Competition to Develop Clean Technologies is Heating Up

The US climate bill passed last year has caused a stir at the Davos summit this week, with German officials expressing concerns and European lawmakers feeling pressure to respond.

The bill, which offers substantial subsidies for green industries, has put the US in a position to dominate the global market for planet-saving technologies. European businesses are warning that without similar incentives, the continent could lose out on investments. Officials from the European Commission to the leaders of France and Germany are now calling for industrial bills that would match the US incentives.

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"To keep European industry attractive, we need to be competitive with offers and incentives," von der Leyen said in a speech at Davos. "We must also step up EU funding."

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The recent developments in climate change have created a shift in the geopolitics of the environment. Previously, Europeans had been the leaders in environmental action and regulation. However, with the United States investing more in climate technologies, other countries are now being forced to compete in order to find solutions to the problem. The annual COP meetings at the United Nations continue to require all countries to work together in order to find a global solution, but it is becoming increasingly clear that each country is now working more independently to find its own solution.

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"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. While an arms race can sometimes be a zero-sum game, where US investments mean Europe loses out, Victor said that 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, investments made in technologies will be able to deliver greater good. That kind of cooperation is in Europe's interests.

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The United States has a number of advantages when it comes to developing new climate technologies. The US market is larger and more consistent in terms of regulation, making it easier for new industries to get started and grow. There are also more funding opportunities available in the US. In contrast, the European Union is made up of 27 independent countries, which can make it more difficult to develop and implement new technologies across the region.

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Hans Kobler, founder and managing partner of Energy Impact Partners, a venture capital fund that invests in clean-energy startups, said that the European market is fragmented. He added that this is why "there's a big sucking sound for global climate technologies coming to the US."

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The US and EU are facing new competition from China in the clean tech sector. China is the world's largest producer of solar panels, batteries, electric cars and hydrogen-producing electrolyzers. The incentives contained in the US Investment Tax Credit (ITC) are designed to reduce China's role in the clean tech pipeline and break its hold on the electric vehicle battery supply chain.

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For emerging players in climate tech industries that also want to become export powerhouses, there are other challenges on the horizon. Arunabha Ghosh, chief executive officer of the Indian think tank Council on Energy, Environment and Water, said that he is worried about islands of regulation. If each region has incentives for green technologies tied to its own standards, companies will struggle to scale quickly, he said.

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In Davos this year, climate change finally broke through as a top issue for the world’s elite. For years, the issue has been on the periphery of the annual meeting of the World Economic Forum, but this year it was front and center. The forum’s founder, Klaus Schwab, even said that climate change is the most important issue facing the world today. This is a significant shift, and it shows that the world’s elites are starting to take the issue of climate change seriously.

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Jennifer Morgan, Germany's climate envoy, said in an interview at the World Economic Forum in Davos this week that having a competition to drive things faster and on a bigger scale is not a bad thing. "It's kind of like: Game On," she said.