Can Europe Really Achieve Carbon Neutrality by 2050?

At Asterion, we strive to think and invest for the long term...

And the long term in Europe means (among other things) a carbon neutrality target by 2050 and the essential transformation of our industrial infrastructure.

That is why the European response to the American plan supporting zero-carbon industry was so eagerly anticipated.

With the Net Zero Industry Act, the European Commission is therefore attempting to respond to its American counterpart, the Inflation Reduction Act (IRA).

Passed in 2022, this program—which includes a $370 billion subsidy package for zero-carbon industries based in the United States—raised fears of a massive exodus of R&D teams and innovative companies to the other side of the Atlantic.

What is the IRA and what does it have to do with inflation?

The Inflation Reduction Act (IRA) is a US legislative package passed in 2022 aimed at reducing inflation in the United States.

The bill was designed to tackle the main causes of inflation, such as raw material shortages, supply chain bottlenecks, and rising labor costs in the United States.

Is the IRA good news for the climate?

The IRA includes a number of climate measures and can therefore be welcomed as an accelerator of the transition.

The law notably requires energy efficiency standards for buildings and vehicles, as well as investments in renewable energy and research.

The American IRA is based on a very simple execution plan: subsidizing low-carbon technologies and investments with a "green premium"—provided they take place in the United States.

Why is the IRA a point of contention with Europe?

The IRA has an obvious protectionist component, as it aims to subsidize companies that establish their manufacturing operations on American soil.

For Thierry Breton, European Commissioner for the Internal Market, this represents a clear distortion of competition with "a risk (if Europe fails to respond) that entire segments of our industry will disappear."

Indeed, by the end of 2022, concrete examples of investments being drawn away by the IRA were already multiplying—like this "major recycling company approached by the US government with an offer to fund up to 70% of its investment, guarantee ten years of market access, and secure a long-term energy supply contract at prices 4 to 5 times lower than in Europe!"

The details of the European response

1. Alignment with the IRA

Member states are now permitted to respond immediately to IRA subsidies by financially supporting investments in key value chains for the decarbonized industry (batteries, solar panels, wind turbines, heat pumps, electrolyzers, etc.).

Concretely, if a company receives a $100 million subsidy offer from the United States, European states will have the right to match that $100 million.

We can also clearly see the dual risk this entails: a widening gap between member states' actual support capabilities, and a race to the bottom that will channel more public money to companies than they actually need.

2. Simplification and acceleration of procedures and permit approvals for industrial facilities, along with easier access to financing.

3. The text also sets a target for European production of key technologies (solar, wind, storage, geothermal, electrolyzers, biogas, carbon capture and storage (CCS), and grids) and aims to strengthen training in these fields.

Why does this matter for Europe's zero-carbon industry players?

For Pascal Canfin (chair of the European Parliament's Environment Committee), "these texts reflect a fundamental shift in Europe's operating framework."

They are organizing a new green industrial policy that gives a key role to partnerships between manufacturers and governments—a far cry from the competition-only vision that has prevailed in Brussels over recent decades.

Jules Besnainou, Executive Director of Cleantech for Europe, told Sifted that the European program could be more ambitious, particularly on the financing front, but welcomed the streamlining of the permitting process.

The 2050 net-zero goal is an opportunity to create thousands of jobs on European soil and avoid importing the breakthrough technologies being invented right now.

European policymakers seem to have understood this, and that's a good thing.

To learn more: