EU unveils massive package to 'level playing field' with US in green subsidies spat

Green Deal Industrial Plan launched in response to Biden’s Inflation Reduction Act (IRA) aims at keeping key energy transition technology industries in Europe

The European Commission today (Wednesday) unveiled its ‘Green Deal Industrial Plan’ aimed at speeding up the expansion of renewable energy and green technologies – including an easing of state aid rules to enable higher subsidies – in a bid to “level the playing field” with the US.

As part of a ‘Net-Zero Industry Act’, the Commission intends to upgrade the bloc’s regulatory framework for quick deployment, ensuring simplified and fast-track green project permitting, promoting European strategic projects and developing standards to support the scale-up of technologies across the EU.

This will be complemented by a Critical Raw Materials Act to secure access to raw materials or rare earths that are key for some renewable technologies, such as wind turbines or electric vehicles.

As a key second pillar of the plan, the Commission wants to speed up investment and financing for clean tech production in Europe, to avoid an exodus of green industries to other world regions like the US, which is helping manufacturing with generous tax breaks through its Inflation Reduction Act (IRA).

European Commission President Ursula von der Leyen stressed that the EU welcomes the IRA in principle as it is a “must” in the fight against climate change, but is “looking at that we have a level playing field in global competition, as well as a level playing field within the single market”.

To unlock the huge amounts of private financing needed for the green transition, the Commission plans to make it easier for member states to grant aid, and will consult them on what it labels a ‘Temporary State aid Crisis and Transition Framework’ as well as revising exemption regulations to state aid.

The new provisions would be in place until the end of 2025, von der Leyen proposed, and stressed the new rules should be targeted and time limited.

EU member states will be asked to amend state aid rules to facilitate the roll-out of renewables by allowing (among other things) assistance for less mature technologies such as renewable hydrogen without competitive bidding, as long as certain safeguards are in place, and to incentivise investments leading to a significant reduction of emissions by including higher aid ceilings and simplified aid calculations.

Another element would involve supporting investments in the production of strategic equipment necessary for the net-zero transition. The Commission proposes to allow member states to grant support for the production of batteries, solar panels, wind turbines, heat-pumps, electrolysers and carbon capture and storage (CCS).

Von der Leyen still wants to set up a new ‘European sovereignty fund’ by the summer to give incentives to produce in Europe or keep already established industries there. The fund aims at avoiding financially strong countries such as Germany using their deep pockets to grant aid to large-scale investments in strategic sectors that more wobbly countries, mostly in southern Europe, cannot match.

How the fund will be filled sufficiently is still unclear as Germany and other northern European members abhor the possibility of more common EU debt for it.

In a first step, von der Leyen suggested to re-channel some €250bn ($272bn) of existing money into the fund as a “bridging solution” until other instruments are found.

“If you have state aid, the other side of the coin is that there has to be funding at the EU level,” she said, but added “we need a first step of funding now.

“This means we want to leverage the possibilities provided by REPowerEU, by InvestEU, and by the Innovation Fund.”

REPowerEU had initially been proposed to rid the EU of its dependency of Russian energy imports, which has been reached faster than expected, von der Leyen said.

Now, part of those funds could be redirected to Europe’s net zero industries, for example, by enabling countries to use the money from it for tax breaks.

EU member states at a February 9 meeting are to discuss the proposals of the Green Deal Industrial Plan. The Commission will use their input then to shape a more formal proposal to be presented at the European Council in late March.

German economics and climate minister Robert Habeck said the Commision't plan is a very good basis for a discussion with European partners in coming weeks.

"It is in our interst to strengthen the competitiveness and innovative power of our industrial base," Habeck said.

"This is only possible in a united and strong Europe."

To build up a green economy and become climate neutral, faster administrative procedures are needed, as well as better possibilities to support green technologies, the minister stressed.

Germany's large renewable power federation (BEE) said the Net Zero Industry Act now quickly needs to be "filled with life", and demanded even more money than von der Leyen suggested for the industry plan.

"Also in Europe, hundreds of billions of euros are needed for the ecological transformation," Peter said.

"Therefore, in addition to the already planned investments in the Green Deal and the €300bn planned in the REPwerEU programme, the European sovereignty fund must be advanced.

"State aid legislation must also be reformed in order to prevent investments from migrating to third countries."

UPDATES with comment by German climate minister, German renewables federation