The US’s Inflation Reduction Act, the package of energy transition-focused incentives passed in the summer of last year, put the country in pole position when it comes to attracting investment dollars into climate technology and infrastructure. Managers of climate-focused capital in the US have hailed the act as being catalytic both for the planet and for their own businesses.
Those with an interest in European climate technology would be forgiven for feeling jealous. As one global GP noted in December last year at PEI Group’s Women in Private Markets Summit in London, the act had “enabled the US to leapfrog Europe and the rest of the world in terms of really advancing and winning in the clean and climate technology space”.
Meanwhile, Russia’s invasion of Ukraine and the year of war that has followed recalibrated European priorities when it comes to energy. The energy transition is, of course, still a critical and urgent priority, but energy security and the continent’s reliance on Russian supplies has become the more immediate concern. “The war in Ukraine and dependence on Russian gas has driven home the need for Europe and UK to think about energy security,” said Deepa Bharadwaj, European head of infrastructure at IFM Investors, at a roundtable event in London last week.
As one global climate investor described it to me this week, European management bandwidth has been absorbed, justifiably, by the need to make sure the continent does not run out of gas.
The EU is responding to the IRA. The European Commission has put forward the Green Deal Industrial Plan (GDIP). According to analysis by Credit Suisse, there is still “considerable uncertainty” as to the size and scope of the GDIP, “not only due to disagreement amongst European leaders but also because Europe has already raised multiple green transition facilities.”
Nevertheless, the bank estimates the total amount that could be mobilised in the EU, “primarily from existing programmes or facilities”, to be anywhere between €419 billion and €755 billion.
“If all the funds are allocated and used, this would place Europe’s potential green investment ahead of the US IRA’s $369 billion subsidy package,” the bank notes. The plan will be reviewed at the next EC meeting towards the end of March, notes Credit Suisse.
Outside the EU, investors in the UK are wondering what similarly dramatic government intervention might look like. Beverley Gower-Jones, who founded Clean Growth Fund, describes how the UK needs a mechanism to enable the uptake of low-carbon clean technologies much faster than would happen by market forces alone.
The Clean Growth Fund is a £101 million ($121 million; €114.7 million) VC fund targeting early-stage cleantech businesses in the UK. Last week, the firm joined up with five other investors, including Bill Gates’ Breakthrough Energy Ventures and Just Climate, to launch the Cleantech for UK initiative. The hope, says Gower-Jones, is that the coalition of investors will speak with a united voice and galvanise a policy response to the IRA.
Is she optimistic that the UK could potentially produce something as transformative? “For the UK to remain competitive, that is what needs to happen,” she says.
Government intervention on a dramatic scale will be fundamental if we are to meet the estimated levels of investment needed to decarbonise at the rate required. The US has started the race; for the good of the planet, let’s hope the rest of the world follows quickly.