The UK Stays Neutral in the Dispute Between the US and the EU Over Green Energy Subsidies

A leading environmental economist has said that Britain has no plans to respond to US and European Union subsidies for green industries, as the country has nothing to subsidize.

Matthew Agarwala, economist at the Bennett Institute for Public Policy at the University of Cambridge, said that the UK's lack of a domestic manufacturing base for environmental technologies has actually worked in its favor in the dispute between Washington and Brussels over clean-energy subsidies.

The European Union has pledged as much as €300 billion ($326 billion) to counter the United States' $369 billion program of tax credits and prevent businesses from moving investment across the Atlantic. However, the United Kingdom has taken a different approach, calling for free and open trade and branding the US Inflation Reduction Act as "dangerous" protectionism.

Grant Shapps and Jeremy Hunt told Bloomberg on Friday that they don't think subsidies are the best way to meet net zero on fossil-fuel emissions. They believe that other measures, such as investing in clean energy technologies, are more effective in achieving this goal.

The UK risks being left behind as other economic powers jockey for position in the green energy revolution. The US wants to compete with China, while the EU and India also aim to be green industrial hubs. However, the UK does not appear to be interested in building its own rival industry.

Shapps said that Britain can afford to take a broader look at the situation, adding that if the country were still in the EU, it would have been a net contributor to any support package rather than a beneficiary. Hunt added that there is no money for tax cuts or subsidies.

European countries are investing heavily in energy support. This includes both financial and technical assistance. The goal is to help these countries transition to cleaner, more sustainable energy sources. This is a costly undertaking, but one that is essential for the long-term health of the planet.

Although Britain has some of the biggest offshore wind farms in the world, it imports much of the expertise. The turbines are made by companies like Vestas Wind Systems A/S of Denmark and General Electric Co. from the US, while China dominates the supply of solar panels.

Some of the most prominent green manufacturers in Britain include Britvolt Ltd., a battery maker that declared bankruptcy this month, and ITM Power Plc, which makes electrolizers. Both companies have struggled to ramp up manufacturing, with Britvolt declaring bankruptcy and ITM Power issuing a series of profit warnings.

According to the Office for National Statistics, in 2020 there were 210,000 people directly employed in low carbon and renewable industries in the UK. Of these, more than 100,000 work on energy saving products such as windows and insulation as well as nuclear.

Agarwala stated that the UK does not experience the same level of threat from the US as the EU because it has not developed large companies that produce wind and solar technologies or other items necessary to lower emissions.

"We are not responding because we have zero fiscal space," he said. "But if we did, we wouldn't have anything to subsidize as we don't have any green manufacturing to speak of or workers to exploit it."

Agarwala stated that car manufacturers and the steel industry may require government assistance to stop companies in those areas from redirecting investment to the US and EU.

The government is reportedly in talks to provide around £600 million of state funding to help the steel industry decarbonize. Some of this funding will reportedly go to Britvolt, a company that is working on developing a battery factory in the UK.

Other UK opportunities that have been identified are in carbon capture and storage and tidal power as well as early-stage scientific development of future energy sources such as hydrogen, biofuels and nuclear fusion. However, the funding required for these projects would be minimal compared with the multi-billion dollar subsidies for big manufacturing.

Hunt said in an interview with Bloomberg TV on Friday that he is confident a package can be announced that will make the UK highly competitive, but that he does not believe subsidy is necessarily the best way to achieve this. He said that what people want is creativity, innovation, and a regulatory environment that encourages investment.