Written by 5:05 pm EU Investment

EU makes green pitch to rival US subsidy splurge

The EU is preparing to take on President Joe Biden’s showpiece legislation, which has turbocharged green investment in the US, by loosening restrictions on subsidies in Europe and accelerating permits for new projects.

Ursula von der Leyen told chief executives at the World Economic Forum in Davos that Brussels would temporarily water down state aid regulations and pump cash into strategic climate-friendly businesses, as it sought to counter Biden’s $369bn green subsidy package.

“To keep European industry attractive, there is a need to be competitive with offers and incentives that are currently available outside the European Union,” the European Commission president said.

The EU wants to temporarily ease state aid rules to “speed up and simplify” the approval of national subsidies by Brussels, she added. However, some member states worry that the new regime would favour Germany and other big economies to the detriment of those that cannot afford generous subsidies.

Several business leaders expressed scepticism about the EU’s ability to compete with the Inflation Reduction Act’s incentives while EU capitals remain divided over how to respond to Washington’s deluge of subsidies. 

Andrés Gluski, the chief executive of US energy group AES, said in Davos that the EU needed its own version of the IRA, accusing Europe of wanting to “set the States back.” He added: “Finally, the US is doing the right thing.”

BlackRock’s Larry Fink described the IRA as a “transformational bill” that would enable “additional factories” powered by green energy on US soil. Germany’s economy minister Robert Habeck said Europe’s concern was that because of the IRA, “plans for investments in Europe will be sucked away”.

Biden’s new legislation offers tax breaks to US-based green tech and has sparked widespread concerns in the EU that it will lure European companies across the Atlantic, compounding fears over the impact of higher energy prices on Europe’s competitiveness

The commission president downplayed the rivalry with the US, stressing that the two blocs were investing a total of almost €1tn in clean energy.

US Trade Representative Katherine Tai said that “intensive work” to address EU concerns was continuing and that warnings of a trade war were exaggerated. In Brussels, Tai said that the two blocs needed “complementary industrial policies” to reduce dependence on China for green goods.

Von der Leyen stressed that the EU had already teed up huge investments in green technology, including via its €800bn recovery fund and a separate “just transition fund”.

However, the commission will have to persuade member states to back its plan.

Swedish prime minister Ulf Kristersson who represents the rotating presidency of the EU, said on Tuesday in a speech in Strasbourg that low productivity, insufficient spending in research and high energy prices “pose greater risks to European competitiveness than a lack of subsidies to production”. 

Several finance ministers flagged the heavy constraints on EU public finances at a private meeting in Brussels. They also warned that, left unrestrained, public subsidies risked fragmenting the bloc’s single market.

Von der Leyen acknowledged that loosening state aid rules “will only be a limited solution which only a few member states can use”.

The commission plans to also set up a European Sovereignty Fund to help harder-pressed capitals, with a “needs assessment” in the works to gauge how much support will be required.

However, there is no consensus among finance ministers over how such a common fund will be financed, or over its scale, and capitals led by Berlin are opposed to a fresh bout of large-scale EU common borrowing.

“There’s a realisation that money doesn’t come out of thin air,” said one EU diplomat.

Additional reporting from Chris Giles in Davos, Laura Pitel in Berlin and Andy Bounds in Brussels

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