By Irina Slav
When Emmanuel Macron complained to Biden that the Inflation Reduction Act will hurt European businesses I made fun of him. I made fun of all the European politicians who complained about the IRA because, really, it has always been pathetic to assume someone other than yourself should take care of you and your strategic interests because you’re friends.
Now, the U.S. has struck back against the complaints through the mouth of John Podesta, whom the FT, which interviewed him, called “Biden clean energy tsar”. And I’m going to make fun of him, too, because I’m an equal opportunity mocker. Also because he deserves it. As does the EU.
“We make no apologies for the fact that American taxpayer dollars ought to go to American investments and American jobs,” Podesta told the FT.
I doubt any sane person would argue with that statement. I doubt any sane person would argue with it if we substitute “American” with “European”, too. But that was not the only statement Podesta made.
“We hope that the European industrial base will succeed, but it’s up to Europe to do some of the work,” Podesta added. “We’re not going to do that all for them.”
I’m sure many Americans of a Ron Swanson bend would applaud this. I’m also sure many non-Americans would roll their eyes at what they’d call typical American arrogance. I’d call it unfair because the EU has been hard at work for years to “do the work”, however much that has cost it and is still costing it. I mean, “the work” was a big reason for the energy crisis Europe plunged itself in a year and a half ago.
When it comes to “the work”, Europe has been leading and the U.S. has been catching up. But it has been catching up at an accelerated pace since Biden came into office and the IRA is the result of that acceleration.
With those $370 billion in low-carbon energy subsidies, the U.S. is in a position to overtake Europe in “the work”. It is in a position to draw in a lot of those investment opportunities every advocate of the transition has been talking about. But, according to Podesta, that’s all right because there’s enough for everyone.
“The challenge of dealing with the climate crisis requires . . . a transformation of the global economy on a size and scale that’s never occurred in human history so there’s plenty of room for everybody to participate in that,” Podesta said and added
“If there’s a race here, it’s a race to deal with the climate crisis . . . I think [Europeans] welcome US leadership in that race.”
I have to give it to him, he does sound convincing and impressive. Also patriotic. Yet the truth, which should be obvious to those same sane persons I referred to above, is that there’s no such thing as a limitless investment pool. The U.S. and Europe are very much in a race for money and I highly doubt the EU would welcome U.S. leadership in that particular race.
The reason I highly doubt it is that European businesses are already changing investment plans, boosting exposure to the IRA-enriched environment in the U.S. at the expense of their home operations.
BASF, for instance, the Germany chemical giant, has said that it would “look at what opportunities there are through the framework of the IRA and the Infrastructure Law”.
“Such incentives can help support the advancement of electromobility in the US and North America and otherwise help to reduce emissions in the transportation sector,” according to a spokesman because of course this is at the top of everyone’s mind in BASF management.
At the same time, BASF is cutting jobs to cope with gas price inflation at home and closing facilities in Germany.
“Europe’s competitiveness is increasingly suffering from overregulation, slow and bureaucratic permitting processes, and in particular, high costs for most production input factors,” CEO Martin Brudermüller said in a statement quoted by Bloomberg, adding “High energy prices are now putting an additional burden on profitability and competitiveness in Europe.”
Meanwhile, the U.S. is offering dirt-cheap gas and subsidies. Who could resist? And why would anyone, given that businesses exist to make a profit, despite an apparently growing assumption among certain demographic groups that businesses exist to be demonised unless they act like energy transition charities.
“Our most important trading partner decides things in their own interest,” Luisa Santos, deputy director-general of BusinessEurope, told the FT recently. “They keep doing this. But they want us to support them on China.”
The first part of this statement is a hilarious rephrase of Greta Thunberg’s “How dare you?” but the second is what actually irks, annoys, offends, and disappoints the Europeans.
It appears that collective Europe has been assuming for a very long time that the U.S. has its best interests at heart, no, really, because we’re friends. Somehow, along the way collective Europe forgot that while the U.S. may very well has some of its best interests at heart because they are also U.S. best interests, this is not universally true for all European interests.
In the FT interview Podesta tried to juggle with both American-interest-first and We-will-always-be-friends but, of course, it didn’t really work because it couldn’t, not when these interests are at odds. No race, my foot.
What is unfolding right now in the media and in meetings between European and U.S. government officials is the shock caused by the realisation that the U.S. has its own best interests at heart more than it has European best interests at heart.
It is quite a shock and it reminds me of the outrage Macron again expressed last year at LNG prices — just months after the collective EU leadership praised the U.S. for its help with the gas shortage, as if Biden personally ordered Cheniere Energy and its peers to ship more LNG to Europe. Friends shouldn’t profit off friends, should they?
As we all know, there is no such thing as friends when it comes to self-interest and self-interest is what guides any business. Presidents and prime ministers may act as friends because they have common geopolitical interests but they can’t force businesses to sell their products at a loss so the friends are happy and content.
The U.S. is applying a business approach to its energy transition push. The federal government is pouring billions into decarbonization with the aim of attracting investors who will make money in the U.S., pay taxes in the U.S., and employ U.S. citizens.
To make money, you must spend money and the Biden administration is spending. It is also “making” money, so to speak — some $90 billion in fresh investment has flown into the U.S. since the IRA was passed.
The EU has also been subsidising the transition but, it appears, more carefully and more frugally. Now, in response to the U.S.’s betrayal of its trust, it would need to spend more to keep some investors at home and, hopefully, attract more. Not a race? Yeah, right.
It is a race and Europe’s already lost it. It has become dependent on U.S. gas but is paying for it a lot more than anyone in the U.S. because of all that liquefaction, shipping, and regasification affair, not to mention Europe’s righteous aversion to long-term contracts for fossil fuels because long-term contracts are bad manners these days.
Meanwhile, it has spent close to 700 billion euro on protecting itself from the fallout of the energy crisis and the crisis is not over yet. Germany is building floating LNG import terminals like there’s no tomorrow and plans to become the world’s fourth-largest LNG importer by 2030.
This means the arbitrage in gas for the U.S. and Europe will remain in place. And this means more European — and possibly non-European — businesses will choose the U.S. for spreading their low-carbon wings.
Europe did “the work”, paid for it, and it’s still paying for it but the U.S. will be reaping the benefits of the rush to decarbonise that Europe started. Life loves irony, after all, although, to be honest, I’m not sure “benefits” is the best way to describe things. In fact, from a sane point of view, the race between the U.S. and Europe is a race to the bottom.
In that, perhaps, Europe will not be opposed to the U.S. leading the way but in all likelihood, thanks to its much longer tradition in counter-rational government, Europe will probably reach the bottom first.
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