EU presents new industrial plan to counter American green subsidies and prevent talent drain

Fearing a devastating business exodus across the Atlantic Ocean, the European Commission on Wednesday unveiled latest plans to spice up the European Union’s homegrown green industry and counter the generous tax credits and rebates of Joe Biden’s $369-billion Inflation Reduction Act.

The plans are an intricate combination of simpler rules for subsidies, re-purposed EU funds, faster permitting for renewable projects, common production targets, trade deals and upskilling which, put together, are supposed to strengthen the bloc’s attractiveness for investment and manufacturing.

The last word goal is to maintain European firms in Europe and forestall the continent’s leading green innovators from fleeing abroad in quest of greater industrial prospects.

“Within the fight against climate change, what’s most vital is the net-zero industry. We would like to seize this moment,” said European Commission President Ursula von der Leyen, while presenting the strategy on Wednesday afternoon.

“We’re competitive. We’d like competition.”

‘Stay here and prosper here’

Dubbed the “Green Deal Industrial Plan,” the strategy is an initial pitch that might be discussed by EU leaders at next week’s summit, where it’s poised to face strong resistance from a big selection of nations that worry the loosening of state aid will spark an unchecked and dear subsidies race across the bloc and undermine fair competition.

Such fears increased last month after the European Commission revealed that, since tweaking the state aid rules in March 2022 to assist member states address the fallout from the Ukraine war, Germany and France have amassed almost 80% of the €672 billion in approved support.

Germany alone accounted for 53% of all extraordinary aid approved by the Commission – or about €356 billion.

The brand new amendment to state aid rules – the third in three years – will last until the tip of 2025 and encompass six primary areas within the renewable energy sector: batteries, solar panels, wind turbines, heat pumps, electrolysers to provide hydrogen, carbon capture technology and important raw materials.

The six areas are almost copy-pasted from the Inflation Reduction Act.

“We would like this industry to remain here and to prosper here,” von der Leyen said, noting member states that can’t afford subsidies can offer tax breaks instead.

Despite growing speculation, Brussels didn’t propose latest sources of funding, something that might require a unanimous agreement between the 27 member states to issue fresh EU debt.

As an alternative, the manager intends to re-purpose funds already earmarked to other portfolios, including the €225 billion of low-interest loans left unused within the €750-billion coronavirus recovery package.

“We’d like this primary step of funding now, so we cannot wait too long,” von der Leyen said. “We’d like a bridging solution to future other financing instruments.”

In the long term, the European Commission will explore the potential of establishing a so-called “European Sovereignty Fund” to collectively finance projects on critical and emerging technologies.

Von der Leyen said the sovereignty fund, which in the meanwhile stays vague in scope and size, will provide a “structural answer” to the expensive undertaking of paying for the green transition.

Her plans, nevertheless, admit public money is not going to be enough to “close the investment-gap needs” and the good a part of the responsibility will fall onto the private sector.

State aid is ‘not innocent’

Although von der Leyen was careful enough to name-check other international competitors like Japan, India, the UK and Canada, a dark shadow loomed over Wednesday’s presentation: the Inflation Reduction Act (IRA) promoted by US President Joe Biden.

Over the subsequent ten years, the IRA will dole out as much as $369 billion in tax credits and direct rebates to assist firms scale up the production of green, cutting-edge technology – but provided that these products are predominantly manufactured in North America.

The EU considers this provision as discriminatory, unfair and illegal, and has asked Washington to broaden the law’s interpretation with a view to make European firms eligible for the advantages.

However the concessions have been very limited, pushing policymakers right into a rushed effort to design a forceful response to compete against the IRA before the talent drain kicks in.

The bloc’s ongoing energy crisis, which has put factories under immense financial stress, has further fuelled fears of an irreparable lack of competitiveness.

This ominous environment explains why the specter of relocation is on the very centre of the European Commission’s industrial plan.

In what’s arguably essentially the most notable change, the manager proposes a provision to permit governments to match the state aid offered by bidders from non-EU countries.

For instance, if a German company is obtainable $1 billion to construct a battery plant in Latest York, Germany might be allowed to match this offer with public money to maintain the investment contained in the bloc.

Although this “matching aid” provision will include strings attached, it nevertheless represents a “far-reaching” tweak that poses a “serious risk” to the integrity of the one market, said Margrethe Vestager, the European Commission’s Executive Vice President answerable for competition policy.

“Those risks aren’t temporary. Because not all countries have the identical capability to match aid,” Vestager said, referring to the Franco-German dominance of state aid.

“Using state aid to determine mass production and to match foreign subsidies is something latest. And it isn’t innocent.”

“At the tip of the day,” she went on, “state aid is a transfer of cash from taxpayers to shareholders. And it only is sensible if the society as an entire advantages from the help granted.”

The plans are still not final: the European Commission will use the feedback it receives from member states to construct a final version of the commercial strategy, including the brand new state aid framework.

Countries like Italy, Finland, Denmark, Sweden, the Netherlands, Austria, the Czech Republic and Poland have already cautioned against further relaxing the foundations that govern subsidies, that are the exclusive competence of the European Commission.

Each von der Leyen and Vestager insisted the changes might be “targeted” and “time-limited,” concluding in December 2025, even when previous state aid frameworks were prolonged several times up to now.

But fears of a subsidy race remain in place, said Niclas Poitiers, a research fellow on the Bruegel think tank, since the European Commission did not propose latest sources of common funding that smaller and poorer member states could use to offset the state aid injections from greater competitors.

“Larger and richer EU countries might be way more capable of use such latest leeway, to the drawback of the poorer ones,” Poitiers said in an announcement.

“By constructing its strategy on national subsidy schemes, this proposal fails to create a more coordinated European industrial strategy and risk pitching national governments against one another.”


Please enter your comment!
Please enter your name here