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By Akshat Rathi
The clean tech arms race has begun. Can it save the planet?
It
has dominated the headlines out of Davos this week, prompted
diplomatic grumblings from Germany and put European lawmakers in a
bind. Passed last year, a historic US climate bill has opened up a new
era in geopolitics, one of unprecedented global competition to develop
planet-saving technologies.
The US ranks top when it comes to the
cumulative greenhouse gases added to the atmosphere since the
industrial revolution, but remains behind in reducing its reliance on
the fossil fuels that are heating up the planet. Despite its name,
President Joe Biden’s Inflation Reduction Act, which became law last
summer, is aimed at rapidly changing that status as laggard.
The size of the US economy and the unprecedented scale of the
subsidies the IRA offers to develop green industries are, however,
forcing
European lawmakers to respond as businesses warn that the
continent could lose
investments.
As the US numbers have sunk in, officials from European Commission
President Ursula von der Leyen to the leaders of France and Germany
have called for Europe-wide and country-specific industrial bills
aimed at matching the incentives being dangled by their greatest ally.
“To keep European industry attractive, there is a need to be
competitive with offers and incentives,” von der Leyen said in a
speech at Davos. “We must also step up EU funding.”
![](images/images_01_20_2023/Pic1.jpg)
Ursula von der Leyen.
Photographer: Stefan Wermuth/Bloomberg
The developments have created a marked shift in climate geopolitics, a
realm in which Europeans had long held the crown as leaders in
environmental action and regulation. While discussions at the United
Nations annual COP meetings continue to require all countries to
collaborate on global strategies, targets and financing, US
investments in climate technologies are forcing global powers to
compete when it comes to devising and scaling solutions aimed at
tempering humanity’s impact on the Earth.
“We’re on the cusp of a clean tech arms race,” said David Victor,
professor of innovation and public policy at the University of
California San Diego.
Sometimes an arms race can be a zero-sum game, where US investments
mean Europe loses out, but it doesn’t have to be so. If the US and
Europe can work together to allow their industries access to each
other’s markets, Victor said, then investments made in technologies
will be able to deliver greater good. That kind of cooperation is in
Europe’s interests.
Though it’s a late entrant, the US already has the advantage when it
comes to climate tech. The US is a bigger market with more regulatory
consistency and offers fewer barriers to entry and scaling new
industries — as well as more funding opportunities. The European
Union, on the other hand, is made up of 27 independent countries.
“The European market is fragmented,” said Hans Kobler, founder and
managing partner of Energy Impact Partners, a venture capital fund
that invests in clean-energy startups. That’s why “there’s a big
sucking sound for global climate technologies coming to the US.”
Even as the US and the EU figure out how to manage this new
competition, they both share a bigger rival in China. On almost every
green technology, China has the lead. It is the world’s largest maker
of solar panels, batteries, electric cars and even hydrogen-producing
electrolyzers.
The incentives contained in the IRA are designed to minimize China’s
role in the clean tech pipeline and try to break its hold, for
instance, on the electric vehicle battery supply chain.
For emerging players in climate tech industries that also want to
become export powerhouses — like India — there are other challenges on
the horizon.
“I am worried about islands of regulation,” said Arunabha Ghosh, chief
executive officer of the Indian think tank Council on Energy,
Environment and Water. If each region has incentives for green
technologies tied to its own standards, companies will struggle to
scale quickly, he said.
LISTEN:
How Climate Change Broke Through to the World’s Elite in Davos
As
climate solutions attract larger sums of money, touch ever expanding
areas of the world economy and lure more and more people, they’re
bound to create friction among major powers. What’s clear is that most
of those powers see a big opportunity. That’s why, despite the
challenges that an era of competition will bring, the rich and
powerful at the Davos meeting welcomed increased investment in a green
future.
“Having a competition to drive things faster, and bigger scale is not
a bad thing,” Jennifer Morgan, Germany’s climate envoy, said in an
interview at the World Economic Forum in Davos this week. “It’s kind
of like: Game On.”
Akshat
Rathi writes the Zero newsletter, which examines the world’s race to
cut emissions. You can email
him with feedback.
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