Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the Beanna of podcasts, and today we talk about the
Speaker 1: roles subsidies and tariffs are trying to play in creating
Speaker 1: world leading industries in clean technology. It's undeniable that the
Speaker 1: US's Inflation Reduction Act has had far reaching effects on
Speaker 1: global trade for clean tech manufacturing. This has left the
Speaker 1: European Union considering the policies they need to keep up.
Speaker 1: The EU has historically been a leader in the energy transition,
Speaker 1: with the world's first emissions trading system and the European
Speaker 1: Green Deal that dedicated one trillion euros to climate funding.
Speaker 1: More recently, they responded with the Net Zero Industry Act. However,
Speaker 1: the EU continues to trail on subsidies and has less
Speaker 1: aggressive trade barriers than the US. There is six times
Speaker 1: as much public funding offered to clean tech manufacturers in
Speaker 1: the US when compared to the EU. One of the
Speaker 1: industries benefiting the most is battery manufacturing, with sixty two
Speaker 1: percent of manufacturing subsidies in the US target battery making. Specifically,
Speaker 1: other parts of the world are considering how they should
Speaker 1: adjust their policies in response to which makes sense considering
Speaker 1: that roughly thirty nine billion dollars of value in twenty
Speaker 1: twenty three of EU and US clean tech imports could
Speaker 1: be subject to new tariffs which were proposed the first
Speaker 1: half of twenty twenty four. But even in the phase
Speaker 1: of tariffs, imports from some countries may continue to be
Speaker 1: cost competitive. So to share what this all means today,
Speaker 1: I welcome Matthew Hiles from bn EF's Trade and Supply
Speaker 1: Chains team, and Antoine Wagner Jones, who leads that team.
Speaker 1: They draw from some of their findings and a recent
Speaker 1: research report which was titled US Clean Tech Industrial Policy
Speaker 1: leaves EU behind for now. Bn EF subscribers can access
Speaker 1: the full report at BNF go on the Bloomberg terminal,
Speaker 1: or at BNF dot com. Let's speak with Antoine and
Speaker 1: Matthew about trade, where we are and where it could
Speaker 1: all be going andtoon. Welcome back to the show.
Speaker 2: Hi, Dana, great to be here.
Speaker 1: And matt nice to have you here as well.
Speaker 3: Hidana, thank you for having us.
Speaker 1: So we've got a theme for today's show. We're going
Speaker 1: to be talking about on shoring and what we're seeing
Speaker 1: in particular in the United States. Although this also involves
Speaker 1: Mexico and in Europe, and really this story that's starting
Speaker 1: to unfold over the last couple of years or some
Speaker 1: real stimulus for some of the industries that we're looking
Speaker 1: at here at BNEF, whether they're renewables or other low
Speaker 1: carbon technology like hydrogen, but really where that technology is
Speaker 1: being built and what companies and countries are allowed to
Speaker 1: play in that development. So let's start off with just
Speaker 1: a quick summary of what the US Inflation Reduction Act
Speaker 1: is and then we can get to what the EU's
Speaker 1: response to that is.
Speaker 3: So pretty much, the US Inflation Reduction Act launched in
Speaker 3: twenty twenty two, and really you can think of it
Speaker 3: as a big job spill, and what it's trying to
Speaker 3: do is reindustrialized bits of America using new kind of
Speaker 3: high technology manufacturing areas such as clean tech or electric
Speaker 3: vehicles and things like that. And there's a bunch of
Speaker 3: subsidies that come with it in different forms. And what's
Speaker 3: really interesting about it is it has a load of
Speaker 3: money behind it, but it also has what we call
Speaker 3: local content requirements, which are ways of trying to access
Speaker 3: this money and trying to limit who can access this
Speaker 3: money so that it's mostly US firms that get it.
Speaker 1: So to what extent, given that the US election is
Speaker 1: very very near to what extent is the Inflation Reduction
Speaker 1: Act in these tax codes, have they been written or
Speaker 1: are we still working our way through them.
Speaker 3: So most of the actual detailed legal documents around these
Speaker 3: tax codes are finalized or very least very close to
Speaker 3: being finalized, especially Section forty five X, that really important
Speaker 3: tax credit on the production of all these different clean
Speaker 3: tech components, and so it'll be really hard for anything
Speaker 3: to dramatically change in terms of the measure being repealed.
Speaker 3: What could happen in an OVEN election, depending on if
Speaker 3: the Republicans win and depending on how political favor it's
Speaker 3: after the election, the Republican Party could make the access
Speaker 3: to these tax credits a bit more tricky, and they
Speaker 3: could limit other areas of US financing for these solar
Speaker 3: industries and clean tech industries. But we don't expect to
Speaker 3: see a big repeal of all of these different bits
Speaker 3: of legislation that have been put in for now.
Speaker 2: And certain aspects of the IRA, like the supplied side
Speaker 2: incentives for electric vehicles are a lot more prominent and
Speaker 2: I have been subject to a lot more criticism than
Speaker 2: some of the manufacturing subsidies, which have behind the scenes
Speaker 2: been leading to all kinds of investments happening in so
Speaker 2: called red states where the majority of clean tech factories
Speaker 2: are actually being cited. So we see things like the
Speaker 2: forty five x tax credit. This all gets a bit
Speaker 2: arcane when you're comparing different types of tax credits, but
Speaker 2: this particular supply chain incentive subsidy look less vulnerable to
Speaker 2: any post election targeting of IRA incentives than other incentives,
Speaker 2: such as ones for purchasing electric vehicles, which have really
Speaker 2: been front and center of a lot of the Republican
Speaker 2: criticism of the bill.
Speaker 1: Well, now that we've been through the election question at
Speaker 1: the beginning of the show, we can get on to
Speaker 1: the rest of the policy stuff, because that one's always
Speaker 1: on the tip of everyone's tongue. So let's pivot now
Speaker 1: to the EU. So what's happening in Europe? And you know,
Speaker 1: before the Inflation Reduction Act even came out, the EU
Speaker 1: dedicated a trillion euros in this green deal during the
Speaker 1: decade between twenty twenty and twenty thirty. How is that
Speaker 1: getting on? And then really, since the Inflation Reduction Act
Speaker 1: came out after that commitment, what sort of policies are
Speaker 1: we seeing in response from the EU.
Speaker 3: So the thing about the IRA was that it was
Speaker 3: trying to reindustrialize a lot of American manufacturing, and the
Speaker 3: EU's response, the Green Industrial Deal, came a little bit
Speaker 3: before it, and really its target was to kickstart the
Speaker 3: economies after the pandemic, and there was a bunch of
Speaker 3: pandemic related debt that was raised which was used to
Speaker 3: finance a lot of these different measures. The kind of
Speaker 3: exact response to the US's IRA was what the EU
Speaker 3: is calling the Net Zero Industry Act, and within the
Speaker 3: Next Zero Industry Act, that EUS targeting a specific amount
Speaker 3: of annual demand of EU clean tech to be made
Speaker 3: in the EU by twenty thirty. But what it's not
Speaker 3: doing is it's not giving different subsidy types or different
Speaker 3: subsidy pools of funding for clean tech manufacturing like the
Speaker 3: US's IRA is doing.
Speaker 1: What is that target that the Net Zero Industry Act
Speaker 1: is going for.
Speaker 3: So it's going to go for forty percent of clean
Speaker 3: tech across the board by twenty thirty, but this change
Speaker 3: is based on what's being manufactured, so it's much higher
Speaker 3: for areas like batteries, which we're expecting to be about
Speaker 3: ninety percent by twenty thirty.
Speaker 2: And that's the really fascinating thing about the IRAS that
Speaker 2: has led to all kinds of copycat policies across the world,
Speaker 2: where politicians have suddenly come under this seeming pressure that
Speaker 2: they've got to come up with some kind of a
Speaker 2: convincing answer to what the US is doing. And we've
Speaker 2: really seen that in the EU because all of these
Speaker 2: companies after the passage of the IRA was saying we're
Speaker 2: going to relocate to the US, and many of them
Speaker 2: actually did end up leaving Europe and some of them
Speaker 2: built out some expanded their manufacturing capacity in the US.
Speaker 2: So the European Commission was under massive pressure to come
Speaker 2: up with some kind of an answer, and that's something
Speaker 2: that we've seen not just in the EU, but in many,
Speaker 2: many different parts of the world. So actually, this research
Speaker 2: note that we're going to be drawing from when talking
Speaker 2: about a lot of the numbers going forwards in this
Speaker 2: conversation is actually part of a wider project where we're
Speaker 2: just kind of trying to quantify what's being offered to
Speaker 2: clean tech manufacturers across all of these different regions of
Speaker 2: the world that are all sort of starting to think
Speaker 2: about supply chains differently in the wake of this really
Speaker 2: seminal US piece of legislation.
Speaker 1: Well, and this is all for funding new projects or
Speaker 1: stimulating certain parts of the economy. The inflation Reduction Acts
Speaker 1: and these tax codes have really freed up a lot
Speaker 1: of money from the government, one might say, in order
Speaker 1: to facilitate this, has the EU and have their targets
Speaker 1: really also unlocked new funding opportunities.
Speaker 3: So the EU has a lot less funding than we're
Speaker 3: seeing in the US. We're seeing about six times less
Speaker 3: total public funding go to clean tech manufacturing, and I
Speaker 3: think one of the key things to take away from
Speaker 3: this is that the US's subsidies and their incentives offer
Speaker 3: a lot of visibility for clear tech manufacturers into the future.
Speaker 3: In the EU this is not the case. So the
Speaker 3: only part of the EU's funding which we see have
Speaker 3: a lasting impact was twenty thirty are auction revenues from
Speaker 3: the EU's ETS scheme. The other aspect of this is
Speaker 3: member state funding, and that's funding coming from members eight
Speaker 3: countries of the EU, that's France, Germany and Italy. Is
Speaker 3: what we're looking at within the research note that we're
Speaker 3: referring to, and those are really the ones we focus
Speaker 3: on because they're the big industrial heavy hitters of Europe.
Speaker 1: So I'm going to play devil's advocate here for a second.
Speaker 1: And I love that you brought up the EU Emissions
Speaker 1: Trading System because that was established in two thousand and five.
Speaker 1: In terms of trying to reach climate goals and emissions targets,
Speaker 1: that actually is a long time ago, even though the
Speaker 1: number does start with the two thousand. Do you think
Speaker 1: that part of the reason that there's lower funding in
Speaker 1: Europe has something to do with the fact that they
Speaker 1: had a head start and maybe they've been consistently working
Speaker 1: on decarbonizing or is it really just that they're not
Speaker 1: actively pursuing these goals in such an aggressive way as
Speaker 1: the US is.
Speaker 2: So it's really interesting. Is one of the things things
Speaker 2: that came out after the IRA was this new depiction
Speaker 2: of what's going on in the EU versus the US
Speaker 2: and talking about how the US uses more of a carrot,
Speaker 2: deploying lots of funding but not really having any federal
Speaker 2: carbon pricing or any kind of a stick when it
Speaker 2: comes to mandating that companies pursue given course of action,
Speaker 2: whereas the EU was putting in place aggressive targets that
Speaker 2: countries were actually trying to strive towards in a more
Speaker 2: concrete sense, and putting in place things like a carbon price,
Speaker 2: which has been quite effective at decarbonizing the power sector
Speaker 2: in many different areas. Now that's very different, and the
Speaker 2: emphasis really has been on decarbonizing efficiently and not so
Speaker 2: much on on shoring supply chains, which is a very
Speaker 2: different proposition. When you're making lots of funding available and
Speaker 2: channeling it towards supply chains, well, that's a good way
Speaker 2: of getting lots of announcements of the type that we're
Speaker 2: seeing in the US with over one hundred and ten
Speaker 2: billion dollars of clean tech factories being announced. But when
Speaker 2: you're putting in place the conditions to decarbonize as quickly
Speaker 2: as possible, that's not necessarily something that's conducive to getting
Speaker 2: a homegrown solar value chain, because actually it's a lot
Speaker 2: cheaper to import from wherever that piece of equipment is
Speaker 2: produced at lowest cost. So different approaches, and the latter
Speaker 2: it's got its pros, it's got its cons. But the
Speaker 2: focus really in the EU hasn't been on nurturing sort
Speaker 2: of homegoing solar manufacturing, where we're starting to see a
Speaker 2: bit more of an emphasis now on reviewing that and
Speaker 2: seeing whether or not the EU wants to get more
Speaker 2: serious about trying to put in place that production capacity
Speaker 2: not just for generating clean atricity, but also the equipment
Speaker 2: that goes behind it.
Speaker 1: That's a great and really important distinction to call out,
Speaker 1: which then brings us to these tariffs. Let's talk about
Speaker 1: the EU and the US and what the impact has
Speaker 1: been of the tariffs that are in place. So what's
Speaker 1: happening in the US, and I guess how much success
Speaker 1: is it having and what's it targeting? Where where are
Speaker 1: we no longer seeing imports from these supply chains coming from.
Speaker 3: So the US first put tariffs on clean tech related
Speaker 3: stuff back in twenty twelve, and that's when we can
Speaker 3: really see this game of cat and mouse kickoff. So
Speaker 3: what it did is it put tariffs on Chinese solar equipment.
Speaker 3: Those are solar modules and solar cells. So after this
Speaker 3: long running game of cat and mouse on solar what
Speaker 3: we're seeing now is tariff's being imposed on other areas
Speaker 3: of clean tech to quite a significant degree. So we're
Speaker 3: seeing one hundred percent plus on evs, and it is
Speaker 3: likely to stop a kind of avalanche of cheap Chinese
Speaker 3: evs coming in which have benefited from just better competition
Speaker 3: out in China and its advanced market that it has there.
Speaker 3: We're also seeing batteries being affected by this, and this
Speaker 3: is likely going to impact battery energy storage projects from
Speaker 3: about twenty twenty six when these tariffs will be imposed,
Speaker 3: and it's still unsure whether China, that's low cost of
Speaker 3: their equipment produced, will negate these tariffs completely.
Speaker 2: And yeah, it's really interesting because right now we've seen
Speaker 2: this real political prominence of evs as the focus of
Speaker 2: a lot of tariffs that we're seeing discussed around the world,
Speaker 2: whether it's in we'll get to the EU, but in
Speaker 2: Canada and the US, et cetera. But right now, there
Speaker 2: really aren't that many Chinese evs being exported to the US.
Speaker 2: So the fear is exactly has Matt said to stave
Speaker 2: off future imports given the lack of affordable, low cost
Speaker 2: competitive models that are being put out by, for example,
Speaker 2: some the big three manufacturers in the US when it
Speaker 2: comes to auto making. So it's more of a forward
Speaker 2: looking thing, whereas with batteries, it's a bit different. The
Speaker 2: US does import a lot of Chinese batteries, but the
Speaker 2: tariffs being set are a bit lower than for evs.
Speaker 2: And actually, what we've seen is quite interesting is that
Speaker 2: even though these these are going to be imposed in
Speaker 2: twenty twenty six, even though they're going to make stationary
Speaker 2: storage projects more costly, the continued decline in battery prices worldwide,
Speaker 2: it looks like we'll offset that tariff and will actually
Speaker 2: continue to make Chinese batteries more cost competitive with US batteries.
Speaker 2: But at the end of the day, these batteries are
Speaker 2: sort of understanding what's happening on the tariffront, it's sort
Speaker 2: of a moving target. We've seen extremely high blanket tariffs
Speaker 2: announced by the Trump administration at various levels for the
Speaker 2: whole world of the world or just focusing on China,
Speaker 2: and that level of uncertainty makes it very hard to
Speaker 2: sort of assume what tariffs are going to be two
Speaker 2: three years from now. And overall, this situation where we're
Speaker 2: just generally seeing a rising tide of tariffs, with the
Speaker 2: Trump tariffs being kept under Biden, with these then expected
Speaker 2: to be built upon just basically means that there's a
Speaker 2: stronger business case for building in the US because that's
Speaker 2: perceived as the one way that you're going to be
Speaker 2: reliably able to tap into one of the world's fastest
Speaker 2: growing markets. When it comes to a lot of this
Speaker 2: clean technology.
Speaker 1: How have some of the clean technology manufacturers who are
Speaker 1: experiencing these very low prices, how have they been able
Speaker 1: to circumvent some of these tariffs and have they set
Speaker 1: up production in different countries and really worked around it.
Speaker 1: How's that unfolded.
Speaker 3: So one of the things we've seen is Chinese manufacturers
Speaker 3: moving to Southeast Asia. And what's really interesting about this
Speaker 3: is the US extended their tariffs to cover Chinese cells
Speaker 3: being produced in Southeast Asia and getting exported into the US.
Speaker 3: What's recently happened is the US is investigating more tariffs
Speaker 3: on Southeast Asian production of modules themselves.
Speaker 2: And I mean this is something that we might end
Speaker 2: up seeing in other sectors as well. So these US
Speaker 2: tariffs on SOLO have made SOLO a lot more expensive
Speaker 2: in the US. They haven't spurred much domestic manufacturing, although
Speaker 2: there are announcements now with the provision of subsidies under
Speaker 2: the IRA. But the question is if these tariffs are
Speaker 2: then applied to evs. For example, are we going to
Speaker 2: see the same thing, Are we going to see the
Speaker 2: likes of BYD or different Chinese manufacturers relocate their production
Speaker 2: and begin to export from other markets into the US
Speaker 2: as a way of circumventing those tariffs. It's a complicated
Speaker 2: picture because of some of those local content rules that
Speaker 2: we mentioned as well, which specifically restrict the availability of
Speaker 2: certain subsidies to companies or to certain models of EVS
Speaker 2: that are using parts produced by Chinese companies. So it's
Speaker 2: not that simple. But what we've seen in the US
Speaker 2: is an enormous amount of cost and complexity for very
Speaker 2: little apparent benefit when it comes to the key goals
Speaker 2: that you could conceive of when these tariffs were drawn up.
Speaker 2: And the risk is that we might end up seeing
Speaker 2: a similar trend with these new sectors, whether it's batteries,
Speaker 2: whether it's evs, of a lot of complexity, a lot
Speaker 2: of cost, a lot more lawyer fees for example, for
Speaker 2: some of these for some of these manufacturers who might
Speaker 2: spend a lot more time in DC talking to policymakers
Speaker 2: about their priorities at the cost of certain efficiencies that
Speaker 2: you might hope for when you're thinking about the energy
Speaker 2: transition and how to make it happen as quickly as possible.
Speaker 1: So what sort of tariffs are we seeing in the EU.
Speaker 3: So the EU's tariffs are a lot lower across clean tech,
Speaker 3: and that's really because the EU has had a more
Speaker 3: liberal approach to trade for a long time. The way
Speaker 3: the block has been set up kind of incentivizes this.
Speaker 3: But the big change that's happened recently is that EU
Speaker 3: has announced additional tariffs on imports of Chinese evs. So
Speaker 3: the maximum tariff on imports of Chinese EV's was decided
Speaker 3: earlier in October at forty five point three percent, and
Speaker 3: the impact this is likely to have will be vastly
Speaker 3: different between different firms. So what the EU did is
Speaker 3: it put this maximum tariff on Chinese production, put specified
Speaker 3: specific rates for specific companies. One of the really interesting
Speaker 3: things we see about this is someone like BYD their
Speaker 3: rates seventeen percent, and actually the margins that they have
Speaker 3: when importing when exporting cars into Europe will likely mean
Speaker 3: that this tariff will not have much of an effect
Speaker 3: on their sales into Europe.
Speaker 1: Can you explain why equipment coming from China, in the
Speaker 1: simplest sense, is so much less expensive.
Speaker 2: Enjoying up a lot of these tariffs and the rational
Speaker 2: behind them. There's been a lot of focus on the
Speaker 2: provision of subsidies to manufacturers in China, which have exist
Speaker 2: in a very clear form for demand of evs, for example,
Speaker 2: in the past, and there's been certain low cost loans,
Speaker 2: or certain tax deferrals, or various incentives that have been
Speaker 2: and continue to be given to Chinese manufacturers. But there's
Speaker 2: that's really been a big part of the conversation. But
Speaker 2: what it's done is stop sort of looking at the
Speaker 2: fact that the picture has evolved a lot since then,
Speaker 2: and now what we really see is that there are
Speaker 2: several factors that are contributing to the competitiveness of Chinese evs,
Speaker 2: and they are things like scale, for example. They are
Speaker 2: things like supply chains being extremely efficient and clustered in
Speaker 2: certain Chinese provinces. They are things like an intense level
Speaker 2: of competition. As China's EV sales have rocketed, but production
Speaker 2: has in some cases for batteries or solar exceeded demand,
Speaker 2: and then that really drives a need to find new
Speaker 2: markets for this equipment. So there's this extreme level of
Speaker 2: competition in China, which is really one of the primary
Speaker 2: drivers for companies like CATL like Bid engaging in price
Speaker 2: wars against each other to try and get market share
Speaker 2: and retain it. And a lot of these companies are
Speaker 2: sort of still spending a lot on R and D
Speaker 2: and behaving like scrappy startups where you'd expect them to
Speaker 2: be resting on their lawrels as incumbents, and that's something
Speaker 2: that's quite hard to just to and when you look
Speaker 2: at the fact that actually what they're providing, if it's
Speaker 2: electric vehicles, for example, are models that are in some
Speaker 2: cases quite premium models. When you look at the Neo
Speaker 2: for example, and what they're offering that compare favorably to
Speaker 2: some of the Western brands and are far more advanced
Speaker 2: when it comes to certain bells and whistles with digitalization.
Speaker 2: Then it becomes quite difficult to make up that lost ground.
Speaker 2: And I think one of the hard things is that
Speaker 2: it's about price, but it's not just about price.
Speaker 1: So these tariffs, if they are then spurring on domestic
Speaker 1: manufacturing in the US and do a lesser extent, but
Speaker 1: also the EU, let's say they become successful, are we
Speaker 1: going to see global cost competitiveness that's ultimately going to
Speaker 1: result in the tariffs being removed or will they have
Speaker 1: to exist forever.
Speaker 3: That's a really key question, and actually it's one of
Speaker 3: the ways that people think if a policy, an industrial policy,
Speaker 3: has been successful, is if the product can become export competitive.
Speaker 3: I think it's very fair to say that you use
Speaker 3: battery and ev making ecosystem has a long way to
Speaker 3: go before it can become cost competitive with many of
Speaker 3: the Chinese producers. But at the same time, a lot
Speaker 3: of the big EU companies, that especially the German companies,
Speaker 3: have got a vast number of factories out in China
Speaker 3: through JVS, which they can learn from people who are
Speaker 3: at the cutting ends of the industry. So, for example,
Speaker 3: Volkswagen has forty factories out in China and it's one
Speaker 3: of the reasons why it was quite heavily against the
Speaker 3: imposition of tariffs because its production was affected. But really
Speaker 3: those factories out in China can tap into, as we
Speaker 3: said before, one of the most advanced domestic markets and
Speaker 3: really learned that way.
Speaker 2: And I think that's a really key point is just
Speaker 2: the fact that it's very hard to see a scenario
Speaker 2: where you managed to scale Western manufacturing to the extent
Speaker 2: that it becomes suddenly competitive with Chinese manufacturing, the scale
Speaker 2: is just not there. And even if you're ring fencing
Speaker 2: the economy and providing this sort of infant industry protection
Speaker 2: whatever you want to call it, to provide a mix
Speaker 2: of subsidies in tarifs and local content rules to then
Speaker 2: nurture the creation of supply chains across Europe and North America,
Speaker 2: it's going to be extremely hard to catch up and
Speaker 2: to reach those economies of scale and that level of
Speaker 2: innovation that we've seen elsewhere, especially if that protectionism comes
Speaker 2: at a cost of shielding firms from the most competitive
Speaker 2: firms and their technologies. And that means that what we
Speaker 2: could end up seeing is that, Okay, there's some onshoing
Speaker 2: that's successfully happening in North America, but actually, when we
Speaker 2: look at market share and many of the fastest growing
Speaker 2: economies the world over, and especially in emerging economies, those
Speaker 2: are regions that will be dominated by Chinese manufacturers for
Speaker 2: years to come. And what's really interesting is we're also seeing,
Speaker 2: you know, BYD has announced car manufacturing facilities in at
Speaker 2: at least eight countries the world over, This is an
Speaker 2: opportunity that's already been seized with seeing booms of imports
Speaker 2: of solar equipment from China in places like Pakistan. The
Speaker 2: world is moving really fast, and just looking at okay
Speaker 2: onshoring regionally and self sufficiency is going to be quite
Speaker 2: a limited lens through which to appreciate the fact that, actually, yeah,
Speaker 2: things are looking pretty tough when it comes to catching up.
Speaker 1: So you've given some examples of how Chinese companies are responding.
Speaker 1: You cited c ATLBYD, But give me some examples on
Speaker 1: where it's going right or potentially wrong in the US
Speaker 1: and in Europe? Are there some standouts examples there?
Speaker 2: We've Europe has had a pretty successful story of scaling
Speaker 2: as a battery manufacturer. We've seen a lot of investments
Speaker 2: being made in mainland Europe with facilities coming online, but
Speaker 2: they've been largely brought online by companies like lg As
Speaker 2: a South Korean company, or Tesla, an American company, or
Speaker 2: even Chinese manufacturers. What we haven't seen as much of
Speaker 2: is a scaling of manufacturing from European headquartered companies. There's
Speaker 2: one question in Europe, which is, well, should we be
Speaker 2: just focusing on scaling manufacturing with companies that know what
Speaker 2: they have more of a track record, like these South
Speaker 2: Korean companies for example. And in the US, is it
Speaker 2: really a good idea to have this environment where we've
Speaker 2: made it very hard for Chinese manufacturers to invest, which
Speaker 2: is the case currently where there's a number of solar
Speaker 2: and EV and battery manufacturing investments that are being made
Speaker 2: or have been announced by Chinese manufacturers, but they've be
Speaker 2: met with a lot of uncertainty and a lot of
Speaker 2: political pushback and several proposed bills which would limit the
Speaker 2: availability of funding to a much wider extent than is
Speaker 2: the case today. So this is another question is when
Speaker 2: we look at countries that are industrialized in the past,
Speaker 2: they've invited the most advanced manufacturers and they've learnt from them.
Speaker 2: And this is even something that we saw in the
Speaker 2: eighties in the US with Japanese carmakers, for example. And
Speaker 2: the question is is it really possible to not just
Speaker 2: catch up on this massive lead that China has today,
Speaker 2: but to also do so while only supporting locally grown manufacturers.
Speaker 2: And that's a pretty challenging proposition.
Speaker 1: Now, we've talked about queen tech as a theme but
Speaker 1: really the exact samples that we've gone through have really
Speaker 1: been focused on electric vehicles and solar and I think
Speaker 1: I'm the one who brought up hydrogen. Can you just
Speaker 1: give an idea of what the scope is? How wide
Speaker 1: is that basket of companies within clean tech?
Speaker 3: So this is one of the central things that we
Speaker 3: had to address when we were doing this project. So
Speaker 3: we're trying to look at the global kind of shifting
Speaker 3: sands around clean tech, and clean tech is just vast.
Speaker 3: So the amount of sectors within it, you can broadly
Speaker 3: break up into eight or so sectors, but the actual
Speaker 3: components within each of those sectors, the list is incredibly long,
Speaker 3: and actually you can see this in a lot of
Speaker 3: the policy documents and a lot of the tariff documents.
Speaker 3: When they're talking about what they're trying to target, it's
Speaker 3: often covering pages and pages and pages. So the reason
Speaker 3: why we chose solar, evs and batteries as our initial
Speaker 3: main ones that we're going to focus on, or that
Speaker 3: we might actually add more areas in terms of geographic
Speaker 3: scope and also clean tech scope into the database that
Speaker 3: we're building, is because there's been a massive push on
Speaker 3: these three areas and in China they're called the New
Speaker 3: Industrial Forces, and it's a lot of the political focus
Speaker 3: and a lot of the economic focus around clean tech
Speaker 3: is within these industries.
Speaker 1: So this show has largely been a comparison around the
Speaker 1: US in the EU, and what I'm really hearing here
Speaker 1: is that in the US things seem to really be
Speaker 1: humming at a pretty fast speed, and the EU may
Speaker 1: have a long way to go. What are we seeing
Speaker 1: in the EU and what do we expect to see
Speaker 1: in the future.
Speaker 3: One of the most interesting things is that on shoring
Speaker 3: is at the top of the EU's agenda. So as
Speaker 3: vonder Lyon goes into her second term, we're expecting to
Speaker 3: see some new policies under what's being called the Clean
Speaker 3: Industrial Deal, but we're not yet sure as to what
Speaker 3: those policies are. So one of the things that vonder
Speaker 3: Lyon did towards the end of her last term was
Speaker 3: she got Mario Dragio, is the ex ECB president and
Speaker 3: also Prime Minister of Italy, to look at sweeping structural
Speaker 3: reforms needed to make the EU more competitive. His report
Speaker 3: came out last month. We're expecting to see a lot
Speaker 3: of policies coming out in the next presidential term, and
Speaker 3: it's going to be interesting to see how those policies
Speaker 3: are framed. Are they going to be production linked like
Speaker 3: we're seeing in America, Are they going to be to
Speaker 3: do with capital expenditure, which is more traditional EU grant
Speaker 3: type of funding, or are they going to be something
Speaker 3: in between that we haven't yet seen.
Speaker 2: And what's really interesting about this Mario Dragy report, which
Speaker 2: was released quite recently still is which really lays these
Speaker 2: priorities for the European Commission going forwards, is that it
Speaker 2: really relies on this enormous amount of new funding that
Speaker 2: is required. So it basically says we're going to need
Speaker 2: to pursue all of the EU's very strategic priorities eight
Speaker 2: hundred billion euros per year of funding private and public.
Speaker 2: But that is an enormous amount, and it's to be
Speaker 2: funneled into all kinds of new priorities which are supposed
Speaker 2: to get a lot more money, such as military pursuits
Speaker 2: as well as things like onshore and clean tech. So
Speaker 2: already that seems pretty challenging, and it's even more challenging
Speaker 2: for the fact that it really relies on this central premise,
Speaker 2: which is that your EU member states are going to
Speaker 2: get together like they did during the pandemic, like we've
Speaker 2: talked about previously, and are going to raise common debts
Speaker 2: once more to have this big new packet of funding
Speaker 2: that's available for channeling into these clean energy supply chains.
Speaker 2: And there doesn't really seem to be the political will
Speaker 2: to do that. There doesn't really seem to be any
Speaker 2: kind of appetite from the likes of Germany or some
Speaker 2: of the more fiscally conservative member states to actually engage
Speaker 2: in that kind of common raising of debts. So what
Speaker 2: we're going to end up seeing is probably more the same,
Speaker 2: and which is basically a very constrained sort of environment
Speaker 2: where what we've seen to date and what we'll probably
Speaker 2: continue to see, is a reshuffling of existing pots of
Speaker 2: money like the Innovation Fund, which are already spread out
Speaker 2: across lots of different purposes and aren't particularly targeted when
Speaker 2: it comes to the technologies that the EU is trying
Speaker 2: to support. So the US funding extremely targeted. You've got
Speaker 2: specific tax credits for producing battery cathodes, for example, as
Speaker 2: in the EU, you've got these different pots of money
Speaker 2: that are available for doing just about anything, and it's
Speaker 2: extremely unclear as to what's going to go where, and
Speaker 2: that pot is a lot smaller and it's made up
Speaker 2: of many, many more parts, so it's much harder to decipher.
Speaker 2: So the EU is really structurally constrained, and it's really
Speaker 2: interesting to compare the two because basically, going forward, there's
Speaker 2: a lot of ambition in the EU to make grand
Speaker 2: pronouncements and do more, but it's tough to do so
Speaker 2: within the existing environment. In the US, there's this looming
Speaker 2: sense that the IRA might get challenged, but we might
Speaker 2: not see it be changed as much as a lot
Speaker 2: of people are fearing in terms of some of the
Speaker 2: incentives that are important to manufacturers. So actually we could
Speaker 2: see this picture remaining quite stable going forwards. And the
Speaker 2: one more uncertain element is this question of tariffs, where
Speaker 2: the EU's really broken away from its approach in the
Speaker 2: past and is starting to be a bit more assertive
Speaker 2: when it comes to be putting in place barriers to
Speaker 2: trade with this new ev tariff that we've just mentioned.
Speaker 2: The question is going forwards, does the EU choose to
Speaker 2: do so for other technologies and batteries would be the
Speaker 2: really obvious one, and that's already what a lot of
Speaker 2: lobbying groups and what industry is already calling for in
Speaker 2: the EU in from many quarters, we're seeing talk of
Speaker 2: imposition of new battery tariffs that hasn't really become concrete
Speaker 2: in any sense. We've already seen a lack of cohesion
Speaker 2: when it comes to these EV tariffs, for example, But
Speaker 2: there's still a lot of uncertainty and there's still this
Speaker 2: big looming question of is the EU, which has just
Speaker 2: started to change its tune when it comes to protectionism,
Speaker 2: is this going to be the beginning of a trend
Speaker 2: that we see going into the future, and that's going
Speaker 2: to lead to a lot of manufacturers starting to get
Speaker 2: more serious about setting up in the EU or in
Speaker 2: areas where they think they're going to be able to
Speaker 2: export into the EU in the future.
Speaker 1: So, Matt Antwine, thank you very much for keeping an
Speaker 1: eye on tariffs and subsidies, and we will continue to
Speaker 1: watch the upcoming elections and what happens with policy makers
Speaker 1: in both continents as they look to on shore more
Speaker 1: of their manufacturing across clean tech.
Speaker 2: Thanks so much, Dana, great to be here, Thank you
Speaker 2: very much.
Speaker 1: Today's episode of Switched On was produced by cam Gray
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