The Czech industry needs to go green to survive, says Kateřina Davidová

published 05.03.2023
In August last year, a decision took place that could be one of the most important steps in the fight against climate change in this decade. Relatively unnoticed, the United States Congress passed the Inflation Reduction Act. This is a massive investment package that can fundamentally influence Europe's and other countries' approach to the green transformation.
The transition to clean technologies, their research, development, and production, can no longer be seen purely as a matter of reducing emissions but also as a matter of maintaining competitiveness in the global market. The green race has begun, and the Czech Republic should be more attentive.
As part of the anti-inflation package, the United States plans to support projects in the field of green technologies. At least $369 billion is allocated for this program over the next ten years, and the United States thus invests over one percent of GDP in climate measures. However, the program contains some strongly protectionist elements that concern American trading partners, including the EU. Tax incentives and subsidies are only provided to companies that manufacture in America.
Europe is therefore worried about the relocation of strategic industrial sectors, such as the production of electric vehicles, batteries, or components for renewable energy sources, to the United States. After all, battery giant Northvolt has already announced its intention to move a planned battery factory from Germany to the United States. At the same time, China is still subsidizing its domestic green economy twice as much as the EU and controls the majority of green technology supply chains. About 80 percent of the world's batteries or solar panel components are produced in China. Europe is in a difficult position and must quickly come up with a solution.
At the beginning of this year, the European Commission presented a plan for the development of the European green industry (Green Deal Industrial Plan), and a political debate is currently underway on what strategy the EU should choose. Member states are divided into those who wish for greater relaxation of state aid rules and those who are against it. Similarly, countries are divided on whether the EU should borrow again collectively (as in the case of Covid-19) and establish a new fund to support green industrial production.
The Czech Republic takes a moderate position on both issues. One of the main arguments against excessive relaxation of state aid rules is the fact that this step would disproportionately help large states (Germany, France) and states with low public finance deficits (Denmark, Sweden) and disadvantage those who cannot afford more significant support from the state budget, including the Czech Republic.


Česko ve stínu Polska i Maďarska

On the other hand, countries in the Central and Eastern European region are among those that should be most attentive in the IRA discussion. The Central European region has the potential to become a European hub for the production of green technologies and components. After all, this is evidenced by developments in Poland and Hungary. By combining skilled workers and state incentives, these countries have managed to attract billion-dollar investments in green technology production.
The world's largest battery manufacturer CATL plans to build its second European gigafactory in Hungary (the first is in Germany). Poland is already one of the European leaders in battery production and has experienced rapid development in the heat pump sector in recent years.
In contrast, the Czech Republic lags behind in green technologies. Although we have promising results in research and development of battery technologies, batteries are hardly produced industrially here. Among other things, we are the last of the Visegrad Four countries that do not yet have a gigafactory. Similarly, we lag behind our neighbors in the development of a skilled workforce that could fill green jobs. This is a consequence of the fact that decarbonization has not been a priority for any of the previous governments. It is high time to reconsider this approach, as the future competitiveness of the Czech Republic lies in green technologies.

Táhnout za jeden provaz

The European Union could take inspiration from the United States in this regard. For example, there is currently no EU-wide support for electric vehicles, while in the United States, support operates at both the state and federal levels. However, not all aspects of the Inflation Reduction Act are worth following. The American approach can be characterized by the phrase "all sugar, no whip." For the law to pass through Congress, its regulatory components had to be significantly trimmed.
On the other hand, the EU has a relatively well-set regulatory framework in the form of the Green Deal, but it now needs to be supplemented with appropriate investments. These investments must be directed to strategic sectors (batteries, solar panels, heat pumps), must not favor some member states over others, and must be conditioned on environmental and social guarantees.
In conclusion, it is essential to realize that while healthy competition is a welcome development for decarbonization, a trade war would certainly not benefit climate protection. The fact that the United States will massively support the development of green technologies for the next ten years is ultimately good news. As a result, the prices of these technologies will decrease not only in the United States but also elsewhere in the world. In retrospect, the American Inflation Reduction Act may be considered a turning point in the global effort to reduce emissions.
Author of the text: Kateřina Davidová, CDE
The article was also published on the website.
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