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State losing out on investment under new EU subsidy scheme, MEP warns

Germany became first beneficiary of scheme when Brussels approved €902m subsidy for Swedish battery maker

EU competition chief Margrethe Vestager: 'Matching aid is a new feature that we are using"

Colin Gleeson
Fri Jan 19 2024 - 06:00

The Republic faces losing out on investment to bigger EU economies under the bloc’s new subsidy rules, an Irish MEP has warned, after Germany became the first beneficiary of the scheme last week.

The EU introduced a temporary scheme last March to ease strict rules on national subsidies, otherwise known as state aid, to allow countries to match offers of third countries if they would otherwise result in production being lured away from Europe. The European Commission said the scheme was designed “to support measures in sectors which are key to accelerate the green transition and reduce fuel dependencies”.

Ireland opposed the scheme at the time, fearing demands for a response to the benefits offered to the green industries sector by US president Joe Biden’s Inflation Reduction Act would kick off a transatlantic subsidy race, in which smaller countries could not compete.

The European Commission last week announced that the scheme had been used for the first time as it approved a €902 million subsidy for Swedish battery maker Northvolt to build a production site in Heide, Germany. Without the aid, it was said, Northvolt would establish the plant in the US, where support was offered under the Inflation Reduction Act.

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“This measure is the first individual aid being approved to prevent an investment from being diverted away from Europe under the new possibility offered by the Temporary Crisis and Transition Framework since March 2023,” EU competition chief Margrethe Vestager said. “Matching aid is a new feature that we are using. We have it in order to make sure that if companies are offered aid in other jurisdictions then if a member state is willing that they can match the aid in order for the investment to take place in Europe.”

However, MEP for the Midlands Colm Markey (Fine Gael) this week argued that an “EU subsidy race risks undermining the single market and will leave smaller countries like Ireland at a disadvantage”.

“We’re witnessing a transatlantic subsidy race morph into an EU subsidy race and this is particularly concerning for countries like Ireland. The whole idea of the EU single market risks being undermined if bigger countries with financial firepower can take advantage of this scheme while smaller countries like Ireland don’t get a look in. We’ve always advocated for robust EU state aid rules, and for good reason. A level playing field is imperative to ensure that any relaxation of the rules benefits all member states equally and avoids the wasteful use of taxpayers’ money.”

Mr Markey called for a “more centralised subsidy system” that not only promoted EU green manufacturing but also safeguarded the interests of smaller countries.

“The commission recently established a dedicated instrument for the battery value chain amounting to €3 billion,” he said. “Bloc-wide incentives like this are crucial to create a spillover that benefits all EU counties, not just those with deep pockets. Unless we alter our approach multinationals will simply engage in cut-throat competition for the best deal, ultimately serving no one’s interests.”

The commission has said EU countries have until the end of 2025 to set up renewable energy and energy storage schemes and decarbonisation projects to qualify under the easier funding rules.

Colin Gleeson

Colin Gleeson

Colin Gleeson is an Irish Times reporter

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