The Inflation Reduction Act has been hailed as the single largest subsidy scheme for climate and energy in American history. This increase in subsidies for US clean tech production has significantly improved investment profitability for several key industries. The expansion of clean tech subsidies in the IRA prompted the EU to respond quickly, allowing Member States more flexibility to provide state aid for green investments.
Menon Economics, commissioned by NHO, has conducted an analysis of the current state of public support programmes for green technologies in Europe and the USA, in light of recent changes to the respective subsidy regimes. The reports analyse at three sectors: batteries, hydrogen, and offshore wind. A report which summarises the findings can be found here
The IRA has significantly altered the landscape of battery subsidies, giving a distinct advantage to US-based manufacturers. The discrepancy in the level of subsidy is likely to contribute to faster growth of the industry in the US compared to Europe, although we still expect a significant increase in production capacity in Europe as well. Detailed report summarising the impact of recent policy instruments on the battery industry can be found here.
Regarding low-carbon hydrogen production, the IRA has established favourable conditions in the US. Although there are ambitious plans for supporting green hydrogen production in Europe, the US programme offers more certainty about the actual level of subsidies. In addition, the subsidies for blue hydrogen are higher in the US than in the EU. A detailed report summarising the impact of recent policy instruments on the hydrogen industry can be found here .
The IRA has also raised the level of support for the offshore wind industry, which means that offshore wind projects are now eligible for investment subsidies that can cover up to 40% of the investment costs. Since the differences in the level of support are relatively small, and the electricity markets are separated between regions, it is unlikely that the Inflation Reduction Act will have a significant impact on offshore wind investments in Europe. A detailed report summarising the impact of recent policy instruments on the offshore wind industry can be found here
Contact person: Jonas Erraia