Deloite study on the response of EU industrial policy to the IRA
Post date: 27/03/2023 - 16:28
The German Stiftung KlimaWirtschaft (Climate Economy Foundation) has commissioned an analysis of the European Union’s »Green Deal Industrial Plan« and the »Net Zero Industry Act« contained therein from the consultancy Deloite. In view of the USA’s »Inflation Reduction Act« (IRA), the analysis was to include considerations of »what an industrial policy response by the EU might look like.«
One of the key findings of the study (IRA and the net-zero race: How the EU industrial policy should respond) is that Europe should not embark on a »subsidy race« but should find its »own path for an intelligent and effective industrial policy«. For example, »smart subsidy instruments« such as auctions and contracts for difference (CfD) should be favored over »nominally fixed benefits« such as the tax credits used by the United States.
At the same time, the study notes that the EU needs to pick up the pace considerably on »key climate-neutral technologies« to achieve the goals it has set for itself. In terms of new power generation capacity, at the current pace, the targets defined in the »REPowerEU« strategy for 2030 would be missed by 258 gigawatts for solar power and 231 gigawatts for wind power. To meet the goal of being able to cover 40 percent of the EU’s demand for key technologies to achieve climate neutrality from domestic production, the annual production capacity for PV would have to increase sixfold compared to today’s level, and the production of wind turbines would have to increase by 25 percent. In the case of PV in particular, this would be »a challenge in a market dominated by Chinese manufacturers.« In the production of electrolyzers or batteries, the projects currently announced to build new production capacity are sufficient to »meet a good part of or even exceed the demand.« However, there is »a lot of uncertainty« about whether announced projects »will be put on hold or withdrawn due to IRA subsidies and lack of corresponding incentives in the EU.«