Top bankers and entrepreneurs say Joe Biden has jumped on Europe in handling the climate crisis, as companies and investors seek to capitalize on Washington’s massive green energy package.
Delegates at the World Economic Forum in Davos were united in their praise for the US president’s Inflation Reduction Act, a $369bn package that includes subsidies aimed at luring companies to invest in technology that will help reduce the country’s greenhouse gas emissions.
“The US program is very smart, and big,” said Jan Jenisch, chief executive of Swiss building materials group Holcim. “A lot needs to be built, from factories, logistics and infrastructure. For the next 10 years, this will be the engine for growth.
Paying attention to the package’s popularity, several Republican and Democratic governors and members of Congress – including Georgia governor Brian Kemp, Illinois governor JB Pritzker, Michigan governor Gretchen Whitmer and West Virginia senator Joe Manchin – made the trip to the Swiss Alpine resort.
While such aggressive government interventions in previous decades drew the attention of a pro-globalization crowd at Davos, delegates said subsidies for everything from electric vehicles to hydrogen power were welcomed because of the urgent need to combat the effects of climate change.
“We are very ideological when we say that we should not give subsidies. . . Speed is the most important ingredient,” said Kristalina Georgieva, managing director of the IMF. “We are in a ditch and we have to get out of it.”
Karen Karniol-Tambour, co-chief investment officer for sustainability at Bridgewater Associates, the world’s largest hedge fund, said the package was “a big deal” in showing just how involved the legislature can be.
“For many years [intervention] is a bad word to say – everything should be market based, government should not pick winners and losers.
While the bill was intended to counter China’s dominance in renewable energy development and green projects, it ended up sparking a backlash among Washington’s trading partners in Europe and elsewhere. They claim subsidies punish businesses and can attract manufacturing jobs and investment from domestic shores to the US.
German Chancellor Olaf Scholz told the forum on Wednesday that, while he welcomes US investment in green technology, such actions must not lead to discrimination. “Protectionism stifles competition and innovation and undermines climate change mitigation.”
Grant Shapps, the UK’s business secretary, was bolder, labeling the US action “dangerous”.
However, Ngozi Okonjo-Iweala, director general of the World Trade Organization, said aggrieved US trading partners should speak directly to Washington instead of filing complaints.
“It is far better for them to talk to the US and try to resolve this issue and see if there is a way to take into account their concerns than to come to the dispute-settlement system of the WTO,” she said.
More recently, EU authorities have sought to respond to the Anti-Inflation Act with measures of their own, with European Commission president Ursula von der Leyen this week promising regulatory relaxation and new funding to help the bloc.
Some company executives say the contrast in approach on both sides of the Atlantic is symptomatic of Europe’s unfriendly business environment.
“Sometimes, leading with regulation is a dangerous road,” said Borje Ekholm, chief executive of Swedish telecommunications group Ericsson, who has often spoken out about what he sees as constraints in Europe’s technology sector. “Europe has put us on a path that could put us in a less attractive investment environment.”
“In Europe, the approach is a stick, in the US it’s been a lot of carrots,” said Jesper Brodin, chief executive of the largest Ikea retailer Ingka Group. “We need both.”
One of the chief executives of a large US group said he was “disappointed” at how the US had unilaterally enacted the law, sparking a row with “an important EU ally” at a time of heightened geopolitical tensions. He urged the Biden administration to make amends, suggesting that US trade representative Katherine Tai, who attended Davos, should start by “saying sorry”.
U.S. officials have repeatedly said that, while they are unapologetic about the law, they are working hard to solve problems with allies. In Davos, US climate envoy John Kerry said that although tweaks could be made during the US Treasury’s implementation process, the “legislative foundation” was “exactly what is needed”. Kerry urged Europe to spend more to tackle climate change on its own.
Some of the US delegates were surprised by the strong European reaction. “I didn’t know they were so tired until they got here,” the hedge fund manager said.
Most focus on understanding how to benefit from the subsidy. Jonathan Hausman, executive director of the Ontario Teachers’ Pension Plan, described the “suffocating sound” of green energy investment flowing into the US after the act passed in August. “It’s a very strong signal for [global] investors sure this is happening.
Additional reporting by Akila Quinio in London, Aime Williams and James Politi in Washington, and Sam Fleming in Brussels