All the differences between the US and the EU on aid to green industry
The US and European governments want to deploy significant resources to finance the "green" conversion of industries. Here are all the critical points. The Conjuncture report Ref
The trends of the last three years suggest that we look at the changes in the competitive position of the various areas also considering the underlying trends, bearing in mind the protectionist thrusts which have gradually established themselves for some time.
THE EUROPE-US GAP IN GAS PRICES
A first aspect that has emerged in the recent debate is that of the differences between Europe and the United States in terms of gas prices, and therefore of energy. Even after the fall in prices in recent quarters, an important point is represented by the possibility that for some years gas prices in Europe could remain at higher levels than in the United States, causing a significant competitiveness gap to the detriment of European companies.
This is a very uncertain point. First of all because it is not easy to predict what the energy costs will be in Europe in the coming years; in addition to the issue of gas supply, which will also reflect the political relations between European countries and Russia, the policies to increase production from renewable sources and energy saving that will be adopted also matter.
In particular, the issues of the transition towards a low-emission economy intersect with those linked to the need to increase European strategic independence in the energy sector, thus prompting Governments to increase the resources dedicated to alternative sources, also in view of the progressive weight reduction of cars with endothermic engine.
AMERICAN SUBSIDIES TO GREEN INDUSTRY
The relationship between the strategy that governs the energy transition and the competitiveness of the industry depends on various factors. First of all, the fact that in the countries that will complete the transition first, companies will enjoy the competitive advantages typical of those who innovate production processes ahead of their imitators. Secondly, governments will deploy resources to finance the costs of the transition, and these will obviously condition the competitive position of the industry in the various countries.
The issue has gained increasing weight in the debate in recent months after the United States passed the Inflation Reduction Act . The program has a budget of $390 billion that will be invested in environmental transition areas. These are mainly tax incentives for companies to promote investments in renewable energies, and in numerous other areas of intervention, including the increase in the energy efficiency of buildings, incentives for the purchase of electric cars and reductions in emissions from part of the industry.
The set of measures adopted is structured in such a way as to make business investments profitable and for this reason it modifies the relative conveniences of investment choices, so much so that it has also been interpreted as a program of a protectionist nature.
THE RESPONSE OF THE EUROPEAN UNION
It was precisely the possible effects on competitiveness that prompted the response of the European authorities. In the European Council of 9 and 10 February dedicated to the competitiveness of the European economy, a response strategy to the American Plan was outlined, in order to guide policies for the environmental transition while safeguarding the competitiveness of European industry. However, the construction of a common policy has come up against obvious financing difficulties.
In particular, an instrument similar to the NGEu would have been desirable, capable of raising resources on the markets at low rates, with the disbursement of funds to the various countries conditioned by compliance with the agreed requirements, therefore in line with the objectives of combating climate change .
On the other hand, the NGEu was a resource-oriented package mainly in favor of Italy. This explains the difficulty in proposing another large-scale intervention, which would entail additional efforts for the economies of the center, especially in the German area, which will already have to mobilize resources to finance the necessary investments internally. It therefore follows that the European countries with the least fiscal space will find it difficult to finance all the necessary investments.
The theme therefore also has repercussions on the competitive position of individual European countries. In fact, in order to finance the sectors that will have to bear the higher costs of the energy transition, we will most likely go in the direction of a relaxation of the European discipline on state aid. And this in fact will allow countries with more space in the public budget to disburse more resources to the productive sectors.
For now, we have limited ourselves to making possible an integration of the REPowerEU package within the NGEu, using the resources deriving from the loans from the NGEu that had not been used, therefore over 200 billion, which will be strengthened with approximately 20 billion in funding from the lost. (of which 2.7 will go to Italy). The methods of integrating REPowerEU into the Pnrr will be defined in the coming months.
THE CONSEQUENCES FOR ITALY
Furthermore, with the agreement of the European Council, the weakest countries such as Italy have obtained the facilitation of the criteria for accessing EU funds. A change in the destination of part of the unused resources of the structural funds of the previous 2014-20 programming will be possible, in order to transfer more resources to companies investing in the environmental transition. It is said that in the future this criterion will not also apply to the resources of the Pnrr that the various countries will not be able to use.
Overall, the impression is that the emphasis of European policies, which with the pandemic had been placed above all on the issues of infrastructural endowment in the broad sense, is now shifting to the objectives of financing the environmental transition, and therefore also the related infrastructures , through a reduction in the costs that it will entail for companies, with a view to contrasting the protectionist thrusts of the American Inflation Reduction Act. The disparity in the amount of resources that can be mobilized, for example by the German government, is also evident here, compared to what can be achieved by economies such as Italy, which will be able to allocate resources for a relatively limited amount.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/sussidi-industria-verde-ue-usa/ on Sun, 26 Feb 2023 06:19:58 +0000.