In response to the controversial US deflation law and China’s “unfair” green subsidies, EU executives will loosen state aid rules and propose a new “European Sovereignty Fund” later this year.
A leaked European Commission plan suggests a global green subsidy race is underway, although EU member states differ on how to respond.
EU leaders are due to meet in Brussels next week to discuss the bloc’s response to Joe Biden’s $369bn (£300bn) deflationary legislation, which aims to subsidize the massive expansion of green technology, from renewable energy to electric cars. discuss European leaders say the IRA discriminates against companies exporting to the United States and fear it will lure their companies across the Atlantic, costing them jobs and closing factories in the vital green technology sector.
While European anger against the United States has been most evident, the EU’s plan is also a response to China, which the commission accuses of using “unfair” and “market distortions.”[ing]Subsidy for progress in clean technology production race.
Chinese subsidies “have long been twice as much as EU subsidies relative to GDP.” Europe and its partners must do more to combat the impact of these unfair subsidies and long-term market distortions.
Earlier this month, European Commission President Ursula von der Leyen said the EU was working with Washington to reduce the IRA’s “negative side effects” on Europe, but added: “Even significantly, we face unfair competition in We are the technology sector from China.
The leaked document, first reported by the Financial Times, provides new details about the Commission’s plans to slash the EU’s state aid regime, tough rules that limit government subsidies to industry. Since Russia’s invasion of Ukraine, the commission has twice cut state aid rules to help governments struggling to protect companies from rising energy costs and a weak economy. The Commission wants to extend these flexibilities to help the EU manage the green transition.
Simplified state aid rules that already apply to some renewable technologies will be extended to hydrogen storage and renewable biofuels. Significantly, EU member states can help EU companies that receive matching grants from foreign governments. This is a direct response to fears that Washington is actively luring European companies to leave Europe and manufacture their clean-tech products in the United States.
But the prospect of a relaxed state aid regime – without any other support – has worried smaller southern European governments that lack the financial strength of the EU’s largest member states. These concerns were heightened by recent Commission figures showing that France and Germany together accounted for 77% of all government aid to companies during the coronavirus pandemic. The Italian government has warned that state aid rules should not be a “free-for-all” and called for a common EU fund to help green technology in all member states.
Meanwhile, financial hawks, such as Germany and the Netherlands, argue that the EU has not spent billions of dollars on the green transition in its Covid recovery plans, an €800bn (£703bn) fund financed by joint borrowing. Given that not much money has been spent, they argue that it is premature to talk about a more joint budget.
The leaked paper suggests that the European Commission will propose a European sovereign fund by the summer, but few details remain. The article states that the European Sovereign Rights Fund is intended to maintain “European vanguards in critical and emerging technologies” such as quantum computing, artificial intelligence, biotechnology and clean technology. However, it does not provide any details about the funding or how the fund will be paid.
Elsewhere, the article notes that the EU’s existing Covid recovery plans have made €250 billion available for green measures, including decarbonisation of industry.
But it outlines the scale of the task to phase out fossil fuels from the EU economy, pointing out that €477 billion of extra investment in energy and transport would be needed each year until 2030, above historical average costs.
The EU employers’ union, Business Europe, said in a statement that the Commission had “finally” recognized the need to act to “worse” Europe’s competitiveness.
“The response must simultaneously address the pressures of higher energy and regulatory costs, as well as lengthy licensing procedures, and counter the fiscal drag created by the IRA,” the group added, warning of subsidy competition. If the EU fails to fulfill all these aspects, we will lose even more ground in global competition.
