Europe’s Concerns About Energy Investment Flight To America Are Well Grounded

European Commission President Ursula von der Leyen said on Sunday that Europe must “adjust our own rules to facilitate public investment” amid growing concerns that new and strengthened energy incentives and subsidies contained in the Inflation Reduction Act (IRA) signed. President Joe Biden’s law will create a flight of billions in investment capital to the US, much of it at the expense of Europe. “Our competitors’ assertive new industrial policy requires a structural response,” von der Leyen said.

Von der Leyen’s remarks came amid accusations from some European leaders that the IRA’s new measures put their continent at a competitive disadvantage for attracting new capital and that the US has taken advantage of the war in Ukraine that Russia is mounting. Politician He recently quoted an unidentified European official as saying, “The fact is, if you look at it soberly, the country that is benefiting the most from this war is the United States because it sells more gas and at higher prices, and because they sell more guns.”

A spokesman for Biden’s National Security Council responded to this accusation by noting that “The rise in gas prices in Europe is caused by Putin’s invasion of Ukraine and Putin’s energy war against Europe, period.” The accusation that the US is being taken advantage of as a country related to LNG exports to Europe or elsewhere is somewhat of a fallacy, given that these sales are all market-based arrangements made by private companies.

In fact, the US government has little or no real authority to arbitrarily set the prices at which these trades will be conducted. The market for LNG exported from the US and other nations is very competitive, and if European countries were unwilling to support market prices, these cargoes would undoubtedly flow to other consuming nations in Asia and other parts of the world. as most did before the onset of the ongoing energy crisis in Europe last year.

Europe’s concerns about the impacts of the IRA’s myriad incentives and grants, combined with those contained in the bipartisan Infrastructure Act (BIL) enacted in 2021, are far more valid. There is no doubt that a significant amount of new investment capital will go to projects that can take advantage of these incentives.

Since August, I have personally interviewed the CEOs of six such companies, which are variously involved in efforts related to the energy transition such as lithium mining, nuclear fusion, battery manufacturing, and carbon capture Two of these are European-based companies that will be able to take advantage of tax incentives and other provisions of the IRA as they make multibillion dollar entries into the US market. Money attracts money, and there is no doubt that the IRA’s $369 billion in new incentives and grants is having the intended effect.

To be fair, however, what the US administration and Congress have done through the BIL and the IRA is largely based on the European energy transition model. Throughout the 21st century, the EU and many European national governments have enacted their own sets of incentives, subsidies and regulatory measures designed to accelerate the transition from their carbon-based and nuclear-based energy mix to encourage a more in renewables. energy sources. This is exactly the strategy contained in the BIL and IRA in the US

There is no doubt that this strategy is starting to work as intended, attracting billions of dollars in private equity investment to a wide range of green energy projects targeted by these two new laws. There is also no doubt that some of this investment flowing into the United States will come at the expense of Europe. America’s new challenge will be to find ways to integrate all the new green energy resources into the electricity and transportation sectors efficiently and effectively. It’s a huge challenge.

Therefore, the concerns expressed by President von der Leyen and other European officials are real and grounded in reality. But it’s a competitive world, and the EU and Europe’s national governments have every right to respond, and they certainly will. If Putin’s hateful war has proven nothing else, it has once again demonstrated the axiom that energy security is national security, after all, and every government has not only the right but the duty to act on its own interest

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