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The Green Deal Industrial Plan, the Inflation Reduction Act, and what they mean for the UK

GK consultant Milo Boyd takes a look at the significance of both the EU’s Green Industrial Plan and the USA’s Inflation Reduction Act, and assesses what these mean for the UK’s climate competitiveness. 

It’s no secret that the Inflation Reduction Act (IRA) has been framed by the incumbent Democrat administration in the United States as one of their big successes (or failures, depending on who you ask). To make it this far, the Act has battled internal Democrat opposition, as well as big-spending averse, influential Republicans who have sought to rein in spending commitments from central government. Despite this, the IRA has put the US on a path to meet its Nationally Determined Contribution (NDC) as set out in the 2016 Paris Agreement and achieve a 50-52% reduction in its carbon emissions by 2030. Of importance to European nations, the Act also contains provisions to benefit US domestic industries. Fearful of the influence that the IRA could wield over the clean tech and net-zero sectors, the European Commission has recently published its own strategy to avoid European industry marching into the welcoming arms of the US – the Green Deal Industrial Plan.

The net-zero transition, the acceleration of which has been stimulated by the ongoing energy crisis due to the conflict in Ukraine, has resulted in considerable shifts in economic, industrial and geopolitical planning throughout both the UK and the EU. With the release of the Green Industrial Plan, the EU has made clear its intentions as to how it aims to take advantage of the accelerated transition to net-zero and strengthen its industrial footing. Fronted by the EU Commission President Ursula von der Leyen, the Plan confirms that the EU will propose a Net Zero Industry Act, which promises to provide a regulatory framework to enhance the competitiveness of the EU’s low-carbon and net-zero industries, including the provision of tax-breaks for companies that support those ambitions.

The plan aims to build on ongoing initiatives, such as REPowerEU – released in May 2022 – and at its centre provides a more predictable and streamlined regulatory environment for clean teach by loosening the limits on subsidies provided by EU member governments to struggling businesses. The hope by the EU is that this will help ensure that Member States are able to provide more ‘state aid’ to prop up businesses that are lagging behind. The Plan has received mixed responses in EU circles, with some figures going as far as describing the plan as ‘Marx on steroids’, amid fears that the stronger EU economies will be able to spend their way to internal economic dominance, and subsequently influence. As described by Von der Leyen, “the next decades will see the greatest industrial transformation of our times”, clearly setting out how the EU views the scale of the opportunity. Evidently, both the Green Deal Industrial Plan and the Inflation Reduction Act will be cornerstones of decision-making on both sides of the Atlantic, with clear transparent efforts to tempt businesses to invest and take root in each respective economy.

So what do both of these plans mean for the United Kingdom? The UK cannot afford to lag behind and lose out to international big hitters, especially now that green industries are understood to be critically important to the UK economy. Lacking the pure economic firepower of both the EU and the US, it is vital that the UK remains agile enough – Brexit benefit anyone? – to spot opportunities as they emerge and quickly take advantage of them, optimising its regulatory and planning landscape to do so. Restrictive planning policies and a 13-year backlog of grid connections for renewable projects have been the Achilles heel of the UK economy throughout the 2010’s, and to date remain overly drawn out and cumbersome, rightly being identified by the Skidmore Review as some of the UK’s biggest weaknesses. Despite generally performing quite well on low-carbon energy, the UK should prioritise speeding up the planning and consent processes to ensure a steady stream of new green projects in the pipeline. Doing so would encourage external investment into the UK economy and secure the continuation of the UK’s position as a global climate leader.

GK Strategy are experts at helping companies navigate the UK’s changing policy landscape, get in touch with milo@gkstrategy.com for more information.