In response, the EU’s Net-Zero Industry Act and European Critical Raw Materials Act, both part of a Green Deal Industrial Plan and dubbed the ‘EU IRA’, are designed to prevent the bloc falling further behind. The proposed legislation sets a headline benchmark of ensuring that at least 40% of low-carbon technology needs are met by manufacturing within the EU by 2030. What stands out to us is that while the debate rages about whether this is feasible, buried in the documents is an about-turn in the European approach. Recognising the US policy is more carrot than stick, the EU drafts make reference to a largely overlooked framework that offers ‘matching aid’ to companies “where there is a real risk of investments being diverted away from Europe”1 . This ‘Temporary Crisis and Transition Framework’ (TCTF), announced on 9 March, came two days after VW put the brakes on its plans for a European battery plant, citing up to €10bn of tax incentives available in the US over the lifetime of a similar factory.
Without doubt, these strategic dependencies already exist. The Net-Zero Industry Act refers directly to China accounting for 90% of global investments in net zero manufacturing facilities. 3
This remarkable statistic can be traced back to a phenomenally successful Chinese policy decision over a decade ago. On October 10, 2010, China issued the State Council’s Decision to Accelerate the Development of Strategic Emerging Industries, later incorporated into China’s 12th 5-year plan in 2011. In amongst the seven strategic emerging industries are five that the US and Europe are now directly aiming to nurture and protect.4 Fast forward to today, China dominates several environmental technology supply chains, boasting the largest global manufacturers and suppliers of critical components such as batteries and solar PV modules. Having started earlier, China has also built sufficient momentum to relax government support for such sectors. For example, electric vehicle (EV) subsidies introduced in 2010 have been reduced over time and ended completely on 1 January 2023, yet the EV market in China is expected to keep growing.
We see three implications of this changing landscape. The first is that this is further evidence of what we see as a watershed moment where environmental solutions are no longer deemed peripheral, but instead integral, to future economies and markets.
The second implication is that a more protectionist landscape doesn’t signal the start of a slow-down in the rate of growth for environmental solutions in real-world markets. Instead, the US IRA represents a recognition that the pace needs to accelerate dramatically to meet long-term climate goals, and that the enabling technologies and solutions are strategic growth industries in a changing world. In the same way that companies drive competitive forces that accelerate change in market sectors, competition amongst the US, EU and China for leadership in environmental solutions has the potential to give a much-needed boost to the rate of growth across clean energy, green buildings & industry, and green mobility solutions, for example.
The third implication is that there will be winners and losers in this more fragmented – even confrontational – competitive backdrop. Establishing a leading position across the US, EU and Asian markets is becoming more challenging for environmental solutions companies, and so identifying companies positioned to benefit from the opportunities of changing policy landscape, while navigating the risks, is paramount for long-term outperformance.
Thematic investment is an acceptance of, and appetite for, the future to be different to the past. By capturing structural growth opportunities through economic cycles, thematic investing provides investors with an opportunity to generate above-market returns over the long-term. While the structural growth opportunity is accelerating, so too is its complexity, placing specialist active managers at an advantage.
2 EUR-Lex – 52023PC0161 – EN – EUR-Lex (europa.eu)
3 Factsheet: Net Zero Industry Act (europa.eu)
4 USCBC Recommendations on China’s Strategic Emerging Industries (uschina.org). The seven strategic emerging industries were: (1) new-generation information technology, (2) energy-saving and environment protection, (3) new energy, (4) life science, (5) high-end equipment manufacturing, (6) new materials, and (7) new-energy cars.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.