The Green Transition: EU got to be kidding US
Weekly analysis of the shift towards a new economy.
Dear Readers,
Happy Friday. Jonny Ball here, associate editor of Spotlight, the New Statesman’s policy section. As ever, you can find our coverage here.
A male sovereign (aka King Charles) prorogued parliament for the first time in seven decades yesterday, and the news is still dominated by the ongoing conflict in Israel and Gaza, but today’s Green Transition gives you a run-down of some of the issues raised by the US-EU summit in Brussels last week, where green steel (not a Zoolander look) and climate-friendly trade were high on the agenda.
Let’s get straight into it.
Jonny
EU got to be kidding US
The Inflation Reduction Act (IRA) has caused a lot of consternation in Europe. Governments from Paris to Berlin have fretted over the astronomical subsidies and tax breaks offered by the Biden government for manufacturers “reshoring” their supply chains for batteries, electric vehicles, and a whole manner of sectors deemed critical for national security, “resilience”, and the green transition.
In response, the EU has offered a “Green Deal”, which some economists have judged as “superior” to IRA, because it combines subsidies with carbon emissions pricing. Even Germany, normally hostile to any sniff of state aid or excessive government intervention in markets, loosened its stance in a panic over whether there would be a mass exodus of productive capital from the continent because of Biden’s subsidies. So far, we haven’t seen that exodus. But tensions over US-EU trade were still evident at a Brussels summit last week.
Crunch talks over the pithily titled Global Arrangement on Sustainable Steel and Aluminium (Gassa) went right down to the wire. These disagreements are long-standing, originating in former (and future?) President Trump’s imposition of tariffs on European steel five years ago. While Gassa talks aimed at permanently removing these barriers between two friendly economic blocs, they also sought to address the difficult process of reducing emissions from the carbon-intensive steel and aluminium industries. Gassa’s been called a “totally new type of trade deal” that will “link market access to climate action”, i.e., it sets conditions on lower tariffs to measurements of how “green” the steel is.
In the UK, this is something that is very much on the radar of the Labour Party and the small ‘L’ labour movement. Keir Starmer posted a video to X this week telling his followers that “we’re going to need a lot more steel” to achieve his “mission” of clean energy by 2030 (those hundreds of miles of cables and pylons have got to come from somewhere). Speaking over a jarring rock-n-roll soundtrack, Starmer promised to preserve jobs while creating “a bridge to the future” and “a decade of investment in green steel”.
But someone hasn’t quite got the memo. “Greening” carbon-heavy industries like steel (which despite their large carbon footprints are, somewhat paradoxically, essential for net zero) will not automatically create lots of nice green jobs. News last month from Port Talbot steelworks was that the government would spend half a billion pounds helping Tata switch to greener, electricity-powered (rather than coal-fired) production. But there was a catch: 3,000 people would be made redundant. The head of the GMB union representing workers on the century-old site condemned “the spectacle of leaders talking up the fantasy land of a ‘just transition’ while the bitter reality for workers is them getting the sack.”
Back in Brussels, talks over transatlantic trade in steel and aluminium reached fever pitch. The US didn’t want its own producers hurt by Europe’s so-called carbon border adjustment mechanism (CBAM), in which importers must price-in the carbon emitted in production. The Europeans, for their part, didn’t want the reimposition of tariffs which, they say, harms co-operation and hampers the green transition. In the event, the US has now suspended the threat of reimposing steel tariffs – for now – while the two sides continue talks around encouraging green steel production and jointly penalising a mutual competitor: China.
But herein lie the contradictions of this brave new era. Getting to net zero might be quicker, and cheaper, if the US and the EU were less concerned about decoupling or “de-risking” trade with Beijing. Last month, the head of the EU Commission, Ursula von Der Leyen, complained of too many cheap, Chinese electric vehicles flooding into the European market. If and when EU tariffs make these vehicles more expensive, consumers might wonder why they’re paying inflated prices for green EVs. Similarly, manufacturers might wonder why they can’t source the cheapest possible product, whether it be steel, aluminium or any other precious metal necessary for battery production – but again, these industries are increasingly protected behind trade barriers, upping costs for producers.
That’s because governments have other priorities. For all the rhetoric around tackling climate change, strong defences are being erected around national economies in a manner that some say creates more trade frictions and hinders net zero. The fashionable economic nomenclature of “resilience”, “security”, green jobs and the “sustainable economy” may be constantly invoked as if they can always be pursued in tandem. But it’s clear they are not always in lock-step.
In Brief
Biden-skeptics: IRA has won a lot of plaudits on the European centre-left and social democratic(ish) policy scene. But Jacobin has this piece on how the left should view the project – and whether or not it all just amounts to a super-corporate spending splurge.
What have free trade and open markets ever done for us? ICYMI, The Economist had this long-read report on what it calls “homeland economics”, critiquing the trend for industrial policy from its very Economist perspective.
Gridlock: This great bit of partnered content from WSP and Spotlight looks at how reliant the green transition is on improved grid connections. The essential view from the private sector.
Thank you for reading, and please send any news or comments to: jonathan.ball@newstatesman.co.uk
See you next week.
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