EU unveils green investment plan to compete with US and China

The European Union unveiled a roadmap for how it plans to keep its industries competitive as the bloc tries to catch up with the US and China, which offer huge subsidies to domestic green technologies.

The European Commission wants to use its Green Deal Industrial Plan to boost national support for companies through investment aid and tax credits, while also tapping into common European funds to underwrite important projects involving sectors such as hydrogen and quantum computing, according to the proposal presented on Wednesday.

The plan, which the EU’s 27 leaders will discuss next week, is a response to US president Joe Biden’s Inflation Reduction Act (IRA), which includes roughly $500 billion (€459 billion) in new spending and tax breaks over a decade. The commission plan has received a mixed reception in the bloc, with some concerned that the subsidies will only help richer countries such as Germany, which have the fiscal capacity to invest in domestic firms.

[ Ireland one of seven EU countries to oppose new EU response to US green subsidy plan ]

“We have a once-in-a-generation opportunity to show the way with speed, ambition and a sense of purpose to secure the EU’s industrial lead in the fast-growing net-zero technology sector, commission president Ursula von der Leyen said in a statement.

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European leaders are concerned that the subsidies offered in the US green package will not only make European companies uncompetitive, but also lure investments to the US. Earlier this month Belgian prime minister Alexander De Croo accused the US of trying to lure green industries across the Atlantic.

“They are calling Belgian firms, German firms in a very aggressive way to say, don’t invest in Europe, we have something better,” he said.

In a move that may upset smaller countries, the commission, the EU’s executive arm, isn’t planning on raising new financing in the package as there is already more than €380 billion of joint funds committed for the green transition up to 2030.

Instead, they’ll seek to simplify regulations, speed up permits and focus on cross-border projects, according to the proposal. The plan also calls for a further loosening of state-aid rules that limit national subsidies to maintain a level playing field in the EU’s internal market.

In a letter sent late last week the Republic joined six other member states to oppose new funding for green industry, rejecting this as a way to help the union compete with IRA subsidies. In a letter to EU trade chief Valdis Dombrovskis, Minister for Finance Michael McGrath joined counterparts from Austria, the Czech Republic, Denmark, Estonia, Finland and Slovakia to rebuff the plans.

The letter warned that subsidies endanger the “level playing field” of the single market by leading to harmful subsidy competitions between individual member states, as well as being detrimental to public finances.

German economy minister Robert Habeck said on Wednesday that the state aid procedures need to be accelerated. “It should not take two or three years; it must be completed within six months, at the longest,” he told reporters, adding that it was also important that the funds can be used to boost production of clean energy technology.

Some member states including Italy and Spain have warned against easing state-aid rules, which they say would favour larger nations such as Germany and France. These two countries, the EU’s two largest economies, already benefited the most after the commission eased existing rules to help firms grapple with high energy costs.

[ Davos Diary: EU and US at odds over green subsidies ]

“We need to be cautious in relaxing state-aid rules, Italian prime minister Giorgia Meloni told reporters in Rome on Monday. “We should help companies but we can’t risk weakening the single market – we should guarantee a level playing field.”

Several top EU officials, including the EU’s competition chief Margrethe Vestager, have also cautioned that too much national support for companies could disadvantage member states with less fiscal capacity.

“Any tinkering with state aid rules should be done with utmost care, focusing on the efficiency of processes, simplification and predictability, Mr Dombrovskis said on Wednesday. “If we are not careful, we risk increasing economic and social divergences and regional discrepancies across the union.”

Countries including the Netherlands and Sweden have warned of the risk of fragmentation of the internal market, harmful subsidy races and weaker regional development. – Bloomberg