China moved early to identify renewable-energy technologies as strategically important, offering years of generous subsidies. Costs for the manufacture of wind turbines and solar panels continue to tumble in China. But the prioritisation of energy security in the West, and the push to reduce reliance on Chinese supply chains, will raise the overall cost of transitioning to net zero.
Of course, subsidies will lower the immediate costs of wind turbines, solar and EVs in the US. The bill will be footed by the Federal Government. Globally, there is no urgent rush to reduce persistent government deficits.
Industrial strategy was once a dirty word, but no longer. Governments are throwing their weight behind enormous subsidies to accelerate the drive to green energy, and to entice companies from abroad to ‘reshore’ or locate domestically. There is little doubt that the Inflation Reduction Act marked a watershed moment in the fight for net zero. Climate policy announcements have become more ambitious since its passage.
The debate is increasingly framed in terms of “battle”, “fight”, “race”. It is becoming clear that not only does being a leader in clean-energy technologies promote energy security; it is also seen as the surest path to growth, and profitability, over the coming decades.
Yesterday, Margrethe Vestager, the European Union’s competition chief, labelled the new incentives in the US as “toxic”. But John Kerry has told the EU not to expect major concessions from the US. Instead, the EU needs to take additional steps to make its own green investment conditions more attractive. An EU borrowing fund to provide subsidies for domestic green technology is being readied in response.
Industrial metals are already rallying, in part due to China’s reopening, but the fundamentals are strong, as the world readies for a major investment drive.
