News last week that the European Union will tear up its once sacrosanct rules against its member countries supporting their national industries shows once again how climate change and the rush to get out of fossil fuels are reshaping the world economy. Spurred on by the US’s Inflation Reduction Act, passed last year – which commits nearly $369bn (£308bn) of federal government support to green industries – the EU is being to forced to act for fear its own cleantech businesses will lose out in the race to net zero emissions.
Already, Volkswagen, Europe’s largest carmaker, has paused a planned investment in a new battery factory for electric vehicles. The carmaker thinks it could get €10bn (£880bn) in US government subsidies if it moves production to the US, and is holding out to hear what the EU will offer instead. The European Commission has said members will be allowed to “match” subsidy offers for clean technology arriving from elsewhere in the world – in theory removing the incentives for big producers like Volkswagen to relocate production.
Meanwhile, China, whose government has for years subsidised green industries, is today the world’s largest supplier of solar panels and lithium batteries – both vital technologies for decarbonisation – sparking fears in Washington and across Europe that Chinese firms will use government support to outcompete their western rivals.
That pressure of competition is the real motivator for governments and the EU. Given the breakthrough of the Paris Agreement, now almost eight years ago, which saw countries across the world commit to their shares of greenhouse gas emission reductions, there has been created, worldwide, a huge and potentially very profitable new market for low emissions technologies. For the first time last year, investment in clean technologies matched investment in fossil fuels, coming to about $1.1tn globally for each. With cleantech investment rising 30 per cent last year alone, the potential for future growth is obvious. Finance and private capital is moving into green investment in a big way.
But even the relatively loose emissions-cutting requirements of the Paris Agreement will require a much more significant push from government to reach. The World Bank, for instance, thinks that China will need to invest $14tn in low emissions power and transport over the next few decades to meet its own nationally agreed emissions reductions target. In the US, although the Inflation Reduction Act’s provision of billions makes it easily the largest monetary commitment the country has ever made to climate change, independent assessments of its impact suggest it will still fall slightly short of the cuts to greenhouse gas emissions the US committed to in Paris.
And the ecological crisis isn’t just about climate change. The shift from fossil fuels across the world’s economies is already creating huge new demands for raw materials, from copper for electric wiring to lithium and other critical minerals for batteries. As the transition gathers pace, these resource demands will worsen, provoking competition among countries and industries rushing to decarbonise. Ursula von der Leyen, the EU Commission president, was expected to meet US President Joe Biden at the White House to discuss exactly that risk of competition for raw materials between the two giant economies. The EU is hoping that a trade deal can be struck, which would allow EU producers of critical minerals, like Sweden, access to US subsidies and markets.
But the prospect of the green transition running into serious resource constraints is a real one, carrying the risk of not only diplomatic clashes but outright military conflict. The scramble for access to deposits of critical minerals is spreading across the globe. Greenland is believed to contain some of the world’s largest underexploited deposits of crucial metals for batteries, and the country has seen bids from Chinese and North American miners to exploit them – currently being held off by its leftist government, for fear of damaging the country’s wilderness. Elsewhere, conditions for miners of critical minerals in places like Congo are appalling – grossly underpaid and working in brutal conditions. Conflicts over access to Congo’s mineral wealth were at the heart of a series of wars.
If we want to at least limit the damage of climate change, we have no choice but to decarbonise our economies, fast. The great shift amongst the world’s largest economies to deliver that investment is an important step towards achieving this. But it carries with it the danger that all the old problems of a capitalist global economy, from resource overuse to worker exploitation to armed conflict, will be dragged along in the rush.