Analysis | What Europe Needs to Compete With Biden’s IRA


At the European Union leaders’ summit in Brussels this week, member states will debate the Green Deal Industrial Plan — the bloc’s answer to the US’s $369 billion Inflation Reduction Act (IRA).

The EU plan to boost clean tech and industrial innovation is based around four pillars: funding, trade, skills and simplifying regulation. Arguments are already brewing over proposed changes to state aid rules and funding. But if member states ought to agree on anything, it’s that the energy transition remains tangled up in red tape and desperately needs freeing. As if to prove the point, Denmark suspended all new applications for offshore wind farms on Tuesday over concerns it may be breaching EU law. 

The precise impact of the IRA on the continent is hard to measure, not least because there have been plenty of other reasons not to invest in Europe recently. European business confidence plummeted at the end of last year, and some industrials and startups — including battery start up Northvolt and Spanish energy company Iberdrola — have already pivoted operations and investment to the US.

Part of the attraction may well be the new American subsidies, but Europe has other problems. It is the scene of a war that spurred a historic energy crisis and the highest levels of inflation in decades. And there are also issues of its own making: State aid rules are set to be amended for the third time in as many years, creating an air of confusion. Meanwhile, bureaucracy and supply-chain issues have held back renewables for years.

In short, the outlook for Europe is uncertain and expensive. That’s not the environment needed to support an unprecedented energy transition. Working toward a nimbler regulatory regime would put Europe back on the map for renewables investment.

As my colleague Chris Bryant wrote last September, it can take about a decade for wind projects to be completed from start to finish. Combined with inflation woes, that’s had real impacts: Investments in wind energy in Europe fell in 2022, and orders for new wind turbines were down 47% compared with 2021. Similar problems have plagued solar projects.

The EU knows this is a issue. As part of the Green Deal Industrial Plan, the European Commission has proposed a Net-Zero Industry Act, which would include measures to speed up the permitting process. That can’t come quickly enough.

A January report from the Energy Transitions Commission suggests that other measures, such as introducing one-stop shops and specific time limits to streamline planning and permitting, could reduce development times by more than half. Adopting certain national initiatives across the bloc, such as Spain’s “rule of positive silence” (where certain applications with no responses after a set amount of time will be granted automatically) and France’s new law requiring all large car parks to be covered by solar panels, would also open up new opportunities and accelerate their rollout.

The news out of Denmark is the perfect example of Europe tripping over its own red tape, even as it tries to untangle itself. Denmark has been heralded as one of the most attractive nations for wind developers and a model for the EU. Its one-stop-shop service — meaning that the Danish Energy Agency contacts all the authorities necessary to get the required permits — makes the administrative process simple, and an established open-door policy allows offshore wind developers to apply on their own initiative, giving them flexibility in terms of location and size.

The rest of Europe would do well to emulate the Danish approach. Instead, the country has had to pause its open-door scheme to avoid stepping on the EU’s toes. 

It’s not just permits and planning that could be streamlined. So-called Important Projects of Common European Interest (IPCEIs) have been a useful tool in directing funds towards research and development of new green tech, such as renewable hydrogen and batteries, but there have been complaints that they’re too slow and bureaucratic. Reforming these to be more reactive could help emerging sectors.

Simplified IPCEIs and streamlined regulation are indeed priorities in the EU’s new industrial strategy — but the bloc will have to be bolder.

Emergency measures taken last year in response to the energy crisis also aimed to set tighter deadlines for solar and wind permit decisions. Permits for wind projects must currently be granted within six months, for example. But the emergency mandate only applies to new permits, leaving existing pending developments stuck in a bureaucratic limbo.

The trouble in Denmark shows there’s a lot of work to do in simplifying and clarifying EU regulation. With a sticky fight over money looming, Europe needs to remember that speed is of the essence.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lara Williams is a Bloomberg Opinion columnist covering climate change.

More stories like this are available on bloomberg.com/opinion

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