This week, the EU announced that it will allow its members to “match” subsidies offered by the US government to entice green tech companies to move to the US. This move, which runs contrary to longstanding EU policy against state aid, is the most direct sign yet that the EU intends to engage in a direct subsidies race with the US.
The EU is expected to announce greater green tech funding programs throughout the year in competition with the US’s Inflation Reduction Act, a prospect that has pleased some as money will be pouring into green sectors, but concerned others who worry competing subsidies programs have the potential to harm as much as they help.
The UK has responded to intense pressure to implement similar measures by promising to invest £20bn in carbon capture in this spring’s budget. These current pledges, however, are a drop in the bucket compared to what is being offered on the Continent and across the Atlantic, leaving many worried that UK green business will lose out, or worse still, abandon the country entirely.
Observers will be keenly watching the new programs the EU and US announce, given the resulting policies could represent a titanic shift in the financial world and the net zero transition as a whole.
Verra, the world’s largest and most prominent provider of carbon credits, has announced it will “phase out” its rainforest offset scheme by 2025 after an investigation by several major newspapers found more than 90% of these credits “do not represent genuine carbon reductions”.
Carbon credits, provided by companies like Verra, are purchased by large companies in order to meet their net zero goals. In theory, these purchases fund environmentally positive projects to offset carbon emitted by a company in its commercial activities. But in practice, despite some positive projects there have been many prominent examples where these schemes have been shown to be misleading, fundamentally flawed, or, at worst, fraudulent.
Qatar’s 2022 World Cup bid was advertised as being ‘climate neutral’ based on substantial purchases of carbon credits, which experts called “deeply misguided and dangerous” given their limited tangibly positive effects on the climate. While new research shows that offset fraud is less common than is often assumed, investors should be mindful that there are few ‘silver bullet’ alternatives to emissions reductions.
The British and Canadian governments signed an important agreement to improve cooperation on critical minerals and secure supply lines vital for green technology and sustainable development.
According to a UK government press release “critical minerals such as cobalt and lithium that are essential to the economy and used in almost all modern and green technologies, from solar panels to electric vehicles…[The agreement] will help make UK manufacturers of cutting-edge technologies more resilient to global shocks by promoting research and development between UK and Canadian businesses”
Importantly, the agreement commits both Canada and the UK to shared ESG standards throughout their supply chains.
News broke last week that the EU and US are seeking a similar deal on critical minerals, an interesting development in their ongoing competition for green technology.
Investors have begun to highlight the vital need for further government support for and investment in mining, which they argue is essential to the net zero transition. The Investor Commission on Mining 2030 led by the Church of England pension board has sought to be an advocate for this investment, as well as a leader in terms of improving people and nature positive standards within the sector. Ultimately, both private and government interventions will be vital in ensuring these critical minerals are secured.
On Friday, the Silicon Valley Bank (SVB) became the second largest US bank failure since the 2008 financial crisis, causing knock-on effects throughout the financial world and calling the health of the global economy into question. The bank faced a systemic liquidity crisis after the value of government bonds, of which it had substantial holdings, faltered among rising interest rates and concerns that the US may default on its loans.
Many have speculated that the US government will be forced to intervene after it failed to find a buyer for the bank and its assets. As of this Monday, HSBC announced that it will take on SVB’s UK arm, absorbing what was once a titan of the industry for the nominal price of £1. In a speech on Monday, Biden warned that banks, not the taxpayer, will be forced to foot the bill for customer accounts to be paid out in full.
In addition to its economic effects, observers have worried that the bank’s collapse will have a significant impact on green tech. The bank had issued billions of loans to around 1,500 companies working in renewable energy, according to the New York Times. It was instrumental in giving funding to smaller scale community clean power projects. The bank’s collapse calls into question whether many, or any of these companies and local projects will grow to maturity.
SVB’s collapse could potentially have broad implications for the net zero transition globally and in the US specifically, where private and public investment is predicted to spur an explosion of clean energy projects in the next decade.