How does the US compare against Europe in the race to net zero?
Preventing climate change hinges on the energy transition with Europe widely regarded as the market leader. But despite the region adopting a plethora of regulations, is it actually the standout performer in the sector and how does Europe’s progress compare to the US developments?
The race to net zero
In the race to net zero, success and advancement require sizeable investments, innovation and regulations. World powers are waging global green wars to secure the planet's future and the monopoly on a new clean energy economy. The US and the EU have pledged millions to reach net zero targets by 2050.
The EU set out to be the driving force behind the energy transition. With the introduction of the new European Commission Green Deal policy programme in 2019, the bloc become the first continent to pledge climate neutrality by 2050.
This was followed by the recently unveiled Green Deal Industrial Plan (GDIP), which would see the EU reroute around 250 billion euros of existing funds to quicken the dual transition to green energy and a digital economy while boosting industrial competitiveness and upskilling workers.
The GDIP proposal expands on earlier programmes like "Fit for 55," which aims to cut emissions by 55% before 2030, and "REPowerEU," which aims to increase the resiliency of the EU's energy supplies.
The US answer to this is the Inflation Reduction Act (IRA), passed in August 2022. The IRA provides substantial and long-term tax credits and subsidies for clean electricity generated by wind, solar, nuclear, and geothermal power as well as tax credits for electric vehicles and much more.
How do US bills compare to EU initiatives?
Even though equally generous financial resources support both, the US policy has an advantage over European policy packages like the GDIP. The policy identifies industries the US intends to lead, including manufacturing, transportation, clean technology, and energy production.
In contrast, the EU's GDIP proposals lack direction, despite promising to add more clarity to related policy packages like the Critical Raw Material Act or the Net Zero Industry Act, which are currently up for discussion. Furthermore, the 27-nation bloc faces inherent difficulties such as economic inequality and divergent priorities, making it challenging to develop a coherent vision, which is already reflected in investors' choices and future projections.
ICIS estimates that the $369 billion IRA will increase US electric vehicle (EV) sales, with total sales of 30.6 million units, or nearly 20% of all units sold over the next ten years. ICIS predicts cumulative sales of only 15.7 million units, or 10.5% of all units sold during the same time period, before the IRA's implementation in August 2022.
Find out more about ICIS energy forecasts here.
The IRA is already hailed as the cornerstone for increasing US investments in hydrogen and related carbon capture and storage (CCS). At the same time, the EU has struggled for three years to produce Delegated Acts on Renewable Hydrogen to outline its long-term vision for the technology.
ExxonMobil declared that it would increase planned investments in its Low Carbon Solutions business to $17 billion through 2027 due to the IRA's passage, up from $15 billion previously. This will be used primarily for hydrogen and CCS.
US holds an advantage
The US has topped EY's 2023, biannual Renewable Energy Country Attractiveness Index, ahead of China in second place. Germany, Spain, France, and the UK are also among the top 10. Unless the EU resolves its significant disadvantages, the US will continue to lead the green energy race.
While the IRA favours innovation and investment over regulation, it does not mean regulations will not be passed in the future. Although it might become necessary later, the US is currently reluctant to enact regulations that stifle innovation and growth.
Keep up with the fast changing energy transition with ICIS.
Author:
Ropa Mugadza is a content writer at ICIS, working across energy, chemicals and sustainability to tell the story of market movements.
She has previously worked as a writer and content strategist in the fields of green infrastructure, sustainable development, and environmental technology.
Built with ShorthandRelated content
Speak with ICIS
If you are interested in learning about how our specialist insight can help you make better business decisions, contact the ICIS team today. Simply complete the form and we will get in touch with you as soon as possible.
