With its Inflation Reduction Act, the USA is freeing up billions of dollars for the future market. The EU is trying in vain to respond – but Jens Boysen-Hogrefe warns against entering into a subsidy race: “We simply have to accept that we have a locational disadvantage,” says the economist at the Kiel Institute for the World Economy.
ntv.de: With their “Inflation Reduction Act”, the USA is investing a lot of money in combating climate change – but also in the development of future technologies. How should Europe react to this?
Jens Boysen-Hogrefe: We should not get involved in the subsidy race with the USA. If the United States starts promoting and subsidizing climate and energy on a large scale, then we can take grateful note of that. If at some point the solar panels are imported from the USA and not from China as is the case now, that’s not bad either.
Hasn’t dependence on Russian gas proved that we shouldn’t depend on one country for our energy supply?
The gas shortage has also shown that if some industries have to leave the country or have to turn off the lights here, the country will not perish. If we just don’t make certain things here, it’s not a disaster. It would be more efficient to concentrate on the things in which Germany is well positioned as a business location.
What are we not good at?
One example is energy-intensive industry. We just aren’t able to produce much cheap green energy in this country that fast. We don’t have cheap primary energy, we don’t really have solar energy available. Putting solar panels on the roof only makes a small contribution to energy security. Wind energy plays a certain role, but here too we have considerable problems establishing a secure supply quickly.
But you could also accelerate the expansion of renewable energy, right?
No question, but we should note that in Arizona, for example, the solar panels get full sun twelve hours a day. You could do that in southern Spain and maybe parts of Italy, but not in Germany. We just have to accept that we have a locational disadvantage. And why should we fight it? I think that’s extremely inefficient.
If Germany doesn’t enter the future market, wouldn’t the economy in this country suffer massively in 10 or 20 years?
We have not entered any other future markets either. For example, I see genetic engineering. But Germany has said of its own accord that we will not participate. There are also deficits in the digital sector. A second Silicon Valley is not in sight for Germany. That means there are areas in which we no longer play, but we’re still doing pretty well. There are many areas in which Germany is still extremely well positioned and we should not lose sight of them.
Which areas do you mean?
There are many things we can do that help protect the climate. For example in the field of innovation. German mechanical engineering is very innovative and this leads to more efficient machines that save energy. Another topic is CO2 storage, where Wintershall Dea, a German company, is also active. But ultimately the companies will discover the areas themselves if the framework conditions are right, i.e. it is worth avoiding CO2, there are well-trained people and innovations are not hindered too much by regulation.
Wouldn’t it make more strategic sense to position ourselves more broadly in future technologies?
If we absolutely want to produce batteries, then that creates a few 100 or 1000 jobs. Whether the battery is produced here or assembled somewhere else and then lands by ship in Bremerhaven might not make such a big difference.
Wouldn’t we then be dependent on foreign battery manufacturers?
But we are still dependent, even if we make the batteries locally. Because we don’t have the necessary raw materials in Germany. We produce huge amounts of cars, but we don’t have iron ore. This dependency doesn’t seem to be a problem either.
During Corona and especially after the Russian war of aggression in Ukraine, we saw how fatal it can be to be dependent on another country for Germany’s security of supply.
Security of supply is of course essential for medicines and other essential goods. I understand that we don’t want to be completely dependent on international supply chains here. But other things, like solar panels, aren’t a matter of life and death when they arrive a week later.
But it could not be just one week for China. What if, as in the case of Russia, we restrict trade relations with China so severely that we are completely cut off from the solar market, for example?
But the debate isn’t just about China right now. It is also about how Europe wants to position itself in the race for the green transformation compared to the USA. Instead of shutting down, I think it would be much more interesting to set up a free trade zone with the US. In this way we can use the climate policy progress that the USA is making to our advantage. We should just give them this increase in work.
And what if even trade relations with the USA are interrupted at some point? Many people in Germany did not think it possible that there could be such a break with Russia.
If all states seal themselves off, then we will have completely different problems. We will then also not have access to the raw materials that we need for battery production. In the fight against climate change, we don’t need a subsidy race, we need cooperation. Instead of arguing with the Americans now, we should support each other on the way to climate neutrality.
But competition can sometimes lead to faster progress.
Yes, it could be beneficial for the climate – but it will probably be relatively expensive. If we want to counteract climate change while maintaining any kind of prosperity, we need efficiency. A subsidy race with the US is burning wealth.
Can you explain that in more detail? Why does this burn wealth?
We could fuel this subsidy race and hope that we can push the technical development a little faster in this competition. That is possible. But the point is that the same things should be done here as in the USA. In the end, one of the production sites is actually cheaper and the other is only sustained by subsidies. These are funds that are needed elsewhere, for example for the training of engineers.