In Washington, the introduction of the Inflation Reduction Act (IRA) was actually primarily about domestic politics. It never occurred to the Americans that their allies in Europe (and Asia) might resent this multi-billion dollar injection into their industry, or that they might even make the ugly accusation of protectionism. It seems that the Democratic administration under Joe Biden was more concerned about its place in history and the return of disgruntled voters. We will have reason to thank them for that, however, but not for the part of the legislation that provides for forced shipments from America. This provides that some of the subsidies will only apply to products that are primarily manufactured in the US or whose components are sourced from North America. We hope that further concessions will be made to the European partners. China has announced over $280 billion in investments in clean technology. The US is mobilizing over $360 billion through the IRA. Japan, India, the UK, Canada and South Korea have also announced similar programs. The specter of deindustrialization haunts Europe. But who knows? In retrospect, this may be the moment when the sleeping beauty of European industrial policy woke up.

The fear of relocating companies and entire industries, and worse, the fear of not getting a piece of the good pie of future climate-neutral technologies, is driving a whole new pace of reform in Europe. The Commission’s Green Deal Industry Plan, unveiled last week, must now be implemented through legislative proposals, including state aid, faster approval, trade deals, and support for targeted vocational training and qualifications. The message is late and the time has come: industrial and structural policy is returning to Europe. A simple copy and paste IRA is certainly not the answer. Europeans have to find their own answers, therefore, support is needed for the introduction of new technologies, research and development, and the strengthening of production. Unlike in the past, the entire supply chain must now be considered. Europe is still a good place for breakthrough innovation, but it needs clearer, more focused rules and better harmonization, as well as more cross-border industrial alliances. This is by no means uncharted territory. But some things can definitely be copied from Uncle Sam, for example, speed.

While the Europeans are hotly discussing hydrogen as clean energy, the Americans were initially little interested, now they are simply and calmly moving forward – and if we do not pay attention to them, they will leave us behind. The Commission now plans to present the zero-emissions law to industry by mid-March. The new law will focus on key technologies such as batteries, wind turbines, heat pumps, solar panels, electrolysis and carbon capture devices, and storage technologies. When it comes to climate industrial policy, Europe needs not only to develop high speeds, but, above all, to do it together.

*Ms Claudia Detsch is Director of the Center for a Socially Equitable Climate Policy in Europe at the Friedrich Ebert Institute (IFE).

The article was published on the IFE website.