A Green Trade War
If one of the main barriers standing between us and a clean energy future is high technology investment costs, then the current green stimulus battle between the US and Europe could end up being the most beneficial “incentive war” of our lifetime.
As is now well known, the US Inflation Reduction Act is a landmark federal law passed in 2022 which authorised and mobilised $USD 391 billion in spending on energy and climate change. The law includes significant tax breaks and subsidies to boost US production of electric vehicles, solar panels and batteries. It is widely expected that this government “capital injection” will significantly bring down the private sector costs of the energy transition and will no doubt act as a major catalyst for companies operating and innovating in the climate industry.
From an international perspective, the law has a couple of interesting features:
- Subsidies and tax credits are designed to boost wages: The law includes some of the strongest labor protections and incentives ever attached to clean energy tax credit programs. For example, tax incentives are up to five times larger when companies meet prevailing wage and apprenticeship requirements. The secondary implication is that in a global labor shortage, the relative attractiveness of US employment is increasing.
- “America First” is embedded into the legislation. There are “Make it in America” provisions throughout the legislation to incentivise American-made equipment and boost domestic production all along the supply chain.
It is perhaps no wonder therefore that other nations have expressed concerns about antitrust: some European nations have even declared that the IRA is in breach of World Trade Organization rules. Whether the latter is factual or not, it is clear the EU and others are now scrambling to introduce their own climate investment packages to (re) level the playing field.
The contours of the European package are still taking form; it is set to be discussed at the upcoming EU summit meeting on 9-10 February and 24-25 March. Nonetheless, it seems the four pillars of the EU’s Green Deal Industrial Plan (GDIP) – speed, simplicity, jobs, and free trade – are designed to address innate anti-competitive provisions of the Inflation Reduction Act.
For investors, the message is clear: policymakers are tugging hard on all available levers to speed up investment in climate change mitigation and the energy transition. Companies operating in this space, many of which are featured in the Rize Environmental Impact 100 UCITS ETF, are set to benefit for years to come.
This Featured Article has been produced by Sustainable Market Strategies. Rize ETF Ltd make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the information contained in this article.
 R Street, “Potential Effects of the Inflation Reduction Act on Greenhouse Gas Emissions”, September 2022. Available at: https://www.rstreet.org/2022/09/27/potential-effects-of-the-inflation-reduction-act-on-greenhouse-gas-emissions/
 EURACTIV, “EU’s green industrial plan vague on clean tech, finance, critics say”, February 2023. Available at: https://www.euractiv.com/section/energy-environment/news/eus-green-industrial-plan-vague-on-clean-tech-finance-critics-say/