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In the global race for green subsidies, the UK prefers slow and steady

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The question of how Britain will respond to President Biden’s Inflation Reduction Act, the landmark $369 billion law providing large subsidies for green investments, has followed Jeremy Hunt, the British finance minister, for most of from last year.

Mr Hunt urged patience and promised a response when he updates the country’s budget in a few weeks. But as that speech approached, expectations that he would offer anything as generous as American largesse were dashed.

Britain, which faces tight budget constraints, will not have a “subsidy bowl” like the United States, Mr Hunt said last month. Regardless of the economic cost, British officials say they prefer a more liberal approach, but offer some subsidies on a case-by-case basis or in the form of grants for which companies can compete. They also argue that Britain and other countries will ultimately benefit from technological advances supported by American subsidies.

This laissez-faire attitude does not please everyone. Economists and business groups have warned that the government’s approach is too unpredictable, too complex to manage and leaves Britain at risk of missing out on potentially huge economic gains in the global race to reduce carbon emissions.

Providing grants on a case-by-case basis can put the government at risk of being exploited by businesses, said Mariana Mazzucato, professor of economics of innovation and public value at University College London.

Last month, the government announced it would contribute 500 million pounds ($606 million) to Tata Steel’s plan to reduce emissions from the giant Port Talbot plant, months after offering, reportedly the same amount to its parent company, Tata Group, to build an electric car battery factory in Britain.

These individual deals are “parasitic” and extract value from the public sector, Professor Mazzucato said, not “symbiotic deals” that would be “good for people, planet and profit”. These are examples of “grants without vision,” she added.

Inflation Reduction Act subsidies aim not only to address the climate challenge, but also to create jobs and grow the economy by conditioning many tax credits on domestic production, for example of vehicles electric or hydrogen energy. But the legislation was also praised for bringing together a large and ambitious program with relatively clear eligibility requirements for funding.

Outside the United States, the Inflation Reduction Act is considered both a blessing and a curse. While some governments applaud America’s spending spree on green energy and technology, they have a nervous eye on the businesses, money and jobs it could siphon away from their countries. The legislation has rapidly changed the global green investment landscape, as other governments, including the European Union, develop incentives.

Great Britain finds its place in this new race. It is now widely accepted that the country cannot compete with the scale of U.S. subsidies, which could ultimately exceed $1 trillion, according to some estimates.

Britain’s response to the Inflation Reduction Act will be “ongoing and appropriate”, a Treasury spokesperson said, adding that the government would “continue to monitor” the impact of the legislation.

“The UK has a world-leading track record of decarbonisation through early investment in green industries and a strong and attractive business environment, putting us in a good position to capitalize on opportunities and mitigate the risks presented by the IRA,” the report said. the spokesperson said.

Britain was the first major economy to enshrine in law its target of reaching net zero greenhouse gas emissions by 2050. And in recent years the government has published a series of policy documents in support of net zero emissions, including those for hydrogen. sector and transport, and created organizations capable of providing financial support to businesses, including the UK Infrastructure Bank.

But recently, many believe that Britain has abandoned its ecological commitments. “The UK has lost its global leadership on climate,” the Climate Change Committee, an independent body that advises the government, said this summer. This sentiment was reinforced last month when Mr Sunak announced a rollback of some net zero targets. Ahead of next year’s election, Mr Sunak justified the changes, citing the cost of the plans to consumers.

“The government has done a great job of making exciting announcements, putting in place a million strategies, but that’s part of the problem,” said Sarah Mackintosh, director of Cleantech for UK, a pressure group set up partly in response to the fact that the Inflation Reduction Act encourages investment to be shifted to the United States. “There really isn’t a clear delivery plan.”

And recent changes, such as delaying the ban on sales of petrol and diesel cars, are “just an inconsistency that investors then have to deal with”, Ms Mackintosh said.

The Inflation Reduction Act has reignited debate about the benefits of an industrial strategy in which governments actively seek to shape an economy. Make UK, a trade group which represents manufacturers, said the lack of a “proper, planned industrial strategy is the UK’s Achilles heel”.

It is one of the dividing lines between Britain’s two largest political parties ahead of elections due next year. The opposition Labor Party has outlined an industrial strategy, one of the things that first attracted business leaders to the party’s annual conference this month.

Some investors, however, approved of the government’s moderate approach to subsidies.

“The U.K. has probably been pretty smart, pretty smart, in not promising huge tax cuts across the economy,” said Ian Simm, founder of Impax Asset Management, an investment-focused investor. sustainable development with $50 billion under management. This “presents the potential for inefficiency and waste, which I think the United States faces, to some extent, with the IRA.”

Britain has shown that the doors are open to international companies wanting to invest, Mr. Simm said, and case-by-case analysis determines what might work. This is a smarter approach, he added, as UK debt levels are at their highest since the 1960s and the government faces a cost of living crisis made worse by stubbornly high inflation.

Dan Wells, partner at Foresight Group, an alternative investment firm focused on decarbonization with around $15 billion under management, also said the case-by-case approach suited Britain and it was better that the country focuses on a few specific areas. .

“It’s pragmatic, it’s British – not too flashy,” Mr Wells said.

Still, “it would be much more helpful if the government had positive intent and language” regarding its commitment to net zero targets, he said.

Although the Inflation Reduction Act and another major U.S. spending plan, the CHIPS Act, are only about a year old, there is evidence that they are successful in attracting investment to the United States.

This year, Cambridge-based Pragmatic Semiconductor created an entity in the United States, attracted by the CHIPS Act. Johnson Matthey, a British company that invests in hydrogen, said it was seeking to take advantage of the inflation reduction law. And Drax, a power producer, suspended a multibillion-dollar investment in carbon capture in Britain, and then highlighted in its filings the opportunities created by the Inflation Reduction Act.

The risk of departure is a subject which particularly worries Great Britain. This year Mr Hunt commissioned a study into how to attract foreign direct investment. The study follows some high-profile moves by British companies, such as pharmaceutical giant AstraZeneca’s plan to build a factory in Ireland and chip designer Arm’s decision to publicly list its shares in New York.

The hydrogen industry is particularly concerned. Britain was one of the first countries to commit to increasing production of the alternative energy and set ambitious targets, but it has stagnated, said Clare Jackson, chief executive of Hydrogen UK, a group industrial. And then the United States stepped in with generous subsidies and tax credits, prompting other countries, like Canada and the European Union, to enter the race. Today, she says, some companies are focusing on the United States or abandoning priority to British projects.

This race is “ours to lose,” she added. “But if we don’t react, if we don’t act fast enough, we will lose it.”

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nytimes

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