Thread by @c_baccianti

Have you also wondered how much funding the EU would need to “match” the US’ Inflation Reduction Act (IRA) subsidies to clean tech manufacturing? A quick thread with one clue #EUCO

Let’s take the production of Li-Ion battery cells, one of the most affected key sectors. Chart shows projected European demand and supply (incl. UK, Norway), from an excellent T&E report.

The US’ IRA offers a subsidy of $35/kWh for battery cells produced up to 2030, phasing down by 2032. Producers can get more with modules and critical minerals, but let’s stick with the cell subsidy.

Here a back-of-the-envelope calculation. What if the $35/kWh subsidy is provided to enough domestic production to cover 30% or 10% of EU's battery cells demand? For that, €30 bn or €10 bn needed up to 2032. Not much, however this is just one clean technology.

Please explain me what is the point of discussing how to finance a EU's response to the US' IRA without knowing how much money we need for that. The tendency is to assume "there is enough money" without having a proper understanding of the spending needs.

The IRA's manufacturing tax credit should cost $37 billion, so why can the EU get away with just a few billion euros?

Given the current circumstances, the EU can't ignore the US subsidies. These are the industries of the future and many jobs are at stake. Retaliate with tariffs? It would just make clean technologies more expensive in Europe.

I share with many others the view that the EU should be more targeted and selective than the US, however if we are too picky the policy may not work.

https://twitter.com/c_baccianti/status/1620894072612470784?s=20

Will this be another failed industrial policy? Sure the risk is real, but let's not forget the US is not attracting investment with good framework conditions - as it happened with IT - but with hard cash. The problem is rather China.

On the funding needs, it's to be continued 😉 In the meantime, here is a more comprehensive thread on the Green Deal Industrial Plan.

https://twitter.com/c_baccianti/status/1620894021773295616?s=20