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Incentive or prohibition

Two methods divided by an ocean

[This editorial is also available in Ukrainien.]

Europeans are complaining about the adoption by the United States on 16 August 2022 of a vast plan to support the transformation of their industry, the Inflation Reduction Act, which is expected to raise $370 billion. They are right if these measures are to be reserved for domestic production, thus violating global trade rules.

But they should consider the difference in approach between the two sides of the Atlantic.

One side trusts science and industry to succeed in their ecological transformation and is providing them with massive support - the other side favours rules and prohibitions.

Thus, the United States, through tax exemptions amounting to nearly $40 billion and massive subsidies for electric cars or solar-generated electricity, is encouraging companies to make the transition to ecological change by betting on their ability to adapt. They have confidence in research. They believe in the scientific progress that they will make in their applications. They also aim to reduce their deficit by supporting activity.

The European Union, for its part, is constantly increasing its prohibitions. It has banned the manufacture of combustion engine cars from 2035, the use of fertilisers that will cause agricultural production to decline by more than 12%, obliged merchant ships to reduce their emissions by 80% by 2050, even though 77% of its foreign trade depends on them, banned the fluorinated gases that are essential for refrigerators and air conditioners, banned phosmet, which is used all over the world and is the only thing that protects strawberries from the devastating fruit fly, etc.

Taxonomy, this array of politically correct activities in the light of the green and sanctimonious frenzy that has taken hold of Europeans, continues to wreak havoc, with incoherent decisions that contest nuclear power but promote the destruction of forests by encouraging biomass and abruptly turn their backs on fossil fuels by demanding that their price be reduced.

With a plan to spend 0.5% of its GDP, the United States hopes to generate nearly $1.7 trillion in investments in future technologies.

It is true that under the impetus of Thierry Breton and a number of Member State ministers, the European Commission has understood that it is better to encourage and help industrialists to succeed in their transformation than to brutally prohibit them from continuing their activities. Going to the field, meeting with businesses, measuring their needs and implementing support programmes is what it is doing for electronic chips, electric batteries, critical materials, and even shells for Ukraine, by trusting the industrialists and supporting innovation.

But this is still not enough. The responsibility for this lies with the Member States, which are greener in Brussels than in their capitals, but above all with the European Parliament, the "Mr Overkill" of prohibitions! Convinced that they are in the right and that they represent public opinion, our European elected representatives add constraints and obligations to each of their decisions. To reduce the financial impact, they should adopt a rule whereby any new obligation is coupled with incentives. This is the way to make transitions work. Otherwise, Europe risks a deep recession and a lasting decline in living standards.

No one disputes that we need rules to make digital and environmental change a success, but above all we need incentives for a huge research, innovation and investment effort. Public funds are necessary to guide and support research, but we must also trust the players, their creativity and their flexibility.

It is at this price that Europe, which intends to set an example to follow in environmental matters, will succeed in its transformation without risking weighing down its economy to the point of suffocating it.