EU scales back US climate law reply to focus on green tech

After initially voicing many concerns about competition – and even threatening to take action within the WTO against US state aid policy – the EU is now turning its attention toward setting real green industrial policy to match the Inflation Reduction Act.
President of the European Commission Ursula von der Leyen | Photo: Handout/AFP/Ritzau Scanpix
President of the European Commission Ursula von der Leyen | Photo: Handout/AFP/Ritzau Scanpix
By Jillian Deutsch, Jorge Valero & Alberto Nardelli, Bloomberg News

Leaders in Europe have dialed down the rhetoric aimed at Washington over its massive green subsidy plan, and instead are focusing on how to improve their own policies to make European companies more competitive with the US and China.

When the European Union’s 27 heads of state and government meet in Brussels on Thursday, they’ll discuss loosening subsidy rules so countries can offer more support to green technology firms as well as ways to create regulatory clarity to entice more domestic investment.

Less than two months ago, French Finance Minister Bruno Le Maire said that with its Inflation Reduction Act, the US was adopting an industrial policy that echoed a Chinese model of doling out subsidies, and some threatened to file a complaint with the World Trade Organization over the law. Tensions have since moderated.

“We will ask our American friends not to discriminate against European countries in the measures they take,” German Chancellor Olaf Scholz told reporters in Brussels on Thursday. “And I am quite confident that we will succeed in this.”

European Commission President Ursula von der Leyen unveiled the Green Deal Industrial Plan last week, which seeks to accelerate the development of the EU’s clean technology sector by relaxing state-aid rules, simplifying regulations and speeding up permits for new projects. The proposal follows the IRA, which includes roughly $500 billion in new spending and tax breaks over a decade to benefit US companies.

US Treasury Secretary Janet Yellen applauded the proposed European effort.

“If Europe takes action to put in place subsidies similar to ours, this is good,” she told reporters in Tennessee on Wednesday. “This is good climate policy, and there’s plenty of business for all of us to be able to benefit from the clean energy transition. So we’re going to work with them.”

The EU’s competition chief, Margrethe Vestager, has proposed loosening state-aid rules, but many member states are concerned that this could create an unlevel playing field.

Vestager herself cautioned that too much national support for companies could disadvantage smaller and poorer countries with less fiscal capacity. Since the rules were relaxed following Russia’s invasion of Ukraine, Germany and France have accounted for more than 70% of state-aid measures that were flagged to the commission. 

The EU is also focusing on easing regulatory red tape by speeding up permitting and the time it takes to get state-aid approved.

“The long permitting processes that we have within the European Union diminishes our competitiveness,” Ebba Busch, Sweden’s deputy prime minister in charge of industry, said in an interview. “We need to find a way to shorten that if we want to increase our competitiveness.” 

Critics have said the commission’s package doesn’t go far enough and that EU-wide funding is needed to help smaller countries. 

The EU’s internal market commissioner, Thierry Breton, wrote in a blog post this month that “we are also continuing to explore additional solutions to make sure to achieve greater common financing at EU level so that all member states have access to necessary financing, catering for their different needs and preserving a level playing field.”

But EU countries have little appetite to put these bigger fights over the EU budget and joint funds on the table right now. The commission’s idea to create a sovereignty fund – a far more contentious idea that will be tied to the EU’s budgetary review – won’t be debated until the summer.

“This is a central topic that we will discuss and where we will also describe a closing of ranks on the question of how we will use our existing opportunities to act together and at the same time how we will ensure that Europe can survive in international competition,” Scholz said. 

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