This is a longish article on an important topic about why Finland and other Nordic countries should remain at the forefront of green technologies. The USA and the big countries in Europe understand that this sector will be one of the biggest drivers of economic performance and we must be on that e-bus before it leaves the depot!
This article attempts to simplify the content of this topic to present a good overview of what is happening in Europe and in the USA on Climate Change policy.
At the moment, our newly elected leaders seem to be doubting the above and that will not be good for Finland…
A few countries like Finland, appear to be opposing parts of the EU’s response to the American Inflation Reduction Act, because they fear that it will cost too much and weaken Finland’s economy. Their logic being either that we cannot afford to make the necessary changes or that Finland has already made sufficient progress to fight climate change.
Both arguments are weak and without foundation – not doing more is putting your head in the sand. Finnish industry needs to maintain and build on its strong presence in the CleanTech sector and remain at the forefront of in stopping climate change. This will remain an important and fast-growing market with ample opportunities for grants and other funding from the EU under its various policy framework.
Paul Krugman states: “…green technology has been advancing at an incredible rate…”
The Inflation Reduction Act (IRA) in the United States last year caused Europe to be worried about the generous IRA subsidies for American clean-energy industries that would cause clean-energy companies to leave Europe for the US.
The European Commission reacted soon enough by announcing plans for a massive ”Green Deal Industrial Plan” (GDIP).
Some of the EU’s proposed plans were opposed by more liberal member states, causing some divisions among member states even though the impact of the IRA on Europe’s clean-energy industries is likely to be limited.
However, it is worth noting that expert commentators claim that the EU’s response is an important further advantage for the fight against climate change and thus should be welcomed. Paul Krugman who states in the New York Times on 9.5.2023:
The main payoff to America’s new industrial policy will come, not from job creation or even improved technology but from limiting the damage from climate change…
And this is why a subsidy war with Europe, if it happens, will actually be a good thing. We want other countries to take action on climate, even if it involves some de facto protectionism…
… in the face of a terrifying environmental crisis, we have to do whatever it takes to limit the damage. We don’t want to find ourselves saying, “Well, we cooked the planet, but at least we preserved the rules of the World Trade Organization.”
Other commentators have noted that the EU has already promised similar forms of financial support which are said to exceed the support offered to clean-energy industries by the US.
Now that the initial drama over the IRA has passed and negotiations with the Commission and member states has produced sophisticated solutions that should preserve the EU’s industrial policy ambitions, supply-chain security and support balanced internal and external trade. The EU’s most controversial, the establishment of a European Sovereignty Fund has still not been finalised.
Summary of the EU’s Green Deal Industrial Plan
The GDIP has 3 main parts – a regulatory reform of two pieces of legislation, a reform of State Aid, and the establishment of a EU Sovereign Wealth Fund:
1. Regulatory reform – The EU wants to amend two pieces of legislation – the Net-Zero Industry Act (NZIA) and Critical Raw Materials Act (CRMA). This would speed up the government-approval process for new factories, power facilities, mines and other plants for the clean-energy industry and the critical-minerals industry, respectively. It would make investment prospects for clean energy and critical minerals more attractive even though these changes was apparent long before the US Congress passed the IRA.
There was unease among some member states and trade experts over one aspect of the draft version of the NZIA. After consultation with member states, the final, revised act requires that member states assess whether a project contributes to the diversification of international supply chains by sourcing technologies from countries that currently account for less than 65% of global supply. It strikes a workable balance between supply-chain security and maintaining an open European market without emulating the United States’ preferential treatment of domestic production, which creates friction with other countries.
2. State Aid – The European Commission has also finalised changes to EU state-aid rules, at least until 2025. France and Germany supported major changes, including a significantly higher limit on government handouts. But after a previous loosening of EU state-aid rules in March 2022, the two countries had accounted for 77% of all state aid approved by the European Commission. The EU’s smaller member states therefore worried that relaxing the rules further would enable the bloc’s largest governments to draw investment away from smaller states via larger subsidies, distorting the internal market.
The Commission settled on rather modest changes with only short-term application, subject to ongoing review. The GBER merely increases the limit on members’ state aid in line with inflation and introduces allowances of larger sums of state aid in the bloc’s less-developed regions. The TCTF enables governments to discourage companies from moving overseas by authorising them to match the subsidies offered by a third country, but only until 2025.
3. Sovereign Wealth Fund – Ten member states, including Finland, have opposed to further joint debt or larger contributions to the EU budget. To create this Fund, the Commission will need to draw from existing EU funding for clean-tech industries. This will fall short of what the commission initially promised but it will unify existing funds and reduce bureaucry.
Summary of the American Inflation Reduction Act (IRA)
High energy costs, and the growing impacts of climate change, pose a significant burden to America. The Inflation Reduction Act’s (IRA) $370 billion in investments will bring down consumer energy costs, increase American energy security, while substantially reducing greenhouse gas emissions.
The combined investments resulting from IRA would put the U.S. on a path to roughly 40% emissions reduction by 2030, and would represent the single biggest climate investment in U.S. history because the following five parts:
- Lowers energy costs for Americans through policies that will lower prices at the pump and on electricity bills, help consumers afford technologies that will lower emissions and energy prices, and reduce costs that would otherwise be passed on to them.
- Increases American energy security through policies to support energy reliability and cleaner production coupled with historic investments in American clean energy manufacturing to lessen our reliance on China, ensuring that the transition to a clean economy creates millions of American manufacturing jobs, and is powered by American-made clean technologies.
- Invests in decarbonizing all sectors of the economy through targeted federal support of innovative climate solutions.
- Focuses investments into disadvantaged communities to ensure that communities that are too-often left behind will share in the benefits of the transition to a clean economy.
- Supports resilient rural communities by investing in farmers and forestland owners to be part of growing climate solutions, and by ensuring rural and communities are able to better adapt to a rapidly changing climate.