For years, the European Union has declared that it wants to be a model student in the fight against climate change. The one who shows others an example of how to reduce climate emissions rapidly towards zero.
The urgency of the green transition was emphasized this year at the latest also from the point of view of Europeans’ own living standards, when Russia, which uses fossil energy as a weapon, plunged Europe into an energy crisis.
The EU quickly needs an economy that consumes less energy and self-sufficient renewable energy sources.
In the course of autumn, however, concern has risen in the EU. Will green technology investments and jobs run away?
The concern is caused by the United States, which is showing signs of awakening in its own climate actions. President Joe Biden In the summer, the Inflation Reduction Act (IRA) legal package, which will direct almost 400 billion euros to climate measures, was pushed through in Congress.
The United States has realized that green technology is one area in the great power struggle against China. Because of this, the IRA was also created in such a way that companies supporting a sustainable transition receive money from the federal government as long as they make their products in the United States.
The United States is the EU’s most important export market, so the French president Emmanuel Macron recently traveled to Washington to appeal to Biden so that the United States would not damage the European economy with its climate support package. However, despite the negotiations, major changes to the US protectionist line are unlikely.
Read more: The United States is starting to threaten European industry in a surprising way – the EU, which is drifting into the underdog, may even end up in a trade war
President of the EU Commission Ursula von der Leyen agreed with the concern and said this week that next summer the Commission will present a proposal on the EU’s new fund, which would in turn support European climate-friendly technology.
Is the situation in Europe suddenly this bad? Will the jobs of the future flee across the Atlantic?
asked sustainable investment experts which factors in the green transition investment environment are on the side of the EU and which of the United States.
The EU’s advantage is the long-term nature of climate work
According to the interviewees, the EU has enough short-term challenges, but it has not lost its long-term attractiveness. There is currently no talk of a mass exodus of investments and companies.
– At least it doesn’t show through our investments. Certain companies have a desire to seek a foothold in America, but there is no general trend, sum Kristiina Vares-WartiovaaraESG Director of OP Group’s asset management.
Also Hanken’s assistant professor of accounting Hanna Silvola responds that the European soil is suitable for green investments.
– We have a long tradition and a well-established way of making responsible investments, and there is a lot of ESG information available on European companies, says Silvola.
The letter combination ESG refers to issues related to the environment, social responsibility and good governance.
Nordea’s senior climate expert Matti Kahra is on the same lines.
– In terms of long-term direction and clarity, Europe is a better market, Kahra estimates.
– Europe is the continent that has a clear 2030 emission reduction goal and regulation has been built behind that goal.
When talking about the EU, the interviewees often repeat the words regulation and reporting. They refer to legislation created by the EU, which aims to increase business responsibility and compels companies to report transparently, for example, on the climate impacts of their business.
– The EU’s approach has been to increase transparency and understanding through mandatory reporting, says KPMG Finland’s sustainable business advisor Aila Ahowho has been involved in working on the EU taxonomy.
The EU taxonomy is a classification system whose purpose is to produce information on which investment sites are sustainable. If the taxonomy based on corporate reporting begins to work as intended, investments will begin to be directed to business that promotes environmental goals.
According to the interviewees, the EU’s stricter reporting requirements in the coming years will initially irritate companies, because they have to learn to report new things.
In the long term, the EU’s “top-down” approach is believed to benefit companies operating in Europe, when the market rules are clear to everyone.
– During this decade, Europe will rise to a different level in terms of sustainability transparency and data availability than the rest of the world. I see that as a very big plus for the EU, Vares-Wartiovaara says.
Europe must survive the energy crisis
If the EU’s strength is the clarity of its climate goals, the US’s strengths lie especially in Europe’s weaknesses.
– The United States has a large domestic market and cheap energy. They have no dependence on Russia and no war, Aila Aho enumerates.
For energy-intensive industries, Europe’s attractiveness will be weak as long as Europe’s energy situation is uncertain.
– Europe is now suffering from really high energy prices. What will be the price of electricity in the future, which a large part of clean industry companies will also follow? Matti Kahra is thinking.
Electric cars and their production chains are one area that is pondering between continents.
Aho says that he understands Macron’s motives for visiting Biden, because the automotive industry is a really important industry for France and Germany. He also reminds that steel, which is also central to Finnish industry, is an important component for cars.
However, now, for example, the Swedish battery manufacturer Northvolt ponders (you switch to another service)whether it would build a new plant in Germany or expand its plant in the United States.
Tesla, the leading electric car company, is also mentioned considering (you switch to another service) that he will move the battery production he planned in Germany to the United States if it qualifies for the money in Biden’s support package.
However, Kahra emphasizes that there are differences in green technologies: not all products are electric cars, and it does not make sense to manufacture everything far from the point of consumption.
– Regarding Europe, I wouldn’t be so worried about, say, hydrogen production. You can charter cars and batteries from the United States to Europe and other markets, but it makes no sense to charter hydrogen. Kahra compares.
Direct business subsidies are not without problems
According to the interviewees, responding to the US support package by increasing direct business support for companies operating in the EU is not necessarily the most effective way to respond to increased competition.
Hanna Silvola says that basically all businesses should support themselves. However, in his opinion, public money should be used to build basic infrastructure, because it is almost necessary when switching to renewable energy.
Aila Aho says that, for example, a large part of the EU’s pandemic recovery money was intended to promote the green transition, but there were not enough projects to finance in Europe.
Vares-Wartiovaara says that he would be quite careful with company-specific subsidies and emphasizes that some of the effects of the US support package may also turn out to be undesirable.
Some of the green industries are high-risk businesses, such as hydrogen production. In such industries, government support can make companies the market leaders of the future.
According to Vares-Wartiovaara, however, the money from Biden’s support package will also go to established and more traditional sectors, such as water supply, where the income streams are certain. In such fields, federal support may at worst only disrupt the market, and not help companies innovate, if the targeting of the support is not carefully planned.
The EU’s focus, for example, on making the licensing processes for renewable energy clearer and smoother is supported by more interviewees than direct business subsidies.
– Renewable energy permits are granted regionally in Europe. Each region has its own process for applying for permits. Standardizing and speeding up the permit process would be really important, says Vares-Wartiovaara.
The politicization of climate action is a risk for the United States
The US approach to promoting green investments has been like the opposite of Europe.
If the EU has been good at setting goals and regulating the green transition from the top down, the United States has not had precise emission reduction goals and now with the help of subsidies, the production machinery is being made to try different things, Matti Kahra compares.
– With the help of subsidies, the volume is now maximized without knowing where exactly it will lead.
Climate policy is a more strongly politicized issue in the United States than in Europe: Democrats push climate measures, Republicans block them. As a result, federal support for green technology has been, and likely will continue to be, spotty.
– In the United States, the country is so divided. Initiatives and sustainability issues are progressing well on both coasts, while Keskimaa is lagging behind, says Silvola.
The politicization of responsible investing can also be seen in the US financial industry, which is trying to balance between parties.
– Due to the political division, it is not clear what is required of banks in terms of ESG criteria. American banks and investors walk an impossible tightrope and try to keep everyone happy, says Kahra.
The recent activity of Vanguard, the world’s second largest asset manager, speaks of balancing.
The company, which controls an investment pot of almost seven trillion euros, announced last week that it was withdrawing on your own initiative (you switch to another service)in which the parties involved promise to reduce their carbon dioxide emissions to zero by 2050.
Vanguard justified its withdrawal by saying that it does not want to “confuse” investors.
Previously, Republicans had demanded that the US Energy Regulatory Commission (Ferc) deny Vanguard the right to invest in US public sector companies.
Additionally, several Republican-majority states have recently made it more difficult to invest responsibly. For example, the governor of Florida and a potential Republican candidate for president Ron DeSantis banned pension funds from investing in ESG funds and withdrew Florida Funds (switching to another service) out of the world’s largest asset manager, Blackrock, because of the company’s climate promises.
When the country does not have a clear climate goal shared by both parties, even companies do not know what is required of them.
– When we talk about sustainability in the Yankees, everyone understands it in their own way, Vares-Wartiovaara compares the situation to Europe.
Green competition is good for the planet
According to the interviewees, despite the EU’s concerns, it is important to remember that the US’s awakening to climate action is a good thing.
– Somewhat jokingly, I recently commented that it’s funny how, for the first 20 years, people were upset that the Americans were not doing anything. Now they made one budget, so we immediately do too much, says Matti Kahra.
Hanna Silvola recalls that a few years ago, she was often asked if the EU was shooting itself in the foot in its climate action.
– So what if others don’t go along with this? Silvola says.
– Now it seems that where the EU has been a pioneer, others are following. Climate change has become a phenomenon that cannot be ignored in financial decisions – including investing.
Aila Aho reminds that, despite the competition between the EU and the US, both ultimately have the same goal, which is to reduce harmful emissions.
– In this whole Europe versus the United States debate, the great thing is that now we no longer discuss whether sustainability is the goal. It’s great that now it’s a competition to see who can run faster.
You can discuss the topic until Sunday 18 December 2022 at 23:00
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