation #1 on how to #unshackle #EU #cleantech:

Simplicity is the name of the game: EU-wide auctions instead of an unwieldy subsidy race

The #ira incentivizes investment and home-grown production – two of its most contentious elements – through tax credits. These are designed to be?simple, predictable and non-discriminatory. For instance, that means producers of green hydrogen already know the price they’ll receive in the future. And the tax credit will be dispersed to any company that produces green hydrogen, whether established incumbent or young startup. The fact that the rules of the game are so easily understood by businesses around the world has been one of the most threatening aspects of the #ira because it may well unleash an US investment bonanza in cleantech. In comparison, corresponding EU schemes – such as the Important Projects of Common European Interest (IPCEIs) – are notoriously nebulous and slow, and therefore (understandably) generate significantly less interest.

In that sense, the IRA may have been a useful wakeup call – and convincing excuse – to simplify, streamline and expedite EU instruments. Because the fact of the matter is that the EU also has powerful tools at its disposal. For example,?under the EUR 38 billion Innovation Fund, one of the world’s largest funding programs for the demonstration of innovative low-carbon technologies, the European Commission could launch competitive bidding mechanisms (auctions) to support the production of green hydrogen. Winners of this auction would receive a fixed premium for each kilogram of green hydrogen produced over a period of 10 years. For such a mechanism to have a similar incentivizing effect as the #inflationreductionact and help build a sizable market for green hydrogen in Europe, it needs to bridge the gap between the production costs of green hydrogen and the price that offtakers (buyers) are willing to pay. To establish the fixed premium and reduce the risk of funding supply that has no buyers, only projects that have an agreement in principle (i.e. letter of intent) with potential offtakers should receive support.

If it proves a success, this mechanism could be easily replicated for the manufacturing of components for #solar and #wind energy, #batteries and #electrolysers, as well as emerging technologies like #cleanfuels, long-duration energy storage (#ldes) and direct air capture (#dac). Also, supporting manufacturing capacity and domestic content requirements in Europe can no longer be a taboo – public funds need to be concentrated on reshoring at least some productive capabilities, thereby reducing unhealthy dependencies on geographies so clearly outside of our sphere of influence (considering, for instance, that 90% of our #solarpanels come from China).

If we want to stop investments flowing out of Europe, a competitive bidding mechanism can be an effective solution. It could also go a long way to preempt a harmful subsidy race between Member States and instead help European cleantech companies scale no matter where they are – be it Slovakia, Netherlands, Portugal, or elsewhere.

That’s a wrap for Day 1 of #unshackle #eu #cleantech

#greendealindustrialplan #netzeroindustryact?