The European Commission has proposed increasing levels of state aid in order for Europe to compete with the United States as a manufacturing hub for electric vehicles and other green products and to reduce its dependence on China.
The new “Green Deal” was unveiled by European Commission chief Ursula von der Leyen during a press conference on Wednesday (1 February) and seeks to ensure key industries are protected. Stating that manufacturing of technologies such as wind turbines, solar panels, and electric vehicles must be ready to supply the necessary technologies to decarbonise the economy.
The EU is currently aiming for climate neutrality by 2050, “We know that in the fight against climate change, most important is the net zero industry,” von der Leyen said during her presentation.
Von der Leyen proposed repurposing existing EU funds in order to achieve faster approvals for green projects, and sealing trade agreements to secure supplies of critical raw materials necessary for the green economy, which the EU is currently heavily reliant on China for.
“Major economies are rightly stepping up investment in net zero industries,” von der Leyen continued “What we are looking at is that we have a global playing field.”
She argued in favour of loosening state aid rules which currently restrict national subsidies, to increase investments in renewable energy or decarbonising industry on a temporary basis, until the end of 2025, while acknowledging that not all EU countries will be able to offer subsidies to the same extent.
In order to ensure a level playing field within the EU, von der Leyen said that member states could draw on about 250 billion euros (£222 billion), much of it remaining from the EU’s post-pandemic recovery fund.
The plan will be discussed at a meeting of EU heads of state and governments in Brussels on 9-10 February. Von der Leyen said it will “shape the legal proposal” for the Net Zero Industry Act, which the commission will look to propose by mid-March, in order to increase the European manufacturing capacity of green technologies.
EU fears being left behind
Signed into law in August 2022, the US IRA looks to reduce inflation across the country through significant investment into climate action.
Many EU leaders raised concerns that these green subsidies could make the United States a leader in green tech at Europe’s expense. The reasoning included fears that the act would encourage companies to relocate, or that US-made imports would begin undercutting EU-made technologies.
Speaking during her keynote speech at the World Economic Forum’s (WEF) annual meeting in Davos on Tuesday (17 January), von der Leyen said that certain elements of the IRA’s design “raised a number of concerns”
“We know that in the next years, the shape of the economy, the net zero economy, and where it is located will be decided. And we want to be an important part of this net-zero industry that we need globally,” she followed.
The Green Deal faces resistance
The plan is expected to face pushback, with some of the initial EU reaction on Wednesday initially quite pessimistic. It will be discussed further in Brussels on 9-10th February.
Some EU members have previously expressed resistance, notably the loosening of state aid rules and the prospect that wealthier countries such as France and Germany would be able to outspend others.
Pushback also came from solar sector industry group SolarPower Europe, which voiced concern about what it called a “lack of focus” on specific technologies in the EU plan.
“Not all net zero technologies are in the same boat – not in terms of strategic importance, or even the impact they’re feeling from the Inflation Reduction Act,” said Dries Acke, SolarPower Europe policy director.
Show me the money
On funding, which has been a key conflict in the run-up to Wednesdays meeting, von der Leyen stressed different options that are on the table.
Longer term, the Commission is proposing to create a European Sovereignty Fund to invest in emerging technologies, but in the short-term options include leveraging existing frameworks, such as REPowerEU, InvestEU and the Innovation fund, she said.
REPowerEU was originally proposed to get rid of fossil fuel imports from Russia, however this “went much faster than we expected”, she added.
But even though von der Leyen called it “additional funding,” the REPowerEU funding was already decided on much earlier and was not originally thought of as a response to the US Inflation Reduction Act.
For now, the EU’s industrial policy funding is expected to come primarily from member states. That is why the commission believes state aid rules that normally restrict national subsidies should be relaxed under a temporary framework.
Asked if this would entail joint borrowing – a major red line for Germany – von der Leyen said that “of course, we have to speak with member states about other financing techniques”.
“This discussion will go along with the summer and I cannot give you a precise timeline now.”
