Synergy International Bloggers Block #5

Big Wave Blogger

Here at Synergy International, we’re in a confessional mood. This is a good attitude to help gain new ground with our growing readership (impressions up to ~750 last week). A heart-felt thank you!

Here’s the truth; we are much better bloggers than surfers.

The waves around Portugal’s World Surfing Reserve #WSR have been too big and sloppy this week for our skill level. As an example, our beach had waves ~4.5 meters high with an energy rating of 6360 kilo Joules (kJ). That’s tech talk for pounding & nasty.

Hence, we’ve retreated to the safe shores of our blog, attempting once again to make the pixel mightier than the wave.

We’ve promised an intro into our take on global industrial policy, especially as it applies to sustainable energy. This topic deserves a huge amount of attention, more than we can do in a single 700-word blog. Let’s think of this as the first of a series.

Industrial policy has quickly become the world’s hottest geo-economic fault line. It’s central to the current global competition to claim national leadership over the future growth of sustainable energy.

It’s standard practice over the course of human history for governments to pursue their economic self-interest. But the US, European Union and China have taken current industrial policy competition over sustainable energy this into the trillion-dollar battle zone.

Economist Timothy Taylor, from his Conversable Economist defines industrial policy: “government targets the growth of specific industries with subsidies or trade protection, in the belief that these industries will repay the near-term government support by leading to stronger growth that benefits the broader economy in the future.”

The US came out swinging in 2022 with the Inflation Reduction Act, a sweeping US$500 billion law that directs ~US$400 billion in US federal funding to clean energy though tax incentives, grants and loan guarantees. We’ll let our friends at McKinsey & Co provide the background analysis here.

Among the heavyweights of global industry, the reaction to IRA was pronounced with the US as the new go-to choice for manufacturing. One of the biggest headline grabbers was Volkswagen Group’s decision to pause plans for a battery cell factory in eastern Europe and prioritizing building a plant in the US where it could reap ~$10.5 billion in subsidies. There are more of these types of corporate decisions.

With the industrial policy ball having been firmly sliced into its backhand court, it was time for the European Union to react.

The EU’s play was the Net Zero Industry Act, which in the words of EU President von der Leyen is intended to create the “best conditions for those sectors that are crucial for us to reach net-zero by 2050: technologies like wind turbines, heat pumps, solar panels, renewable hydrogen as well as CO2 storage.” https://ec.europa.eu/commission/presscorner/detail/en/IP_23_1665.

In our opinion, the NZIA hit the bullseye with the creation of a European Hydrogen Bank (EHB) as part of its Innovation Fund with an indicated €800 million of funding for renewable H2 projects just in its first annual auction. https://energy.ec.europa.eu/system/files/2023-03/COM_2023_156_1_EN_ACT_part1_v6.pdf

We’ve been rattling on about the disconnect between supply and demand in the #GreenHydrogen world. This EHB initiative tackles this issue head on and already has produced an extremely significant “positive externality” which we will discuss in full next week.

Let’s just say the reaction to the NZIA was less emphatically positive than our load cheer over the EHB. As seen by much of the EU’s Green Energy industry, NZIA is deeply flawed, primarily due to its ’s requirement that the EU’s strategic net-zero tech manufacturing capacity should reach at least 40% of the Union’s annual deployment needs by 2030. 

This is a direct cannon shot against China’s manufacturing dominance in all aspects of sustainable energy. But it raises major cost and competitiveness barriers for all the EU players involved, including embryonic one’s like us.  

Here’s a link to an example of the backlash: https://www.bruegel.org/first-glance/net-zero-industry-act-puts-eu-credibility-risk

We’ll need to be extremely aware of the shifting tectonic plates of industrial policy in the interesting times ahead as the global economic powerhouses square off over sustainable energy. Have a great week ahead!