what is the price of the maxi subsidies of Biden-Corriere.it

The announcement arrived seven days ago, almost clandestine in Italy but with great emphasis in the United States. It brought with it euphoric statements from Joe Biden from the White House and Native American leaders of the Cherokee Nation and the Creek Nation. It was about the United States, but an Italian company: Enel will build a plant for the production of photovoltaic panels in Inola, Oklahoma with an investment of over one billion dollars. By way of comparison, the sister project in Catania is a $700 million investment. But that of Oklahoma – says last Monday’s statement – “includes the potential” for a doubling. The one in Sicily, for the moment, no. What happens?

A world made up of industrial policies, dirigisme, subsidies, duties and preferential treatments

What I’ve been trying to tell you since the beginning of this newsletter almost a year ago happens: the world is changing. We have emerged from thirty years of globalization based on the principles of the free market and open borders. We have entered an international system where concerns of energy security, internal social stability and strategic rivalry with the world’s emerging autocracies determine industrial policies. It is no coincidence that the most important economic policy speech of the Biden administration was recently delivered by Jake Sullivan, who is national security adviser in the White House, and not by Treasury secretary Janet Yellen. Sullivan explained that for America today the market and free trade are no longer goals in themselves; they are means that can be subordinated to priorities of security, employment of the lower and middle classes, as well as priorities of energy and technological independence from China or other autocracies. We are therefore in a world made of industrial policies, dirigisme, subsidies, duties and preferential treatments. We are in a world, potentially and in the future, of higher taxes. But for now a world in which the United States and the European Union have all but negotiated a trade “truce” agreement: each of the two parties accepts and in part takes advantage of the other’s subsidies, without engaging in trade wars that would harm the strategic priorities of both. But we will see this in more detail shortly.

The Enel case: from Catania to Inola

First we need to explain what is happening in the most emblematic case today, that of Enel. The photovoltaic panel plant in Catania is actually an assembly center for polysilicon cells and wafers imported from Chinawhich still dominates the world market both in the treatment of raw materials and in the production of components (China ensures the refining of 81% of the world’s polysilicon and produces 78% of cells, according to the OECD). Catania’s 700 million dollar (650 million euro) investment will be paid for a third with mainly European subsidies, partly by the Innovation Fund and partly by the National Recovery and Resilience Plan (Pnrr). Thus Catania’s photovoltaic capacity is multiplied by 15, to the point of assembling panels capable of producing three gigawatts of electricity per year. After all, it makes sense. The pandemic and the trauma of the Ukrainian war seem to have profoundly changed the psyche of Italians, as regards the need for energy autonomy. In Italy, Enel received and secured 50,000 requests for connection to the electricity grid from households and small businesses equipped with photovoltaics in 2021 and as many as 200,000 in 2022; in the first three months of this year, the required connections are already three times as many as a year ago and it is expected that by the end of the year they will be ten times more than two years ago.

But if this seems like a lot to you, you haven’t counted on Oklahoma: it starts on a similar size to Catania but, in fact, seems destined to double. Here the subsidy even covers half the costs, over half a billion dollars and that is almost three times what Enel had managed to obtain in an impoverished region of Europe like Sicily. If the American plant goes towards doubling, the public subsidy will be equal to five or six times what the Italian publicly controlled company has obtained so far in its own country. The reason can be explained in three words: Inflation Reduction Actthe tax credit plan potentially worth over a trillion dollars (it does not have a pre-set spending limit) with which Biden intends to subsidize the birth of a clean technology industry in the United States.

US discounts to green companies and energy agreements

Those who invest in the production of batteries, electric cars, photovoltaic panels, wind turbines, clean hydrogen and similar devices, have tax credits for 40% of its costs. In addition, Oklahoma competed with Vermont for who would pay the most to attract Enel. And he won. Without even the company having to take the trouble to obtain authorization from the American competition authorities. Such a large number of subsidies allowed has also rapidly distorted Brussels’ policies against state aid, because dozens of large European companies want to follow Enel’s example. A new “interim framework” from last March authorizes the governments of the European Union to directly subsidize the production of technologies to generate clean energy – as long as they are cutting edge – and even to offer what America offers, if a company is tempted to relocate to the other side of the Atlantic. With the new regulations, Enel would have extracted much more aid, including for Catania. But above all the Europeans and Americans – they explain to me – seem very close to an agreement to avoid waging industrial warfare with subsidies. The Americans would offer two significant concessions: batteries or strategic raw materials produced in Europe would be eligible for aid from the Inflation Reduction Act, when European components enter US assembly supply chainsthe; moreover, in the future American green hydrogen – a “virtuous” substitute for gas – could be exported to Europe at the same very low prices charged in the United States. It would mean being able to produce steel, fertilizers or chemicals in Europe without polluting and at competitive costs.

What the White House wants

It is not clear what the White House is asking in exchange for all this, but imaginable: not only Brussels’ commitment not to report Washington to the World Trade Organization for its anti-competitive practices; nor just the waiver of tariffs against American products. There probably will be pressure from Biden for Europeans to follow him also in the policies of technological discrimination against China. But above all Americans and Europeans now no longer want to depend on Beijing for the components of green technologies, such as, for example, the wafers and cells of the photovoltaic panels that Enel will assemble in Sicily and Oklahoma. Westerners want to move upstream in the Clean Tech value chains. But for this we need control of strategic raw materials, bypassing the great Chinese monopolist. And indeed we are witnessing one shower of trade deals to this end, in these months: the Americans with the Australians (on lithium) and with the Japanese; the Europeans with the Chileans (always on lithium) and soon with the Australians; and the Australians and the Japanese to each other. The world is changing fast. The industrial, technological and energy flow landscape. Fasten your seatbelts. And we keep our eyes peeled.

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