European Leaders Are Right To Worry About America Sucking Up The World’s Clean-Energy Capital Investment

European Commission President Ursula von der Leyen said Sunday that Europe must “adjust our own rules to make it easier for public investments” due to rising concerns that the new and beefed-up energy incentives and subsidies contained in the Inflation Reduction Act (IRA) signed into law by President Joe Biden will create a flight of billions in investment capital to the U.S., largely at Europe’s expense. “The new assertive industrial policy of our competitors requires a structural answer,” von der Leyen said.

Von der Leyen’s statements came amid accusations from some European leaders that the new IRA measures put their continent at a competitive disadvantage for the attraction of new capital, and that the U.S. has been profiteering from the war on Ukraine being mounted by Russia. Politico recently quoted one unidentified European official as saying “The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons.”

A spokesperson for Biden’s National Security Council responded to that accusation by pointing out that “The rise in gas prices in Europe is caused by Putin’s invasion of Ukraine and Putin’s energy war against Europe, period.” The charge that the U.S. is profiteering as a country related to exports of LNG into Europe or anywhere else is a bit of a fallacy, given that these sales are all market-based arrangements conducted by private companies.

Indeed, the U.S. government has little, if any real authority to arbitrarily set prices under which such trades will be conducted. The market for exported LNG from the U.S. and other nations is a highly competitive one, and if European countries weren’t willing to bear the market prices, those cargoes would no doubt flow to other consuming nations in Asia and other parts of the world, as most did prior to the advent of Europe’s ongoing energy crisis last year.

Europe’s concerns about the impacts from the myriad incentives and subsidies in the IRA, combined with those contained in the Bipartisan Infrastructure Law (BIL) enacted in 2021, are much more valid. There can be no question that a significant amount of new investment capital will be flowing into projects that will be able to take advantage of those incentives.

Since August, I personally have interviewed CEOs of six such companies, which are variously involved in energy transition-related endeavors like lithium extraction, nuclear fusion, battery manufacturing and carbon capture. Two of those are European-based companies that will be able to tap tax incentives and other IRA provisions while making multi-billion dollar entries into the U.S. market. Money attracts money, and there is no question that the IRA’s $369 billion in new incentives and subsidies are having their intended effect.

To be fair, though, what the U.S. administration and congress have done through the BIL and IRA is to a large extent based on the European energy transition model. Over the course of the 21st century, the EU and many European national governments have enacted their own sets of incentives, subsidies and regulatory measures designed to hasten along a transition from their carbon and nuclear-based energy mix to encourage a mix based more on renewable energy sources. This is exactly the strategy contained in the BIL and IRA in the U.S.

There is no question that that strategy is beginning to work as intended, attracting billions of dollars in private capital investment to a wide array of green energy projects targeted by those two new laws. There is also no question that some portion of that investment flowing into the United States will come at Europe’s cost. America’s new challenge will be to find ways to integrate all the new green energy resources into the electricity and transportation sectors efficiently and effectively. It is a huge challenge.

So, the concerns expressed by President von der Leyen and the other European officials are real and well-grounded in reality. But it’s a competitive world, and the EU and national governments in Europe have every right to respond, and no doubt will. If Putin’s heinous war has proved nothing else, it has proved yet again the axiom that energy security is national security, after all, and every government has not just the right but a duty to act in its own best interests.