Private sector players in the United States and Europe, as well as in Asia and the rest of the world, are also embarking on their own investment campaigns in the clean energy space, and stand to have an equally significant impact on the sector. — Reuters
GOVERNMENTS across the world are doling out billions of dollars worth of investments and subsidies to help accelerate the energy transition, reduce energy costs for consumers, and spur innovation in fuels and power-sector technologies.
But while all authorities are spending big in the energy space in general, there are important differences in where key governments are focusing their funds, most starkly between the United States and the governments of Europe.
Both regions have shared aspirations in terms of emissions reduction goals, but have so far taken vastly different funding approaches that have potentially significant implications for the pace of energy sector decarbonisation efforts and the emergence of future industry champions.
Private sector players in the United States and Europe, as well as in Asia and the rest of the world, are also embarking on their own investment campaigns in the clean energy space, and stand to have an equally significant impact on the sector.
But in all regions, corporations rely on the government to provide critical funding in areas such as early-stage research and development, and in helping to set key goals for industries that can make or break individual companies.
As such, the scale and trajectory of government support in the clean energy space is of critical importance in all major economies.
US: Spurring change
Fuelled in large part by the Inflation Reduction Act (IRA) of 2022, the United States has the world’s largest government-funded war chest, estimated at US$560bil (RM2.6 trillion) by the International Energy Agency (IEA), to be deployed on energy transition and energy efficiency measures.
More than US$210bil or RM973.4bil (37.6% of total) is earmarked for the development of low-carbon electricity and related efforts to aid the power sector’s switch away from fossil fuels.
Companies engaged in the production of renewable energy equipment, in the deployment of clean energy supplies, and in the switching out of fossil fuel power for renewable systems are also eligible for tax breaks and other incentives.
An additional US$140bil or RM648.9bil (25%) is tied to reducing the carbon footprint of the country’s transportation systems, including US$66bil (RM305.9bil) for high-speed rail systems and around US$40bil or RM185.4bil) in grants for public transport system upgrades.
Subsidies are also available for manufacturers of electric vehicles and batteries, and US consumers can qualify for tax credits for electric vehicle purchases.
Nearly US$80bil or RM370.8bil (14%) is available for the development of clean fuels and for innovation in fuel technology, with the intention of creating a virtuous circle of production and consumption of green energy products within the United States.
Europe: Shielding consumers
While the United States is deploying over 60% of its government funding on low-carbon electricity and transport system overhauls, energy affordability has been by far the single largest focus of government spending in Europe.
Germany, Europe’s largest economy, has the largest government spending total in the region (US$339bil or RM1.6 trillion), and has earmarked over US$240bil or RM1.1 trillion (72.6% of total) for an array of energy affordability measures.
Price caps on electricity and heating costs, capital injections into ailing utilities, and relief packages for cash-strapped households and businesses shell shocked by the surge in power costs account for nearly three quarters of the government spending on clean energy seen so far, IEA data shows.
France, Britain, Poland, Czechia, Croatia, Finland, Portugal and Greece, among others, have also spent over half of all clean energy related government spending on affordability measures.
Low carbon and efficient transport accounts for the next largest share of government spending in Europe (around 21%), followed by energy efficient buildings (14%), according to the IEA’s data.
Asia: Seeking balance
Major Asian nations including China, Japan and India are also spending heavily on energy affordability measures, which have so far accounted for roughly 50% of the region’s government spending in the clean energy and energy efficiency areas.
However, Asian governments are also deploying major funding on low carbon electricity (roughly 16% of total spending), low carbon transport (around 12%) and on electricity network upgrades and expansions (7%), in an effort to develop positive momentum among carbon reduction and green energy supply efforts.
Several nations across Africa, Latin America and the Middle East have split spending allocations in a similar way.
However, as with most European nations, the heavy price tag associated with energy affordability measures means there is less funding available to be deployed on other areas associated with accelerating the energy transition.
That means that the United States’ higher levels of government spending on low carbon electricity generation and transportation compared to other major economies may enable the country to build up development leads in those areas, and in time give the United States a competitive advantage over other nations as those investments bear fruit. — Reuters
Gavin Maguire is a columnist for Reuters. The views expressed here are the writer’s own.
