Biden's nuclear bombshell leaves Europe in dust

European leaders have devoted tens of billions of dollars toward encouraging production of hydrogen, a clean-burning fuel that advocates say will create jobs and help fight climate change.

But now, many of those jobs will be going to the United States instead.

The clean energy subsidies that undergird President Joe Biden’s climate agenda have just prompted one Norwegian manufacturer to choose Michigan, not Europe, as the site of a nearly $500 million factory that will produce the equipment needed to extract hydrogen from water. And other European-based companies are being tempted to follow suit, people involved in the continent’s hydrogen efforts say — making the universe’s most abundant substance the latest focus of the transatlantic trade battle on green energy.

The Norwegian firm, Nel, announced its decision in May, nine months after Congress approved Biden’s flagship climate law, the Inflation Reduction Act. The move takes 500 new jobs to the other side of the Atlantic, despite the European Union’s efforts to position itself as the obvious place for clean tech investment.

Gas grab riles Europeans

“There’s not one single driver behind the decision to put it in the U.S.,” Nel CEO Håkon Volldal told POLITICO, pointing to the benefit of being close to customers and partners like General Motors, as well as the financial benefits of the IRA, the Biden-era CHIPS and Science Act that provides funding for technology development, and Michigan’s own grants for green tech.

“If you take the IRA and the CHIPS Act together, we’re talking about more than $400 billion,” Volldal said. “On top of that, you have subsidies for renewable power and so on. Europe is dwarfed by the numbers we see in the U.S.”

The global hydrogen industry was valued at more than $155 billion last year, and the EU plans to produce and import a total of 20 million tons of renewable hydrogen a year by 2030. Supporters say this will help replace natural gas, powering vehicles and generating electricity.

Now, though, the U.S. has its sights set on overtaking Europe when it comes to both hydrogen and the electrolyzers that extract it. The IRA introduced a $3-per-kilogram subsidy for green hydrogen and tens of billions of dollars in loans and other incentives for international investors to put money into the industry.

“A year ago, the EU clearly had the yellow jersey,” Volldal said, referring to the garment that the fastest cyclist wears in the Tour de France. “Now the U.S. has it.”

Jorgo Chatzimarkakis agrees. As the CEO of Hydrogen Europe, he’s one of the continent’s most influential lobbyists, having helped secure industry handouts worth billions of dollars. “We have a very robust framework in the EU, but we fail to attract our own companies because it’s all too complex,” he said. “We have ambitious targets, but we don’t have simple and efficient instruments to incentivize businesses.

“In their typical bureaucratic way, the Europeans will kill this business,” Chatzimarkakis said.

That leaves those who’ve helped launch the industry at risk of losing out, Chatzimarkakis added.

“Dung beetles spend hours rolling up balls of dung to attract females,” he said. “But there are some very smart dung beetles that just sit by the side and watch while others do hard work. Then they shoot in, take the dung ball, take the girl and run away with everything. That’s Joe Biden.”

Revving up subsidies in Michigan

Michigan wants to cement its growing reputation as a home for the hydrogen industry, hoping that the U.S. Department of Energy will designate it as one of four hydrogen development hubs in the country. That would make it eligible for even more money in the form of federal grants.

Luring Nel is a major early coup. The company is one of Europe’s largest manufacturers of electrolyzers for hydrogen production, and its Michigan gigafactory will be one of the largest in the world.

“Hydrogen is one of the fuels for the future,” Rep. Debbie Dingell, a Michigan Democrat who has worked with Gov. Gretchen Whitmer to bring in green investment, said in an interview. “We want to locate all kinds of different alternative technologies here.”

The White House has spent months responding to European criticism that its landmark energy policy is unfairly stealing business from U.S. allies on the continent. The administration counters that flooding the market with U.S. government funding is increasing the odds of success for companies on both sides of the Atlantic.

The IRA “benefits both the United States and our partners and allies, contributing to the advancement of the clean energy sector globally and presenting significant opportunities for our partners,” a spokesperson for the White House National Security Council said in a statement. “We continue to listen to our partners’ perspectives ... and are turning the IRA into a source of economic growth and partnership.”

The spokesperson was granted anonymity to comment candidly on diplomatic relations.

The scale of the competition is now becoming clear. A senior European Commission official who has worked closely on the bloc’s hydrogen industry incentives policy, granted anonymity to speak openly, acknowledged that Michigan and other U.S. states are becoming an attractive prospect for firms. “The IRA has a tool we don’t have — tax credits.”

In Europe, the official added, businesses have to go through a “tendering process” in which government agencies assess companies’ proposals on their merits, with separate pots of money available for national and EU-level funds. But to get U.S. subsidies, “they just have to meet certain requirements. That’s attractive for industry.”

However, the official insisted Brussels isn’t worried about losing jobs to the U.S. just yet. The EU is making €800 million in funding available for a pilot auction under its Hydrogen Bank scheme to help subsidize the cost of producing the gas, while a range of other incentives exists to kickstart the industry and more are still being planned, the official said. “If the market is here, people will be here.”

America first

Mona Dajani, global head of the renewable energy deals at the law firm Shearman and Sterling, said that after the passage of the IRA, countries from Europe, Asia and the Middle East are investing in clean energy projects in the U.S. at a rate she’s not seen in her 25 years in the practice.

“The U.S. is now leading the way” in overall clean tech investment, she said in an interview, echoing the Nel CEO’s assessment. On a recent business trip to Europe, she went on, it was apparent that “not everyone is happy” about that perception.

“There are certain areas they are determined to lead in the clean tech revolution,” Dajani said of European leaders. “They’re very much ahead of us with hydrogen. ... The problem is at the end of the day, the U.S. is offering massive subsidies to firms based in the U.S. These subsidies are spurring investments in the country, which will disadvantage companies based in Europe.”

Nel is “the first of many we are going to see,” said Brett Perlman, chief executive of the Center for Houston’s Future, a group focused on making the sunny Gulf Coast city a hub for green hydrogen production.

“The IRA set the bar higher for Europe to think about how they can up their own ambition. It’s having this effect where it’s the U.S. spurring Europe,” he said.

But David Hart, a professor of public policy at George Mason University, believes that the pressure to bring in businesses is good for industry as a whole. “There is a competition between the U.S. and Europe for clean energy investment. Some people would view it as a race to the bottom. I view it as a race to the top.”

Hydrogen, he explains, is not as easy to transport as fossil gas, so there are limits to how much the U.S. can strengthen its hand as a future exporter. That means there will always be a commercial case for the fuel to be made in Europe as well.

Complaints from Brussels that the U.S. is stealing the industry away with larger incentives than the EU can manage are “junk rhetoric,” insists Pavel Molchanov, a Houston-based managing director and equity research analyst for the investment bank Raymond James. “If European governments want to have more green hydrogen, write more checks.”

That’s unfair to those who led the way in creating this industry, said Chatzimarkakis, the Hydrogen Europe CEO. “As Europeans, we started it, and it was hard work,” he insisted.

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By: Gabriel Gavin and Ben Lefebvre
Title: Biden’s hydrogen bombshell leaves Europe in the dust
Sourced From: www.politico.com/news/2023/07/05/biden-hydrogen-europe-00104024
Published Date: Wed, 05 Jul 2023 03:30:00 EST

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