Top bankers and business people say Joe Biden has leapfrogged Europe in its handling of the climate crisis, as companies and investors seek to capitalise on Washington’s huge green energy package.
Delegates at the World Economic Forum in Davos were united in praise for the US president’s Inflation Reduction Act, a $369bn package that includes subsidies aimed at luring companies to invest in technologies that will help cut the country’s greenhouse gas emissions.
“The US programme is very smart, and huge,” said Jan Jenisch, chief executive of Swiss building materials group Holcim. “So much needs to be built, from factories, to logistics and infrastructure. For the next 10 years, this will be an engine for growth.”
Cashing in on the package’s popularity, several Republican and Democrat 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 intervention would have in previous decades attracted the scorn of the pro-globalisation crowd in Davos, delegates said the subsidies for everything from electric vehicles to hydrogen power were welcome given the urgent need to tackle the effects of climate change.
“We are too ideological when we say we shouldn’t subsidise . . . Speed is the most essential ingredient,” said Kristalina Georgieva, managing director of the IMF. “We are in the ditch and we must 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 lawmakers could be.
“For so many years [intervention] was a bad word to talk about — everything should be based on markets, governments should not pick winners and losers.”
While the bill was intended to counter the dominance of China in renewable energy development and green jobs, it has ended up sparking a backlash among Washington’s trading partners in Europe and elsewhere. They claim the subsidies penalise businesses and could pull manufacturing jobs and investment from domestic shores to the US.
German chancellor Olaf Scholz told the forum on Wednesday that, while he welcomed the US investment in green technologies, the act must not lead to any discrimination. “Protectionism hinders competition and innovation and is detrimental to climate change mitigation.”
Grant Shapps, UK business secretary, was bolder, labelling the US act “dangerous”.
However, Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said the US’s aggrieved trading partners should speak directly to Washington rather than lodge a complaint with it.
“It’s far better for them to speak to the US and try to resolve this and see if there’s any way to take account of 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 Inflation Reduction Act with measures of their own, with European Commission president Ursula von der Leyen this week promising a relaxation of regulation and new funding to help the bloc catch up.
Some corporate executives said the contrast in approaches on either side of the Atlantic was symptomatic of a relatively unfriendly business environment in Europe.
“Sometimes, leading with regulation is a dangerous path,” said Borje Ekholm, chief executive of Swedish telecoms group Ericsson, who is frequently outspoken about what he sees as constraints on Europe’s technology sector. “Europe has put us on a path that may put us in a less attractive investment environment.”
“In Europe, the approach has been the sticks, in the US it has been a lot of carrots,” said Jesper Brodin, chief executive of the biggest Ikea retailer Ingka Group. “We need both.”
One chief executive of a large US-based group said he was “disappointed” at how the US unilaterally shaped the law, causing a rift with “crucial EU allies” at a time of heightened geopolitical tensions. He urged the Biden administration to fix it, suggesting that US trade representative Katherine Tai, who is attending Davos, should start by “saying sorry”.
US officials have repeatedly said that, while they were unapologetic about the law, they were working to address some of the allies’ concerns. At Davos, US climate envoy John Kerry said, though tweaks could be made during the US Treasury’s implementation process, “the basics of the legislation” were “exactly what we need”. Kerry urged Europe to spend more on tackling climate change itself.
Some US delegates expressed surprise that Europe had reacted so badly. “I had no idea they were so upset until I got here,” said one hedge fund manager.
Most focused on figuring out how to benefit from the subsidies. Jonathan Hausman, executive managing director at Ontario Teachers’ Pension Plan, described a “sucking sound” of green energy investments flowing into the US following the act’s passing in August. “It’s a very powerful signal to [global] investors that this is where it’s happening.”
Additional reporting by Akila Quinio in London, Aime Williams and James Politi in Washington, and Sam Fleming in Brussels